State, local governments need billions more in aid to avert 4 million layoffs, Moody’s finds

By Associated Press

But report also says significantly less money is needed than Democrats are seeking

WASHINGTON — A new private sector report is warning anew of continuing damage to the economy if Washington doesn’t deliver several hundred billion dollars in budget relief to states and local governments amid the coronavirus pandemic.

But Wednesday’s report by Moody’s Analytics, a private sector economic research firm, could also help illustrate a path for bipartisan agreement in Congress on next month’s fifth, and possibly final, COVID-19 response bill.

The study warns that doing nothing to address the economic perils of state layoffs and cutbacks could cost 4 million jobs. But it also says that significantly less money is needed than what’s being called for by House Democrats, who passed almost $1 trillion in help for cash-poor states and local governments as part of a sweeping $3.5 trillion rescue package last month.

The Democratic bill combines $500 billion for state governments — as requested by the nation’s governors — and $375 billion for local governments, many of whom were left out of earlier relief efforts. The Moody study says that level of spending — rejected out of hand by Republicans — is likely beyond what’s needed.

“The scope of aid being requested is certainly unprecedented in size and warrants significant scrutiny,” Moody’s says. “For example, the $1 trillion in aid recently approved as part of the house’s HEROES Act would be enough to raise the eyebrows of even the most aggressive advocates of fiscal stimulus.”

Instead, the firm — which is respected by both Democrats and Republicans — says that $500 billion in combined aid state and local aid is needed in total under its baseline scenario, with perhaps $120 billion being sufficient to get states through the 2021 fiscal year that starts next week. But it also warns that failure to act would have terrible economic consequences, adding to unemployment and cutting into gross domestic product.

Doing nothing, the report says, would create a severe economic drag that “could shave as much as 3 full percentage points for real GDP and erase about 4 million jobs.”

The data comes as states grapple with a worsened fiscal picture amid the coronavirus pandemic, and an accompanying deep recession presents governors and state lawmakers with unappealing choices — furloughs, layoffs, higher taxes and cuts to education and other core programs.

The Georgia legislature, for instance, is imposing 11% spending cuts, which means furloughs for state workers of up to 12 days and a $1 billion cut to public school grants.

“Even with additional federal aid, states are still looking at significant spending cuts,” said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Directors. “But if additional aid is provided that states are able to use to address revenue shortfalls, the cuts would be less severe.”…….more here

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