Harmful State Cuts Loom Without More Federal Aid — Wesley Tharpe

State and local policymakers are waiting as long as they can to impose cuts, partly because they hope that the President and Congress will deliver more aid, and partly so they can get a better sense of the crisis’ magnitude. The economic collapse happened fast and some tax revenue isn’t due yet; most states delayed income tax filing deadlines to at least July 15 (to conform to the federal delay), with others also delaying deadlines for businesses to remit sales tax.

With business closures and layoffs sharply reducing states’ expected income and sales tax revenues, we estimate that state budget shortfalls will total about $615 billion over the current fiscal year (which ends June 30 in most states) and the next two. States must balance their budgets every year, even in recessions, setting the stage for layoffs and punishing cuts to essential services....

Center on Budget and Policy Priorities
Harmful State Cuts Loom Without More Federal Aid
Wesley Tharpe, Deputy Director, State Policy Research

Also at CBPP

Some wrongly argue that federal policymakers should “wait and see” before giving states more fiscal aid to help address their huge, recession-driven revenue shortfalls, in part because they haven’t spent all the aid they’ve received so far. States, however, have good reasons not to spend all of that aid just yet. And, in any case, they’ll need far more to address their extraordinary shortfalls and avoid further layoffs and other cuts that would hamper an economic recovery.

Business closures and lost income and jobs — including some 1.5 million furloughs and layoffs of state and local workers — have severely shrunk states’ sales and income tax revenues. All 39 states (plus the District of Columbia and Puerto Rico) that have released new revenue projections are reporting shortfalls, generally very large ones. Nationwide, we estimate, these shortfalls total about $615 billion over the next three fiscal years, not including the added costs of fighting COVID-19.

The federal aid to states thus far includes only about $70 billion to address these revenue losses. That’s far too little to help states avoid layoffs and impose school funding and other cuts that would harm families and communities while making the recession worse and delaying a recovery. States undoubtedly will spend all of that aid and still fall far short of meeting needs....

Good Reasons Why States Haven’t Yet Spent All Coronavirus Relief Funds
Michael Leachman | Vice President for State Fiscal Policy at CBPP