This week, the US Senate began debate on one of the most consequential bills for local and state governments in modern history. State governments alone are expected to face a $555 billion shortfall due to the direct and indirect impacts of COVID-19 and the resulting economic shutdown. State and local governments have combined to furlough or lay off 1.5 million employees in the past few months, even as health officials face unprecedented strains and schools will need more staff than ever to safely start the upcoming school year.
Whether those employees are rehired affects more than unemployment rates. Their rehiring affects how much spending they can contribute to the economy. It affects the unemployment expenses borne by state and federal governments. Most importantly, it impacts how efficiently and effectively governments can serve their constituents.
It’s certainly true that some of these furloughs and layoffs are agency staff that don’t interact with most citizens. However, layoffs also include educators, police, firefighters, librarians, motor vehicle licensing staff and other employees that citizens rely on to respond to their needs. They also include inspectors and licensors that businesses rely on to meet their own needs in a reasonable time frame. Without these employees, our society, and our economy, will slow down.
Providing a half trillion dollars to state governments isn’t an easy decision, however, especially if taxes are not increased to pay for it. Even before 2020 began, 8% of our federal budget went to pay down existing debt. The federal debt has increased more than 10% in the last six months, and the House’s HEROES bill would boost that increase to more than 20%. In the worst case, growing debt loads can lead to a vicious cycle of increased interest rates. This leads to an economic collapse that can’t be addressed by borrowing.
This push and pull will likely lead to a bill that comes in somewhere between $1 and $2 trillion, providing for some, but not all, of the needs of the states. This means there will be winners and losers, increasing the pressure on everyone to fight for their own constituents.
Ultimately, whether a compromise bill passes may not come down to pragmatic concerns, but a poisoned political atmosphere just before a national election. If either side senses a political advantage to balking and blaming the other side, millions of local and state employees may suffer due to a political experiment, and the air may not clear enough to resolve the impasse until 2021.
For everyone’s sake, let’s hope it doesn’t come to that.
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