If state and local governments continue to struggle, so will America

Opinion by Bill McBride, Matthew Chase, Clarence Anthony, Marc A. Ott, Tim Storey, David Adkins and Tom Cochran


While much of the media and the public remain fixated on the partisan drama unfolding in Washington, DC, over the next coronavirus stimulus package, state and local governments are quietly doing what they do best: working to keep Americans safe, healthy, educated and gainfully employed as much as possible.And while federal leaders have made a difference by approving extraordinary levels of emergency spending, assistance for state and local governments has remained distressingly inadequate.

If we want our nation’s health and economy to recover, state and local governments must be part of the solution.

The HEALS Act introduced in the US Senate on Monday ignores the economic realities in states and localities by not providing much-needed critical aid. Flexibility to use CARES Act funds — funds from an earlier stimulus package — while welcome, will not solve the problems facing states and local governments.

The CARES Act passed in March allocated only a small fraction of what is needed to address unemployment, cancellation of job-creating infrastructure projects, education and health challenges and interruption of local services. The funding made available for state and local governments thus far is insufficient, particularly as areas across the country continue to experience alarming coronavirus case surges that further strain state and local resources. As a nation, we can and must do better, and through negotiation and compromise, our elected representatives can meet the moment and create conditions for a strong recovery.

As the leaders of the associations representing all levels of state, territorial and local government at the national level, we speak for large cities, small towns and vast rural areas. With limited resources even in normal times, there is no question that America’s state and local governments are unsung heroes in this pandemic.

Nearly every category of state and local revenue is experiencing pandemic-related losses. States and localities that rely on income taxes are seeing much lower revenue due to high unemployment. Sales tax income is also declining due to the sharp drop in consumer spending and store closures. Limited travel means less revenue from gasoline taxes for transportation projects.As a result of necessary measures to contain the spread of the coronavirus, states alone are facing up to $500 billion in fiscal shock through fiscal year 2022, according to Moody’s Analytics. For counties, the number comes to $202 billion. And the nation’s 19,000 cities, towns, and villages face a projected $360 billion loss.

Residents understandably expect their states and localities to continue providing the programs and services which they now rely on more than ever. As the economy struggles to recover, any tax increases, the course of action normally taken to balance a budget, would likely only hamper the economic recovery, as taxpayers would have less in their pockets to spend.

State and local governments are bulwarks of the American middle class, providing job security for approximately 15 million workers. However, as a result of this unprecedented crisis, we estimate that more than 1.6 million state and local government jobs have disappeared since March, even as governments spent down their reserves in hopes of avoiding even larger job cuts.

Pandemic-driven job losses are also flooding Medicaid systems as Americans lose employer-provided health care. For the Medicaid programs to meet the needs of millions of Americans, Congress must increase the Federal Medical Assistance Percentages, the federal contributions to state-managed Medicaid programs, through at least September 2021.

Just as health care is inextricably linked to economic recovery from the Covid-19 pandemic, so is the purchasing power of state and local governments. In 2019, their purchases accounted for 11% of gross domestic product. When these activities slow down, it creates significant drag on the nation’s economy. According to the Congressional Budget Office, state and local governments’ purchases of goods and services is expected to fall by $350 billion this year and next.

States provide a climate for business growth and expansion, while local governments and small business owners are working together to safely reopen America’s main streets. These efforts are undermined when the state and local government’s creditworthiness is in doubt, leading to increased borrowing costs and subsequently jeopardizing their ability to accomplish large infrastructure renewal projects that create jobs.

S&P Global recently opined: “We believe that in the wake of the Covid-19 induced recession, a propensity for revenue volatility, weaker rainy day reserves, and elevated fixed costs are leading factors that predict state budgetary distress.”Without significant relief from the federal government, state and local governments will have to take drastic action to balance their budgets, such as slashing education and health care and letting our infrastructure fall into disrepair. That would take money out of the economy at exactly the wrong time, making the recession deeper, delaying the recovery and hurting millions of families.

The numbers speak for themselves: According to Moody’s, every dollar spent supporting state and local government during a recession yields $1.39 in overall benefit to the economy. Using that multiplier, we estimate that $500 billion in state stabilization funds would achieve a $700 billion positive economic impact.

The services Americans depend on, from education to public safety to health care, are the product of cooperation among the federal, state and local governments — but only the federal government has the capacity to deal with fiscal shock on the scale of this one.

As leaders of the National Governors Association, The Council of State Governments, National Conference of State Legislatures, National Association of Counties, National League of Cities, The United States Conference of Mayors and the International City/County Management Association, we are calling on Congress to support our vital institutions of government with direct and robust funding in the next supplemental bill.

If state and local governments continue to struggle, so will America. The federal government should aid states, cities, counties and other local governments in order to protect Americans now and lay the groundwork for the country to thrive again.

The authors are the executive directors of the “Big Seven,” a group of nonpartisan associations representing all levels of state and local government. Bill McBride is the executive director of the National Governors Association (NGA). Matthew Chase is the CEO/executive director of the National Association of Counties (NACo). Clarence Anthony is CEO and executive director of the National League of Cities (NLC). Marc A. Ott is the executive director of the International City/County Management Association (ICMA). Tim Storey is the executive director of the National Conference of State Legislures (NCSL). David Adkins is executive cirector and CEO of The Council of State Governments (CSG). Tom Cochran is the CEO and executive director of The United States Conference of Mayors (USCM).