Congress Must Act on Funding for States: Rob Horowitz

Congress Must Act on Funding for States: Rob Horowitz

To avoid the short-circuiting of what is becoming an increasingly tenuous economic recovery, state governments must soon receive substantial additional funding to assist in closing the large budget gaps stemming from the COVID-19 pandemic. Without this funding, the direct lay-offs and other economic consequences of what would be draconian state and local government austerity measures will severely curb any positive economic momentum.

The severe contraction in the United States economy caused by COVID-19 is dramatically reducing revenues in all 50 states, As the Center for American Progress documents, “ The Center on Budget and Policy Priorities estimates that the collective state budget shortfall will be $615 billion from fiscal years 2020 to 2022, while the National League of Cities reckons that cities, towns, and villages are facing a $360 billion budget shortfall over the same time period.”  Contrary to the president's and some other Republican elected officials claims, this problem is not necessarily more pronounced in blue states; it’s across the board. Under the leadership of Republican Governor Mike DeWine, for example, Ohio’s budget gap for fiscal 2021 is an estimated $2.3 billion.

Unlike the federal government, state and local governments must balance their budgets each year and as a result have much more limited fiscal options. Recognizing this hard reality, both the current and former chairs of the Federal Reserve Board are recommending robust federal assistance to state and local governments.  Testifying to the House Financial Services Committee in June, Chairman of the Federal Reserve Jerome Powell said, “It will hold back the economic recovery if [states and localities] continue to lay people off, and if they can continue to cut essential services. And in fact, that's kind of what happened post the global financial crisis.”

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The former chairman of the Federal Reserve, Ben Bernanke echoed Powell in a recent opinion piece published in The New York Times. "To continue to provide services that its citizens need and to avoid severe budget and employment cuts that will drag down the economy, states and localities need more federal help. Providing that help is in everyone’s interest,” wrote Bernanke.  He pointed out that curbs in state and local government spending prevented the federal stimulus that was provided as an answer to the Great Recession of 2008-2009 from having its full intended impact and urged us not to make the same mistake again.

The House legislation that passed back in May contains $500 billion for states and an additional $357 billion for county and local governments in direct aid. The Senate version, which is supposed to be unveiled early this week, may not include direct aid to states. It is likely, however, to be included in the final negotiated package.  The debate will likely be over the total amount of aid--not whether there should be any at all

It is not only substantively essential; it is in everyone including the president’s political self-interest to provide a robust sum-one that solves the severe short-term fiscal difficulties state and local governments face, contributing to the economic recovery, rather than stalling it.  Congress must act and do so soon.

Rob Horowitz is a strategic and communications consultant who provides general consulting, public relations, direct mail services and polling for national and state issue organizations, various non-profits, businesses, and elected officials and candidates. He is an Adjunct Professor of Political Science at the University of Rhode Island.