State and local governments feeling financial effect of Covid-19

foreignpolicynews.org
7 min read
fairly difficult
The Covid-19 pandemic is having a devastating impact across the American economy, from massive layoffs to corporations cutting dividends to small businesses permanently closing their doors. But gettin
g hit especially hard are state and local governments as they have seen a drastic reduction in tax revenues and dramatic climbs in expenditures that they did not anticipate. State and local governments provide services and the infrastructure that millions of Americans rely on. State and local governments not only contribute to the nation's economic growth, but they are also large employers. In 2019 alone, state and local governments contributed 20 percent to the overall growth of the nation's gross domestic product (GDP). As for employment, states such as Missouri and Wyoming employ 13.1 percent and 21 percent of their respective state's workforce.

States and cities have seen a sudden decline in sales tax revenues because consumers have stopped frequenting restaurants, bars, and stores due to fears of the spread of Covid-19. Companies have laid off millions of workers because consumers are not spending the same amounts of money as they did just seven months ago. States and local governments are also spending money for items such as Covid-19 testing kits, medical supplies, more health care workers, and emergency relief efforts as well as more funds than anticipated for unemployment benefits and Medicaid.

These additional expenses just were not in their budgets, and to compound matters even further, many states and local governments are required by their constitutions and laws to submit a balanced budget annually, regardless of the situation. In normal times, states and local governments would have looked to the federal government for help. But these are not normal times. Besides having to confront an invisible foe, Covid-19, the federal government has even suggested that aid may not be coming as hoped. Senate Majority Leader Mitch McConnell, Republican from Kentucky, flat out stated in April that he would rather permit the states to declare bankruptcy than to offer them a bailout. With a severe drop in revenue and much higher than anticipated expenditures, state…
Arthur Guarino
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