Cities and states across the country are facing a conundrum: They are desperate for cash because of the ravages of the COVID-19 recession. Rich people are pretty much the only ones who have any, because of both the recession and the yawning inequality that long predated it. But if cities and states raise taxes on the 1 percent, they worry that rich families might simply leave, no longer bound to their offices or their children’s schools. The conundrum is real, and the solution is easy enough: Let the federal government help states and cities circumvent the whole issue.
The pandemic recession has battered local coffers, causing revenue losses of an estimated $155 billion in 2020 and $167 billion in 2021, about 6 percent of local revenue. New York alone is projecting a $59 billion shortfall through 2022. The federal government could easily finance those kinds of deficits by issuing bonds. But doing so is harder for local governments, which generally have to keep their budgets balanced and often have limits on their borrowing. When big recessions hit, and the COVID-19 recession is a huge one, many of them have no choice but to raise revenue or cut services.
The latter is already happening, despite the fact that schools, child-care operators, and health systems need more money, not less. States and localities have laid off 1 million workers and engaged in extensive furloughs. Connecticut’s governor, Ned Lamont, has asked agencies to identify cuts worth at least 10 percent. For Wyoming, the total is 30 percent; the state is dealing with a collapse in income related to oil-and-gas extraction too. “The cuts we’ve talked about here are getting close to the bone,” Wyoming Governor Mark Gordon told reporters earlier this year. “In some cases, we really are talking about the bone.” (The situation in Wyoming, by the way, proves that this is not simply a blue-state problem, as Republicans in the Senate like to claim.)