New Wall Street Journal Article Illustrates Financial Plight Facing States, Cities

There’s an excellent Wall Street Journal article about the cash crisis facing out states and cities from COVID-19 that’s worth checking out.

The Oct. 28 article details the type of thing the Michigan Municipal League’s SaveMICity initiative has been saying for years – our state’s system for funding out communities is broken and must be fixed or we will have dire consequences when the next recession hits.

Under the headline,  U.S. States Face Biggest Cash Crisis Since the Great Depression, the article doesn’t report on anything that League members don’t already know, but it reminds us of the fights state leagues throughout the nation will have at state level due to budget shortfalls. It also builds the case for federal relief because these state shortfalls will have severe ripple effects.

Here are some key excerpts from the article:

… U.S. states are facing their biggest cash crisis since the Great Depression.

Nationwide, the U.S. state budget shortfall from 2020 through 2022 could amount to about $434 billion, according to data from Moody’s Analytics, the economic analysis arm of Moody’s Corp. The estimates assume no additional fiscal stimulus from Washington, further coronavirus-fueled restrictions on business and travel, and extra costs for Medicaid amid high unemployment.

That’s greater than the 2019 K-12 education budget for every state combined, or more than twice the amount spent that year on state roads and other transportation infrastructure, according to the National Association of State Budget Officers.

Deficits have already prompted tax hikes and cuts to education, corrections and parks. State workers are being laid off and are taking pay cuts, and the retirement benefits for police, firefighters, teachers and other government workers are under more pressure.

Even after rainy day funds are used, Moody’s Analytics projects 46 states coming up short, with Nevada, Louisiana and Florida having the greatest gaps as a percentage of their 2019 budgets. Louisiana said it didn’t expect its shortfall to be as large as Moody’s projected.  

Here’s the part of the Wall Street Journal article specific to Michigan:

… In Michigan, more than 31,000 state workers were furloughed two days per pay period for 10 weeks, while others were temporarily laid off. A spokesman said temporary layoffs have ended and none are currently planned, but that they could be reconsidered if economic fallout worsened.

Earlier this year, Chris Kolb, budget director for the state, calculated that even if he eliminated 12 state departments-including education, environment and treasury-and used up every penny in state reserves, Michigan would still be short $1 billion needed to balance his budget.

Federal coronavirus aid and rainy day funds ultimately helped him balance the budget and cover Covid-related expenses, and some tax revenues were better than initially forecast. But the state is bracing for a shortfall of up to $2 billion for the next fiscal year, since $4 billion in tax revenue that the state anticipated back in January has disappeared.

“We really have uncharted waters in front of us,” Mr. Kolb said this month. “The waves appear to be getting more choppy.”

The article then explains that White House and Democrat leaders are negotiating a new federal stimulus package, but have not reached a final agreement.

Check out the full article here.