Read on Twitter
This important piece didn’t garner enough attention when it first came out last week. A thread… https://www.brookings.edu/blog/up-front/2020/12/23/why-is-state-and-local-employment-falling-faster-than-revenues/
Louise Sheiner updates her Sept 2020 revenue forecast with Auerbach et al. to take account of an economy improving faster than CBO projected in July, e.g.
These updates suggest state and local revenue losses (including taxes, fees, and charges) of $350 billion over three years (i.e., $140B in FY20, $110B in FY21, and $100B in FY22 – or 5¼%, 4%, and 3¼%)
This is broadly consistent with @lucydadayan finding that state revenues from major taxes have fallen 5% compared to one year earlier (with a lot of differences across states)
It's also consistent with work from @jeffreyclemens and @stanveuger vs. earlier forecasts based on unemployment
In part, this reflects the extraordinary role of federal aid in propping up personal income and personal consumption https://www.taxpolicycenter.org/taxvox/improving-state-tax-collections-dont-let-congress-hook-covid-19-relief
Some states have also benefited from this recession’s largely sparing taxpayers at the high end of the income distribution https://www.nytimes.com/2020/12/18/upshot/pandemic-surprising-state-revenue.html
Anyway, Louise calculates that states and localities have received ~$280 billion so far in federal aid and will get ~$120 billion more from the latest relief package
Note these estimates depend what you count as state and local aid. Back in March, @richardauxier and I calculated ~$240 billion had been provided so far, mainly through the Coronavirus Relief Fund and an earlier FMAP boost https://www.taxpolicycenter.org/taxvox/congress-must-do-more-help-states-and-localities-respond-covid-19
But the FMAP number depends on how much additional federal Medicaid spending is due to higher enrollments as @BudgetHawks and @USCBO note, e.g.: http://www.crfb.org/blogs/update-covid-related-state-local-aid-will-total-280-billion
On the current bill, @BudgetHawks counts K-12 education, transit, and highways as state and local aid. But public colleges and universities and public hospitals will also get some $ http://www.crfb.org/blogs/whats-final-covid-relief-deal-2020
How much this new $ will help states and localities and the larger economy depends on how fungible it is. In other work, Louise and @wendyedelberg calculate a multiplier halfway between unrestricted aid (= 1.0) and small business funds (=0.40) https://www.brookings.edu/research/what-could-additional-fiscal-policy-do-for-the-economy-in-the-next-three-years/
Some other questions for me are:
1.) How much will state and local spending increase because of COVID and how much of this will be covered by the federal government? @jeffreypclemens and @stanveuger say the feds will cover higher Medicaid costs plus through FY22 but not after
1.) How much will state and local spending increase because of COVID and how much of this will be covered by the federal government? @jeffreypclemens and @stanveuger say the feds will cover higher Medicaid costs plus through FY22 but not after
2.) How much despite an improving overall economy will some states and cities continue to suffer because of their revenue structure (sales tax and fee dependent) and industry mix (arts and entertainment, travel and tourism) https://www.taxpolicycenter.org/taxvox/covid-19-has-turned-much-what-we-thought-we-knew-about-city-finances-upside-down
3.) How will state and local governments’ role as safety net providers and inequalities exacerbated by the COVID crisis affect future budget risk? E.g., my comments here https://www.npr.org/transcripts/950811018
