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State And Local Governments In The Post Covid Recovery

Leo Migdal
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state and local governments in the post covid recovery

Alcohol and Tobacco Tax and Trade Bureau (TTB) Financial Crimes Enforcement Network (FinCEN) Office of the Comptroller of the Currency (OCC) Treasury Inspector General for Tax Administration (TIGTA) Special Inspector General for Pandemic Recovery (SIGPR) Economic crises bring questions about the design and implications of fiscal systems to the forefront.

In the United States, state and local governments employ roughly one in seven workers and spend an amount equivalent to one-fifth of GDP. Because many of these entities operate with balanced budget requirements, downturns create pressure because declines in revenue coincide with a rise in demand for public services. These pressures come with some urgency, as state and local governments play roles in the administration and financing of safety net programs, the delivery of public health services, and the provision of public transit... At the outset of the COVID-19 pandemic, concerns over the budgetary health and service performance of state and local governments were top of federal policymakers’ minds. This was driven in part by the experience of the Great Recession, after which the state and local public sectors were widely perceived as a drag on the broader economy. In an effort to avoid a repeat of this, federal policymakers legislated close to $1 trillion in fiscal assistance to state and local governments, substantially exceeding the roughly $225 billion in fiscal assistance appropriated...

Three distinct sets of questions relate to the design of federal fiscal assistance. One involves the design of formulas through which the assistance is delivered. Another addresses the macroeconomic impacts of federal fiscal assistance, an issue on which research blossomed following the Great Recession. A third set relates to the core functions of state and local governments: how was fiscal assistance deployed and what impacts did it have on outcomes under the purview of public health officials, safety... At the pandemic’s outset, Stan Veuger and I projected the potential effects of the pandemic on the revenues of state and local governments, as did a number of independent research teams.1 An objective of... We illustrated how the Congressional Budget Office’s (CBO’s) early-pandemic forecasts for personal income and personal consumption expenditures could be used as forecasts of the evolution of state and local tax bases.

Multiplied by historical estimates of the elasticity of revenues with respect to fluctuations in tax bases, CBO’s forecasts of declines in economic activity could be translated into forecasts of revenue shortfalls. As Veuger and I explained later, two lessons emerged from our analysis.2 First, in a predictive sense, revenue forecasts tended to perform better when they relied on close rather than distant proxies for state... At the COVID-19 pandemic’s onset, forecasts that relied on the historical relationship between revenues and states’ unemployment rates produced relatively inaccurate predictions. This is illustrated in Figure 1, which shows one set of projections, by Timothy Bartik of the Upjohn Institute,3 that relied on forecasts of the unemployment rate, and another, by Veuger and me, that... Because realized revenues would ultimately — and, to be clear, surprisingly — exceed prepandemic forecasts, larger shortfall forecasts were less accurate than smaller shortfall forecasts.4 Forecasts that relied on disaggregated consumption and income data... Predictions based on forecasts of disaggregated consumption data thus performed better than predictions based on forecasts of aggregate data.

Happy Third Anniversary to the American Rescue Plan 🎉 🎉 🎉 For this occasion we analyzed the important role state, local, and Tribal governments play in the U.S. economy and compared the dramatic differences in their recoveries in the years following the COVID recession compared to the years after the Global Financial Crisis. We find that: *State and local governments are important to the national economy, constituting almost 15 percent of GDP and employing over 20 million people. *State and local governments faced acute expenditure needs in the wake of the pandemic. State and local spending on unemployment insurance, other public assistance, and health and hospitals rose to $230 billion above trend in 2021. *After the GFC, state and local budget cuts were a severe drag on the local economy for years.

The American Rescue Plan’s focus on state and local governments avoided that pitfall. Employment in state and local governments recovered almost three times faster than after the GFC, and the state and local government sector were contributing positively to economic growth within just 10 quarters after the... *The recovery from the COVID recession was especially geographically inclusive. In 387 out of 389 Metropolitan Statistical Areas (MSAs), the unemployment rate today is lower than the median rate over the past 30 years. And those MSAs that typically face higher unemployment have seen bigger improvements. *State, local, and Tribal governments are using support from the American Rescue Plan in innovative ways to grow their economies, create jobs, and make their communities stronger and more resilient.

The investments that originally helped governments respond to and recover from the pandemic are also setting their economies up for long-run success by investing in the workforce and disadvantaged communities, as is consistent with... Full analysis here: https://lnkd.in/e5DVt7M2 Happy Third Anniversity to the American Rescue Plan indeed! And thank you to you and your team at the Treasury for drilling into why it was a success. Let's hope we can learn from this success going forward. When you keep Americans working, in public sector and private sector, it keeps America running.

Thank you! State and local governments accumulated $1.3 trillion in excess savings during the pandemic recession and subsequent recovery, from first quarter 2020 to second quarter 2023. Much of this excess is due to large federal transfers and high tax receipts relative to prepandemic trends. While excess household savings have been credited with helping support U.S. economic resiliency throughout 2023, households were not alone in amassing excess savings after the pandemic. The existence of large sums in state and local government coffers runs counter to historic post-recession trends.

State and local governments usually grapple with budget shortfalls due to rising social program demands and weak revenue streams following recessions. Spending deadlines, along with requirements about how the funds should be used, accompanied most federal pandemic relief funds distributed to state and local governments. Additionally, many state and local governments face political pressure to pass accumulated non-pandemic relief funds along to households via transfers or tax cuts, for example. These factors may lead to sizeable drawdowns in state and local government excess savings over the next few years. Chart 1 summarizes the contributing factors to the excess savings accumulation. The left panel shows state and local government receipts; the right panel shows expenditures.

Dashed lines provide reference trend lines based on the average growth rate during the 20 quarters before the 2020 recession. These lines provide context for how funding and expenditures grew beginning in the first quarter of 2020. We compute state and local government excess savings by comparing realized outcomes to these prepandemic trends. Excess savings equals excess revenue minus excess expenditure. Excess revenue is the sum of realized state and local government receipts differences relative to prerecession trends from the first quarter of 2020 to the second quarter of 2023. Excess expenditure is defined similarly.

In March 2021, Congress passed the $1.9 trillion American Rescue Plan Act (ARPA). ARPA delivered resources to mount a public health response to COVID-19; directed economic relief to workers, families, and small businesses; and provided fiscal aid to state, local, and tribal governments through the $350 billion... For local governments, which received $130 billion, the SLFRF program provided an unprecedented amount of funding alongside considerable flexibility to address both the acute effects of the COVID-19 crisis and the long-standing local challenges... The Department of the Treasury set deadlines for SLFRF dollars to be obligated by December 31, 2024 and spent by December 31, 2026. To mark ARPA’s two-year anniversary, this report examines how local governments utilized the SLFRF program to spur an equitable economic recovery. Over the past two years, our organizations—Brookings Metro, Accelerator For America (AFA), and the National Association of Counties (NACo)—have been tracking ARPA implementation and working with local leaders in cities and counties across the...

These on-the-ground engagements yielded considerable insights on how local governments navigated the complexities of ARPA implementation. Building on those applied projects, in early 2023, we conducted in-depth interviews with local decisionmakers in 17 cities and counties to explore how they engaged community stakeholders, established recovery priorities, developed strategic investments, and... Three major findings emerged from this research, each corresponding to a key phase of ARPA planning and implementation within local governments: Finally, with the ARPA expenditure deadline looming, local leaders are focused on the long-term implications of SLFRF investments for their communities. This multidimensional challenge requires local leaders to sustain ARPA funding impact through a mix of strategic initiatives, existing and new complementary funding, greater cross-jurisdictional collaboration, and new impact-performance metrics. Federal agencies are key partners to local governments in ARPA funding, so enhancing flexible funding and organizing across those agencies could make a difference in ongoing implementation.

Every other week, NACo's County Countdown reviews top federal policy advocacy items with an eye towards counties and the intergovernmental partnership. State Government Employment Trends Post-COVID-19 During the COVID-19 pandemic, state and federal policy sought to stabilize the economy and job market. Today we still see the effects on public employment, where some states have experienced recovery at differing rates. According to the Census Bureau, state and local government employment increased by 2.5 percent from March 2023 to 2024, to a total of 19.9 million employed. Total government employment recovered by 2023 with local (+351,000 jobs) and state government (+273,000) leading the way.

Rates continue to rise. Of the nearly 20 million employed by state or local government, as recorded by the Bureau of Labor Statistics, since March of 2020 local government employment accounted for 72.3 percent of growth, while state... 15.4 million employees were classified as full-time and 4.5 million as part-time. According to US DataLabs, Alaska has had the greatest number of full-time state government employees per population since at least 2007, with 2,780 full-time employees per 100,000 population in 2024. US DataLabs government employment data excludes K-12 education. In March 2021, President Biden signed the American Rescue Plan Act (ARPA) into law, which allocated $350 Million in State and Local Fiscal Recovery Funds (SLFRF) to state, territorial, local and tribal governments across...

to address the impact of the coronavirus outbreak. SLFRF funds were allowed to fund pandemic-related expenditures, premium pay for key personnel, infrastructure investments, and general government services impacted by pandemic-related lost government revenue. Some three years later, state and local governments are now racing against impending deadlines to obligate SLFRF funds by December 31, 2024, and expend all SLFRF funds by December 31, 2026. SLFRF-funded projects run the gamut, from high-priority housing, workforce development, and violence prevention programs1 to long-neglected repair, renovation and relocation of local government offices, water and sewer upgrades, and broadband infrastructure. With these deadlines on the horizon, state and local governments should consider the long-term sustainability of their SLFRF-funded programs and how they can continue to deliver valuable programs and services beyond the end of... Guidehouse is working with states, counties, and cities nationwide to develop effective sustainability frameworks and successfully plan for the post-ARPA environment.

Based on our national expertise, Guidehouse recommends three key considerations to assess future needs and determine long-term sustainability for SLFRF-funded programs, focusing on future policy priority alignment, program efficacy and outcomes, and fiscal impact. How have the needs of our constituents changed since 2020? Competing Interests: The authors have declared that no competing interests exist. Received 2021 Jun 29; Accepted 2021 Oct 29; Collection date 2021. This is an open access article, free of all copyright, and may be freely reproduced, distributed, transmitted, modified, built upon, or otherwise used by anyone for any lawful purpose. The work is made available under the Creative Commons CC0 public domain dedication.

State governments in the U.S. have been facing difficult decisions involving tradeoffs between economic and health-related outcomes during the COVID-19 pandemic. Despite evidence of the effectiveness of government-mandated restrictions mitigating the spread of contagion, these orders are stigmatized due to undesirable economic consequences. This tradeoff resulted in state governments employing mandates at widely different ways. We compare the different policies states implemented during periods of restriction (“lockdown”) and reopening with indicators of COVID-19 spread and consumer card spending at each state during the first “wave” of the pandemic in... between March and August 2020.

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