In just over two months, more than 36 million Americans have filed unemployment claims, creating the worst labor market since the Great Depression.
It’s hard to imagine that it could be worse. But it will be soon if Congress doesn’t act.
Millions more people who are employed by state and local governments across Maine and the United States could be getting layoff notices, further burdening already-overwhelmed state unemployment systems and interrupting the delivery of vital services on the local level, such as police, firefighting, schools and public health.
Leadership in the U.S. House of Representatives announced a $3 trillion spending package last week in which roughly a third is aid to state and local governments, targeted to prevent a cascading fiscal catastrophe. But so far, the White House and Republican leadership in the U.S. Senate are openly hostile to the plan that Senate Majority Leader Mitch McConnell calls a “left-wing wish list.”
This is no time for name-calling or taking a wait-and-see attitude. If McConnell’s caucus has an alternative plan, they should produce it quickly. We are only six weeks away from the end of the fiscal year, and without an infusion of federal funds the budget cuts will be unavoidable.
State revenue is particularly threatened by the decline in economic activity brought on by the coronavirus pandemic. We don’t know yet by how much Maine will fall short of budgeted income, but we know that it will fall short. In addition to the lost income of the 150,000 people out of work, there are also losses on the stock market that lower taxable income, as well as a crash in sales-tax-generating consumer spending. Meals and lodging tax collections have been all but wiped out during the crisis, and even the expected tax on recreational marijuana has gone uncollected as the state’s rollout of legal sales has had to be postponed.
That spills down to the local level, as cities, towns and school districts prepare for a budget that’s supposed to start on July 1. If the state of Maine is forced to balance its budget by cutting general purpose aid to education (always the biggest line item) or reducing revenue sharing dispersals, local budgets will have to be balanced on the backs of property tax payers, who include families and businesses that have lost income in this crisis.
And the problem is compounded in service center communities, where demand for help is increasing just as revenue sources dry up.
State and local governments did not overspend their way into this crisis. This revenue collapse was unpredictable, and at least on their level of government, unavoidable. States and municipalities cannot run deficits, so they have to make cuts when revenues collapse. But the federal government can spend more than it takes in, and in a crisis like this, that is what it should be doing.
Now is not the time to question the size of the hole this would leave in the federal budget, especially not by Republican senators, who just two years ago voted to add $2 trillion to the national debt to pay for tax cuts that mostly benefited the already wealthy.
As Federal Reserve Chairman Jerome Powell warned last week, the U.S. economy could become stuck in a painful multiyear recession if Congress and the White House do not authorize more deficit-funded aid. “Additional fiscal support could be costly but worth it if it helps avoid a long-term economic damage and leaves us with a stronger recovery,” Powell told a meeting at the deficit-hawk Peterson Institute of International Economics.
Leaders in Washington need to slow the spread of this economic crisis so it does not overwhelm government on the local level. And they need to do it quickly.
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