Skip to main content

Sign up for our newsletter.

Quality journalism. Progressive values. Direct to your inbox.

Dear Common Dreams Readers:
Corporations and billionaires have their own media. Shouldn't we? When you “follow the money” that funds our independent journalism, it all leads back to this: people like you. Our supporters are what allows us to produce journalism in the public interest that is beholden only to people, our planet, and the common good. Please support our Mid-Year Campaign so that we always have a newsroom for the people that is funded by the people. Thank you for your support. --Jon Queally, managing editor

Join the small group of generous readers who donate, keeping Common Dreams free for millions of people each year. Without your help, we won’t survive.

A volunteer signals the number of families in a car who need food from the Second Harvest Food Bank of Central Florida during a drive through food distribution event at City of Destiny church. (Photo: Paul Hennessy/SOPA Images/LightRocket via Getty Images)

'Prolonged Recession' Could Be on Horizon as Covid Economic Crisis Leads to State and Local Budget Shortfalls

"We know from the experience of the recovery following the Great Recession just how powerful the economic drag from state and local austerity can be."

Eoin Higgins

With state and local governments are facing fiscal disaster as tax revenues are expected to decline alongside stagnant and lessening economic growth, leading experts on Tuesday warned more financial pain could be on the horizon for working Americans without continued assistance from the federal government or higher taxes on the rich. 

"Time is running short for Congress to act."
—Liz McNichol, Center on Budget and Policy Priorities

"We estimate states alone will see shortfalls of $555 billion in this and the next fiscal year," Center on Budget and Policy Priorities (CBPP) senior fellow Liz McNichol told Common Dreams.

Every state but Vermont is either constitutionally or statutorily required to deliver a balanced budget, making borrowing to make up the difference impossible. That presents further problems with a lack of political will to raise taxes leaving social services cuts the most likely victim of balancing the books. 

"State have to balance their budgets and spending cuts were the first place states looked during the last recession, that means they're going to cut back on education spending and healthcare," explained McNichol. "This will hurt state and local economies and their families and communities."

Reporting from CNBC Tuesday cited data from the Commerce Department as "the latest sign of an unprecedented fiscal crisis gripping virtually every state and threatening basic services including education, healthcare and public safety":

In New York and Nevada, where the coronavirus was raging by March, state Gross Domestic Product plunged 8.2% for the quarter, compared to the national drop of 5%. Other big drops included Michigan at 6.8% and Louisiana at 6.2%. Indeed, no state economy grew during the quarter. The smallest drop was Nebraska at 1.3%.

The consequences of the drops in GDP could be catastrophic, Economic Policy Institute director of research Josh Bivens told Common Dreams

"We think that if the federal government fails to address the coming state and local government shortfalls, it will guarantee a prolonged recession and several years of excess unemployment," said Bivens. "We have noted estimates of the state and local shortfalls between now and the end of 2021 hover around $1 trillion, and if we do nothing to close that gap, we'll end 2021 with roughly 5 million fewer jobs in the US economy than we otherwise would have had."

"We know from the experience of the recovery following the Great Recession just how powerful the economic drag from state and local austerity can be," Bivens added, "in that recovery state and local austerity by itself likely prolonged a full recovery of the national unemployment rate by about four years."

Bivens added that the unprecedented nature of the coronavirus crisis and economic fallout make it unlikely that one can even predict the level of disaster facing governments. 

"Estimates of state and local shortfalls are based on historical experiences during recessions," said Bivens. "But the unique nature of the current recession means that these estimates of the help state and local governments will need are probably significantly too low."

States are already cutting back, according to CNBC, with California and New York in particular slashing billions in social spending from their budgets to manage the revenue shortfalls. 

"The unique nature of the current recession means that these estimates of the help state and local governments will need are probably significantly too low."
—Josh Bivens, Economic Policy Institute

But as National Association of State Budget Officers director of State Fiscal Studies Brian Sigritz told the network, federal aid could defray some of the shortfall. 

"If we do see additional federal aid, it could lessen the need for budget cuts in some of these areas, such as public safety, healthcare, education, transportation," said Sigritz. "Also, additional federal aid would help with the overall rebounding of the national economy."

CBPP's McNichol acknowledged that it was also possible that state's raising taxes on richer residents could help to offset GDP losses with the least harmful effect on the economy. 

"People who have benefitted the most from the current economy have savings they can use to pay higher taxes," she said.

Bottom line, said McNichol, state and federal leaders need to take action to ensure social services survive the crunch.

"Time is running short for Congress to act," McNichol said. "States need fiscal relief to address these budget crises."


Our work is licensed under Creative Commons (CC BY-NC-ND 3.0). Feel free to republish and share widely.

"I'm sure this will be all over the corporate media, right?"
That’s what one longtime Common Dreams reader said yesterday after the newsroom reported on new research showing how corporate price gouging surged to a nearly 70-year high in 2021. While major broadcasters, newspapers, and other outlets continue to carry water for their corporate advertisers when they report on issues like inflation, economic inequality, and the climate emergency, our independence empowers us to provide you stories and perspectives that powerful interests don’t want you to have. But this independence is only possible because of support from readers like you. You make the difference. If our support dries up, so will we. Our crucial Mid-Year Campaign is now underway and we are in emergency mode to make sure we raise the necessary funds so that every day we can bring you the stories that corporate, for-profit outlets ignore and neglect. Please, if you can, support Common Dreams today.

 

Right-Wing Justices Should Be Impeached for Lying Under Oath, Says Ocasio-Cortez

"We have a responsibility to protect our democracy," said the New York Democrat. "That includes holding those in power who violate the law accountable."

Kenny Stancil ·


'Infuriating': Biden Rebuked for Continued Opposition to Supreme Court Expansion

"What does Biden 'agree' with doing?" Mehdi Hasan asked. "What does the leader of this country want to do to stop the increasingly fascistic assault on our democratic institutions and basic rights?"

Kenny Stancil ·


'We Need Action': Biden, Democrats Urged to Protect Abortion Access in Post-Roe US

"The Supreme Court doesn't get the final say on abortion," Sens. Elizabeth Warren and Tina Smith wrote in a new op-ed.

Kenny Stancil ·


Motorist 'Tried to Murder' Abortion Rights Advocates at Iowa Protest, Witnesses Say

Although one witness said the driver went "out of his way" to hit pro-choice protestors in the street, Cedar Rapids police declined to make an arrest.

Kenny Stancil ·


'A Hate Crime': Oslo Pride Parade Canceled After Deadly Shooting at Gay Bar

A 42-year-old gunman has been charged with terrorism following what Norway's prime minister called a "terrible and deeply shocking attack on innocent people."

Kenny Stancil ·

Common Dreams Logo