State and Municipal Budget Shortfall Threatens Jobs, Infrastructure

State and municipal budgets are suffering as a result of decreased tax revenues, and increased expenditures related to public health and employee healthcare and unemployment costs. Due to unemployment, income tax revenue is down, while sales tax and gasoline taxes have also decreased. State governments are paying increasing funds to cover residents’ unemployment, as well as covering Medicaid payments and services for low-income residents. The St. Louis Federal Reserve reports that, since February, 1.2 million local government jobs have been lost. And, according to one estimate, states could face a gap of at least $555 billion.

All of this is troubling for economic developers, many of whom are employed by governments. Beyond this profession, state and local government provide middle class jobs for approximately 15 million workers. A survey by the International City/County Management Association indicates that more than half of all respondents were instituting hiring freezes. 

Decreasing budgets will also lead to cutting services. Already, more than 700 cities have abandoned plans to work on roads, buy equipment and upgrade critical infrastructure since the pandemic began, based on a survey by the National League of Cities.  In the short term, deferred maintenance of infrastructure means construction jobs are stalled, impacting local economies; long term, it makes cities less resilient and more vulnerable to disasters. 

Unless federal government assistance is provided, state and local officials will need to dip into emergency funds, raising taxes, continuing to cut costs and, eventually — raising taxes. With unemployment high, and businesses closing, raising taxes could hinder economic recovery by cutting into consumer spending. 

Legislation at the federal level has been proposed that would allocate $5 billion to state and local governments. Proponents argue that money spent now would salvage jobs and services and aid in the recovery. Money spent now would be a bulwark against further decline, in fact, according to Moody's, every dollar spent supporting state and local government during a recession yields $1.39 in overall benefit to the economy.