With some forecasters predicting states will fall short of revenue predictions by some 20% or more, Governing reports that states are facing a historic challenge as they cope with the novel coronavirus public health emergency.
While conservatives may turn to slashing unessential state programs or looking to see how services can be delivered in cheaper ways, some are talking about the need to shrink spending dramatically in major spending categories such as public employee retirement benefits.
Liberals, meanwhile, see the need for major governmental interventions, like a Marshall Plan for public health, universal health coverage and paid sick leave, as well as other labor protections.
But given the short-term demands of the pandemic and drastic unemployment, Governing says it’s possible that none of this will happen.
For starters, a 20% drop in state revenue won’t mean a 20% drop in state expenditures, because of the federal money flowing through the systems, says Matt Grossmann, director of the Institute for Public Policy and Social Research at Michigan State University. While there’s a tradition of the federal government taking away money after a crisis, some of the money sticks around. The long-term trend is that the federal share of state expenditures continues to increase.
“If you do see a lot of money coming into the states, that will not mean an expansion of government,” he says, “it will mean the cliff comes later.”
A crisis and its associated budget problems constrain the policy spectrum more than it expands it, he says. Historically, when states become more dependent on the federal government, it has meant more convergence toward common policies.
