Challenges And Changes In The New Year

January 25, 2021

By Michael A. Pagano

Director, Government Finance Research Center

At the end of this summer, I will be retiring from my Dean’s position at the University of Illinois Chicago as I complete 41 years in higher education. At the same time, I’ll also be stepping down from my position as director of the Government Finance Research Center after more than three years at the helm, though I do not intend to sever my relationship with the GFRC, as I plan to support the Center as it moves forward to bigger and better things.

Although it will be months before I set aside my formal titles, I thought it was appropriate to use this space now to comment about the GFRC, as it navigates through the post-pandemic fiscal situation under a new administration and what I hope to see as a renewed interest in fiscal federalism.

Not since President Reagan announced a New Federalism when he assumed office in 1981 have we found ourselves as a nation in a political situation that raises the distinct possibility of a major re-thinking of the roles and responsibilities of the levels of government. Both the sovereignty of each state, as clearly articulated in their constitutions, and the 10th Amendment to the US Constitution that identifies the “reserved” powers accorded the states and the people, boldly assert that the federal system of government in the US is rooted in divided and cooperative government.

The need for a Biden Administration to pick up the challenges confronting the nation in the face of both a public health and economic crisis -- which in turn are also wreaking havoc on the fiscal underpinnings of state and local governments – is palpable. The goals and challenges are clear and there is a critical need to reexamine fiscal, political, regulatory and social cooperation with states, cities and other local governments as critical partners in enhancing the welfare of the people.

Beyond that, of course, cities, counties and states will continue to seek out better ways to manage their finances within a constrained decision-making environment that I refer to as their Fiscal Policy Space. The GFRC was founded to understand the complexities of the financial underpinning of the American federal system that consists of over 97,000 units of government, to analyze the contemporary fiscal situation of state and local governments, and to offer an array of solution sets to fiscal challenges recognizing the differences among governments.

It has stepped into this arena, successfully, by convening conferences, supporting research, and publishing blog posts, op-eds, academic articles and policy reports/briefs for nearly three years. A few examples:

The GFRC blog has posted the insights, experiences and analyses of some of the nation’s most creative and brilliant thought-leaders. Since the first contribution was published in April 2019, the GFRC website has posted 43 items authored by more than 36 thought-leaders under the guidance of GFRC’s senior advisors, Katherine Barrett and Richard Greene. The themes ran the gamut from ethics, equity, performance, procurement, audits, and effective leadership to revenue forecasting, analyses of pensions and debt, and the challenges of the new fiscal era that began with the economic shutdown due to COVID-19 in March. The blog post following this one will be written by Shelby Kerns, executive director of the National Association of State Budget Officers, who will offer the highlights of the important Fiscal Survey of the States that NASBO recently released.
The GFRC hosted a conference at the Federal Reserve Bank of Chicago in 2019 that raised and discussed the “Post-Fiscal Crisis/Next Fiscal Crisis”, which at the time included not a word about a pandemic. Since March 2020, little has been written or discussed that cannot be connected to or derived from the economic and public health consequences of COVID-19 on the fiscal health of cities, states, schools and other local governments.
The GFRC supported research and perspectives that have been published in the organs of many major associations, such as the PATimes, Government Finance Review, Planning, the Brookings Institution blog, National League of Cities, as well as research that has been published in academic journals.
GFRC-affiliated faculty and the staff have participated in scores of panels on state and local government finance issues, including more than 20 since the pandemic highlighted the precarious fiscal positions of state and local governments and at the same time underscored the deep racial and economic divisions in society.

The many reports and briefs that the GFRC has prepared include assessments of the cap on state and local tax deductibility; the horrific impact of the pandemic on employment and state/local finances; the ripping of the shroud covering systemic racism with its connections to local finances; the exposure of service industry workers to the coronavirus and to unemployment; the telework revolution; the shift in commuting modes and patterns, among other issues, all of which have informed the work and efforts of the GFRC over the course of the last few years.

“Light is the task where many share the toil,” wrote Homer. With the aid and support of collaborators through the country, and my colleagues at the University of Illinois Chicago, the GFRC will continue to contribute to the field of state and local government finance beyond my retirement – whatever that word will mean for me -- when a new director will be appointed to continue the work.

The work will certainly involve understanding how the Biden Administration employs the fiscal gears of the federal government to align with the fiscal needs of state and local government.

It will be concerned with the so-called “K” economic recovery that appears to leave behind vast swaths of cities and neighborhoods as other sections of the political geography reap the benefits of the rebound.

Of course, through whatever comes to pass, the differential impact of the recovery on state and local finances, as well as state and local service delivery, must be documented and analyzed. There is much in state and local government finance that needs to be better understood so that our analyses can inform and help shape public policies that will enhance the human condition.

The GFRC will continue to identify and address these pressing challenges. It will do so under new leadership.