Economists Agree: Aid to Local Governments is Essential to Our National Economic Recovery

Washington, D.C. – For months, top economists from around the country have called on Congress to include direct aid to local governments in the next COVID-19 relief package in order to stave off disastrous long-term economic effects of the pandemic and lift our economy out of the current downturn. These economists have made clear that our national economic recovery depends on strong federal support for our cities, towns and villages:

“States and localities are in desperate need of additional federal intervention before the bulk of the CARES Act funding expires this summer. Budget gaps like the one in New Jersey cannot be closed by austerity alone. Multiply New Jersey’s problems to reflect the experiences of 50 state governments and thousands of local governments and the result, without more help from Congress, could be a significantly worse and protracted recession…To continue to provide services that its citizens need and to avoid severe budget and employment cuts that will drag down the economy, states and localities need more federal help. Providing that help is in everyone’s interest.” –Ben Bernanke, former chairman of the Federal Reserve, July 15, 2020

“Policymakers in Congress and the Federal Reserve responded to this crisis with unprecedented levels of economic support for those affected, but more needs to be done. If Congress fails to act, state and local governments face potentially disastrous budget shortfalls, and the Congressional Budget Office estimates the unemployment rate will likely be more than 11 percent at the end of the year. Congress must pass another economic recovery package before most of the support in the CARES Act expires this summer. Given current projections of economic need, this new bill should provide, at a minimum, continued support for the unemployed, new assistance to states and localities, investments in programs that preserve the employer-employee relationship, and additional aid to stabilize aggregate demand.” –Statement endorsed by more than 150 economic scholars, including Ben Bernanke, Janet Yellen, Heather Boushey, and Cecilia Rouse, June 16, 2020

“It will hold back the economic recovery if [states and localities] continue to lay people off, and if they can continue to cut essential services. And in fact, that’s kind of what happened post the global financial crisis.” –Jerome Powell, Federal Reserve Chairman, June 26, 2020

“Unless cities get an influx of federal dollars to replace lost revenue, a move that remains uncertain in the U.S. Congress, budget cuts, even to programs that would benefit from a redirection of police resources, will happen.” –Michael Belsky, executive director of the Center for Municipal Finance at the University of Chicago, June 25, 2020

“State and local is going to be a huge drag on the economy because they are a sizable share of spending, cannot really run much in the way of deficits, their tax revenue is badly hit and Congress has done little to help so far. So cushioning states and localities could do a lot to support the economy.” –Jonathan Wright, professor of economics at Johns Hopkins University, July 21, 2020

“If lawmakers don’t quickly pass another sizable rescue package that includes help to state and local governments and more income support to the unemployed, then the economy will suffer another downturn – a so-called double-dip. Unemployment will remain in the double digits until well after the pandemic is over.” –Mark Zandi, Chief Economist at Moody’s Analytics, July 24, 2020

“The state and local budget problem, due to the pandemic, is very large, and if substantial federal aid is not coming, it will do serious damage to the economic recovery.” –Timothy Bartik, an economist at the Upjohn Institute, July 1, 2020

“Small localities in particular may lack the capacity and resources to withstand and respond to the extraordinary budgetary challenges ahead. Timely assistance from state government at this critical time can mean the difference between fiscal stability and fiscal emergency.” –Jeff Chapman, director of the state fiscal health project at the Pew Charitable Trusts, July 14, 2020

“States themselves are dealing with a bad situation. It’s time that the federal government needs to step up and provide some help. It feels like the federal government has left out local governments.” –Lucy Dadayan, a senior research associate at the Urban-Brookings Tax Policy Center, July 14, 2020