Federal Covid-19 Aid Aims to Help Cities, States Avoid Cutting Jobs and Services
WASHINGTON—The Biden administration has pitched its $1.9 trillion Covid-19 aid package as a way to forestall what it saw as a major risk to the economic recovery: a prolonged budget squeeze for state and local governments. Republicans say much of the aid isn’t needed, and at least one GOP lawmaker is urging mayors and governors to give some of it back. As part of the package enacted last week, cities, counties and states will get $350 billion to distribute vaccines and cover other pandemic-related costs and to invest in infrastructure, such as expanded broadband access.
Administration officials have said the money will help avoid the same outcome as the previous recession, when years of budget shortfalls forced local governments to cut spending, curtail services and lay off workers, all of which weighed on the recovery. The failure to send enough aid to state and local governments “was a profound error,” Treasury Secretary Janet Yellen said in speech to the National League of Cities last week. Even after the recession ended in 2009, state and local government spending cuts were a drag on the economy for four years, and it took until August 2019 to recover all the jobs lost, according to government data.
Congressional Republicans, who voted unanimously against the relief bill, said the aid was overly generous and would reward some states for fiscal mismanagement. Bolstering their arguments: State revenues haven’t declined as much as initially feared... State and local governments spent or invested $3.1 trillion in 2020, equivalent to 14.7% of gross domestic product, according to Commerce Department data. They employ roughly 13% of U.S. workers, whose spending fuels economic growth and who help deliver essential services.
The pandemic triggered widespread business closures and millions of layoffs, which have weighed on state and local tax revenue, while spending on jobless benefits, healthcare and other social services has risen. State and local governments shed more than 1.6 million jobs last year, mostly in local education, and have only added back about 200,000 of those jobs... Unlike earlier relief packages, which were limited to covering costs related to Covid-19, the latest one permits recipients to use federal aid to offset revenue losses.
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https://www.wsj.com/articles/federal-covid-19-aid-aims-to-help-cities-states-avoid-cutting-jobs-and-services-11616059802 (subscription)
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