Commentary, NC Budget and Tax Center

Federal aid to state and local governments is essential to sustain our recovery

The U.S. Senate is finalizing its proposal for what is likely to be the final federal response to COVID-19 before the November elections. Senate leaders are currently appearing to disregard calls to address the urgent issue facing state and local governments: responding to the need for increased public services and adapting for delivery of quality public services in the COVID-19 context even as state and local revenues collapse.

Leaders from industry, advocates for the well-being of children and families and government officials charged with stewarding public dollars towards collective impact are calling for the next federal package to include at least $500 billion in aid to state and local governments. These dollars, as estimates from the Center on Budget & Policy Priorities suggest, would go some way toward covering anticipated shortfalls in revenue brought on by COVID-19.

The reality though is that the duration and severity of the public health and economic crises will depend on the policy and investment choices made by Congress in this next package. With a bold commitment to well-being and supporting people through the economic harm of COVID-19, Congress can ensure our recovery arrives quickly and that it secures greater well-being for Black, brown and white North Carolinians.

Federal aid to state and local governments has been a critical component of relief packages during times of recession, providing stabilization to budgets that must be balanced each fiscal year and containing the damage of harmful cuts to programs and services that people and communities need to be well and thrive.

While some may view issues related to federal aid to state and local governments as the domain of finance officers and budget wonks, the simple truth is that, without such assistance, our state and local governments will not be able to effectively and equitably respond to the challenges people face in this pandemic.

Without more federal aid to North Carolina and its local governments, experience tells us that many of the people-first policies that we know must be part of the response are at risk of being cut short. It is therefore essential that such aid be a component of the next package alongside addressing the housing, health, hunger and unemployment issues facing Americans.

Here are four ways in which federal aid now can make sure North Carolina contains further harm to people.

  • Maintaining public employment – When state and local leaders aren’t able to apply dollars to public services and are unwilling to raise revenue, cuts to jobs in the public sector are likely. Already in this downturn, job losses in state and local governments nationwide have numbered 1.5 million. North Carolina cut back on state and local government jobs during the last recession and has never returned to the same level of employment (as a share of the state’s population) in the years since.  That means that there are fewer people to deliver services to more people and with more job losses that means fewer dollars circulating in the economy.
  • Continuing the education of the next generation – Education–early childhood, K-12 and public universities and community colleges—represent a significant share of state budgets and in light of the pandemic have urgent needs to address learning in the current context. Yet cuts to school budgets without aid could hamper the ability of schools to safely re-open, provide the support to student’s well-being, and ensure instruction continues across various channels. Evidence from the cuts during Great Recession make clear that the loss of teachers is difficult to replace: before COVID-19 K-12 schools still had 77,000 fewer teachers to educate 2 million more students, for example.
  • Delivering quality, affordable health care – As more people lose income and health care, the need to provide affordable care — particularly in a pandemic — is likely to rise. Unfortunately, past recessions have shown that rising health care costs in state budgets can lead to reductions in the types of services or reach of services without additional federal help. Here again, evidence from the last recession shows that cuts to Medicaid can have a devastating affect on the ability of people to access care and prevent and treat chronic conditions.
  • Sustaining the infrastructure of service delivery in every community – From child care assistance to social services to public health to workplace protections to housing code enforcement, state and local governments deliver a range of services that provide for the well-being of people. When revenue isn’t available, cuts may result and that will result in damaging effects to access to opportunity and well-being.

A federal package that doesn’t include federal aid to state and local governments fails to recognize that a people-first agenda requires investment in the infrastructure that will sustain a people-first response to COVID-19. Without additional support North Carolina’s experience of the COVID-19 downturn is likely to last longer and be more harmful to people and communities and the long-term well-being of our state.

Alexandra Sirota is the Director of the N.C. Budget & Tax Center.

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