The nation's state and local governments have been hit the hardest during the 2020 coronavirus pandemic than any other time over the last 70 years and now The Wall Street Journal reports the economic downturn could be even worse next year.
Governments went into the downturn with fat reserve funds and have benefited from federal aid. Barring a quick economic recovery or another round of stimulus, state and local officials could have to make more cuts.
The U.S. Department of Labor reported that in May, the public-sector employment plummeted, with fewer people working for state and local governments than at any point since 2001.
"Moody’s Analytics estimates state and local governments faced a $70 billion to $74 billion shortfall in the 2020 fiscal year. That could balloon to $268 billion in 2021 and $312 billion in 2022 absent more federal help. Unlike the U.S. government, almost all state and local governments are required to balance their budgets every year," the Journal reported Sunday.
“All those sorts of things that are important to how we function in our daily lives are things that we may not be able to address,” said Kansas City Mayor Quinton Lucas. And Kansas City is representative of many cities and state legislatures throughout the nation.
According to the article, Kansas City officials cut department budgets by 4.5 percent in August, except for police and fire, which faced a 2.25 percent reduction. The city also laid off 13 employees, froze hiring and temporarily furloughed managers.
Dan White, director of fiscal-policy research at Moody’s Analytics, said it could take four to eight years for the national economy to recover from the pandemic. State and local governments could take up to 10 or 15 years, he said.
“State and local governments provide essential services,” Federal Reserve Chairman Jerome Powell told lawmakers in June. “It will hold back the economic recovery if they continue to lay people off and if they continue to cut essential services.”
“I doubt that you will ever see the same post-COVID number of employees in Kansas City that you saw pre-COVID,” Lucas said.