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Send $500 Billion to the States Now

Send $500 Billion to the States Now
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By Tuesday, 09 June 2020 08:09 AM Current | Bio | Archive

State and local governments have shed 1.5 million jobs, and will cut more if they don't get immediate aid.

The U.S. economy is leaning over the great abyss — prolonged, intractable unemployment. And the dickering in Congress over aid to the states, ideological posturing from both political parties and partisan positioning by some governors threatens to push the American worker over the edge.

The official unemployment rate stands at 13.3%. However, the actual jobless rate is likely higher than the official estimate indicates, owing to reporting problems imposed by the COVID-19 crisis.

Most visible are lost jobs in restaurants, airlines, non-emergency healthcare and entertainment, but a second wave is unfolding along the supply chain and via multiplier effects throughout the economy. For example, Boeing, GE, Goodyear, and shale-oil producers and their suppliers are girding for several years of depressed demand.

Half of small businesses may be closed permanently, and two in five displaced workers may never return to former jobs. Newspapers are suffocating from lost ad revenue.

Both political parties have been eager to exploit the crisis to stuff their long-term ideological agendas into stimulus packages — such as lopsided rules favoring unions for Democrats and tax breaks often favored by Republicans.

Aid is arriving too late and with too many strings for quick distribution. Means-testing slowed stimulus checks, and onerous bureaucratic conditions forced many small businesses to pass on grants and loans.

Fiddling While Economy Burns

All the bickering and bargaining amounts to fiddling while the economy burns.

The latest is the $500 billion in fiscal assistance requested by state governors. House Democrats painstakingly wasted time drafting a $3 trillion bill that includes spending which the Republican-controlled Senate is highly unlikely to approve and will result in weeks of bicameral wrangling. Senate Majority Leader Mitch McConnell warns no bill gets past the Senate without at least temporary tort reform. President Donald Trump wants aid tied to sanctuary-city policies.

A package will emerge because neither party wants to bear blame for draconian school spending cuts but not before a lot more carnage in the economy.

Earlier relief packages sent $150 billion to the states but most of that was for extraordinary COVID-19 expenses. The recession has cost the states and municipal governments at least $270 billion in lost sales — and income-tax revenues, as well as from excise taxes on theater tickets, hotels and other services.

Municipalities are cutting back on garbage collection and other basic health and safety services. State and local governments have shed about 1.5 million workers — and that's before they finally come to terms with slashing budgets for the second half of this year and next.

Armageddon Looms

State and local governments employ about as many workers as manufacturing and construction combined. To avoid Armageddon, Congress should quickly pass a plain-vanilla $500 billion aid package and let the governors sort it.

Instead, as with the $3 trillion in packages that sent payments to households, small businesses, the airlines and others, Congress and the administration will burden the bill with lots of conditions and politically targeted complexity, the money will arrive too late to save millions of jobs.

The public schools — trying terribly hard to protect students, faculty and staff by relying more on digital learning solutions — simply won't have the cash needed to function effectively.

Some governors have given conservative lawmakers and Trump good cause to stiff them. New York Gov. Andrew Cuomo faced down Trump regarding authority to reopen New York's economy and formed a coalition of Northeastern states but is now calling for an active federal partner in Washington to address his state's financial problems.

California Gov. Gavin Newsom has repeatedly asserted California is a nation-state but now is pleading for federal aid. Like New York, the Golden State can't print money like a national sovereign to ensure a market for new bonds. Neither can it raise taxes without further encouraging middle-class professionals to leave the state.

As for McConnell, it's the pique of indifference to suggest that states and municipalities should look to bankruptcy and higher taxes, and nothing would slow solutions more than a trip through creditor reorganization, litigation and more state taxes.

State and municipal spending amounts to 11% of the economy. Spending cuts, further layoffs and their knock-on effects on everything from sales of autos to apparel would provide a second major blow to the economy as it attempts to climb off the mat in the third quarter.

Peter Morici is an economist and business professor at the University of Maryland, and a national columnist. He tweets @pmorici1

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State and local governments have shed 1.5 million jobs, and will cut more if they don't get immediate aid
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2020-09-09
Tuesday, 09 June 2020 08:09 AM
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