COVID’s Fiscal Effects and Policy Possibilities

The COVID-19 pandemic has had unprecedented economic, health, and social impacts. As society writ large has been effected, so too have state and local governments. The fiscal effects of the COVID crisis have materialized in revenue shortfalls and increased need for vital public services. The crisis has also exposed the consequences of years of deferred maintenance on existing infrastructure and facilities and underinvested in an array of programs and services. The site houses the GFRC’s work concerning the fiscal impact and policy possibilities in the COVID era.

Strategic Thinking: State Fiscal Policy Possibilities in the COVID-19 Era

The COVID-19 pandemic has revealed not only the challenges in states’ and local governments’ fiscal architecture (meaning the fiscal levers that generate resources to provide public services), but it has laid bare the inequities and disparities of society and of neighborhoods. The unprecedented response of the federal government in authorizing trillions of dollars in spending for new and existing relief programs demonstrates the breadth and depth of needs, displacement, and the fragility of the business and government sectors. Previous recessions provoked a federal government response in the form of business bailouts and support of state and local governments at a level much below the response to the COIVD crisis. The magnitude of the pandemic’s impact creates the need to explore options beyond the typical, incremental adjustments that public policies tend to promote. Standard responses, such as bank bailouts and unemployment benefit may need to be supplemented with policy ideas that have not been considered as part of the typical arsenal of policy responses.

This project, supported by the Joyce Foundation, brings together a set of scholars to explore innovative, non-incremental policy ideas around three themes (fiscal aid, state banking, and infrastructure programs) that they might not have seemed viable in normal times. Together the three areas examined could set the fiscal stage for the next generation and beyond.

See other COVID related projects by the GFRC

The COVID-19 pandemic has had unprecedented health, economic and fiscal consequences. State and local governments are facing significant budget gaps because of sharp revenue declines and increased spending demands. To address the crisis, Congress passed a series of stimulus bills in March 2020, the largest being the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act.

While the CARES Act mainly provided relief for individuals and businesses, it also set aside money to cover state and local governments’ unexpected COVID-19 related expenses. As we highlight in this report, changing guidelines from the Treasury Department have led to confusion and spending delays.

Governing magazine published a co-authored piece from Amanda Kass, associate director of the Government Finance Research Center, that addresses the need for more federal aid to state and local governments. The article debunks the myths purported by some officials that local governments aren’t using federal funds and that there is no need for more aid.

An article from Michael Pagano was published in APA’s November 2020 issue of Planning Magazine. Pagano explains that, although states and municipalities have been hurt by the pandemic, local planners have an opportunity to rethink critical government processes.

Michael A. Pagano, director of GFRC, and Christiana McFarland, director of research at the National League of Cities, present data on the state and local fiscal implications of the COVID-19 pandemic. Although they find that cities and states had been building up their reserves for the proverbial rainy day, the magnitude of the economic crisis will overwhelm those funds, requiring them to seek other options. They argue that the time for proposing policies at the margins is over, that non-incremental policies must be considered to address the current crisis and anticipate future challenges.

Michael A. Pagano, director of GFRC, and Christiana McFarland, director of research at the National League of Cities, analyze whether cities are prepared for the major loss of revenue streams from the coronavirus crisis. Pagano and McFarland assess General Fund ending balances to understand the fiscal position of cities.

Amanda Kass examines if recovery funds can really allow state and local governments to “build back better” in this article for “Notes on the Crisis”.