States and cities continue to demand that the federal government provide them more specific aid because of budget shortfalls.
A general concern about budget-gap woes has given way to threats of public-sector layoffs from librarians to police officers.
While any layoffs are concerning, these states should ask why they are in the financial situation they are in. Certainly, tax revenue plummeted due to business closures, but some states and cities entered the coronavirus crisis in a stronger financial position while others were in chaos pre-COVID-19 due to overspending and unfunded retirement liabilities.
Is it fair to demand that Washington (i.e. federal taxpayers) bail them out?
The public health and safety risks of halting public services like emergency responders during a pandemic are clear. Imagine that a home catches on fire, the consequence of a delayed response because the nearest station is shuttered or a smaller staff is busy answering calls elsewhere could be devastating and even deadly.
States and municipalities are making this case and hoping that Congress will send more taxpayer funds their way.
According to the results of a recent survey of more than 2,400 cities from the United States Conference of Mayors and the National League of Cities, nearly nine in 10 cities expect to see a budget shortfall due to COVID-19. A reported 52 percent of cities say budget shortfalls will force cuts with a direct impact on police and public safety.
The Washington Post details some of these layoffs and the arguments in support of more aid. My colleague Charlotte Hayes wrote recently about New York Governor Andrew Cuomo, a big supporter of more state aid, connecting the lack of federal funds to a decline in public services:
“State and local governments fund police and fire departments and teachers and schools. How do you not fund police, fire and schools in the midst of this crisis?”
Meanwhile, Florida Senator Rick Scott called out Cuomo and other states for the situation they are in:
“New York Gov. Andrew Cuomo said it was “irresponsible” and “reckless” not to bail out states like his, a state with two million fewer people than Florida and a budget almost double the size of ours. The opposite is true. It’s irresponsible and reckless to take money from America’s taxpayers and use it to save liberal politicians from the consequences of their poor choices.”
Let’s not forget that states have already received federal stimulus aid. According to The Hill, a stimulus package in mid-March included $1 billion for state governments, President Trump‘s emergency declaration made $50 billion in emergency funding available, and the recent $2.2 trillion CARES Act included another $150 billion for state and local governments to split. In addition, the $480 billion measure to replenish the small business loan program also included $11 billion specifically allocated to states for test supplies, contact tracing efforts, and staffing.
Individuals and businesses are getting federal aid, but states are asking for cash too. Should Washington start to prop up state budgets though, especially when not all of their financial challenges are due to COVID-19 but their own spending priorities?
The temptation for some states has been to use healthy tax revenues and budget surpluses to expand programs and services rather than put the money away for a rainy day.
According to a new Pew analysis, the vast majority of states posted healthy tax revenue gains for July–December 2019, and for the second consecutive year in 2019, every state experienced gains in its economy—the first time in more than 10 years. At least 34 states had rainy day funds and the total balances in at least 28 exceeded pre-recession levels.
A number of states positioned themselves to be in good shape before anyone could have envisioned that COVID-19 would force our nation to shut down, but other states squandered the opportunity. All states need to address rising Medicare spending and unfunded public pensions.
The moral of Aesop’s Fable of the Ant and the Grasshopper couldn’t be more relevant: It is best to prepare for the days of necessity.