The Covid-19 pandemic has wreaked havoc on state government finances, with the slowdown in economic activity eroding tax collections and creating massive budget gaps. In Louisiana alone, revenue projections fell by $1 billion between January and May, forcing the Legislature to patch together this year’s budget with temporary federal grants. As lawmakers embark on a special session next week, many will be tempted to cut spending on services like education and health care. But Jeremy Mohler of the Public Interest, writing in Route Fifty, says that’s the wrong approach: cutting state spending can slow economic recovery; states should instead look to raise new revenues.
The Great Recession provides important lessons about spending cuts. A 2012 Center for American Progress study found that states that cut spending fared worse economically than those that increased spending. In the wake of that financial crisis, almost a quarter of the local public health workforce was let go, funding for K-12 education remained well below 2008 levels in many states and the labor market took more than six years to recover its earlier employment levels.
Struggling to eat and pay the rent
The U.S. Census Bureau has been tracking the real-time economic effects of the Covid-19 pandemic through its weekly Household Pulse Survey, and the latest figures are sobering. They show that 23 million American adults live in households that did not get enough to eat, and that 1 in 4 renters in households with children were behind on their rent in early September. The Center on Budget and Policy Priorities says the lesson is clear:
These data underscore the urgent need for federal policymakers to agree on further robust relief measures. The measures enacted earlier this year — such as expanded unemployment benefits and stimulus payments — mitigated hardship but were temporary and had significant shortcomings. Without a new relief package, hardship likely will rise and grow more severe, endangering children’s long-term health and educational outcomes.
Covid-19 restrictions “saved lives” White House advisor says
The economic restrictions ordered by Gov. John Bel Edwards in response to the Covid-19 pandemic – which has hit Louisiana harder than any other state – were effective in reducing the number of infections and saving lives. So said Dr. Deborah Birx, the head of the White House Coronavirus Task Force who visited LSU on Wednesday. Her comments come as the Legislature has called a special session where members will seek to curb the governor’s executive authority. JC Canicosa of the Illuminator has more:
Edwards said Birx’s comments should be “helpful” as the Legislature moves into next week’s special session. In a press release announcing the special session that lawmakers themselves, House Speaker Clay Schexnayder, R-Gonzales, said, “A significant number of House members have also asked to address the continued proclamations issued by the Governor during the pandemic and what many see as an imbalance of power. This special session will not end without a resolution to this problem.”
Hurricane and pandemic threatens local finances
Louisiana’s rural towns and parishes weren’t in great economic shape before the Covid-19 pandemic, and the economic contraction that started in mid-March has only made things worse. The state Legislative Auditor recently reported that 700 municipalities have asked for extra time to complete their annual audits, more than 10 times the usual number. The Nola.com | Baton Rouge Advocate editorial board notes that the financial problems of small towns are now spilling over into larger cities, which will continue to suffer economically for the foreseeable future.
The economic front is not promising right now: Louisiana’s gross domestic product, a measurement of economic activity, has plunged 6.2%, according to the U.S. Commerce Department. Hospitality businesses, which fuel a lot of this state’s economy, declined 26.8% as part of the COVID-19 pandemic that brought the national economy to a standstill, the Commerce Department calculated. The issue of hotel employment collapsing is particularly damaging in metro New Orleans, a world attraction for tourism. But we love our nightlife everywhere in Louisiana and our food.
Number of the Day
35.7% – Increase in personal income in Louisiana during the second quarter (April-June) of 2020, compared to the previous three months. The increase is due to the influx of pandemic-relief funding, which more than offset a decrease in earnings from coronavirus. (Source: Bureau of Economic Analysis).