The COVID-19 pandemic could cost state governments $650 billion over the next three years, according to a new report from the Center on Budget and Policy Priorities.
The forecast, issued Wednesday, is likely to increase pressure on Congress to provide additional aid to states and cities suffering revenue drains from the economic shutdown. How and whether to provide additional aid has become a major dispute in the next round of relief negotiations.
The left-leaning think tank said it revised its projections of state budget shortfalls upward from the $500 billion it estimated just a month ago. The revision was based on gloomier economic forecasts issued by the Congressional Budget Office and Goldman Sachs.
“The new figures … increase the urgency that policymakers enact additional federal fiscal relief and continue it as long as economic conditions warrant,” Michael Leachman, the center’s senior director of state fiscal research, wrote in the new report.
Leachman cited a CBO forecast last week that projected the unemployment rate to average 15 percent in the next six months and decline to only 9.5 percent at the end of 2021.
State shortfalls totaling $650 billion would be “substantially deeper than during the Great Recession” of 2007-2009, Leachman said. And that estimate applies only to state governments, he said, ignoring the fiscal distress of the nation’s cities and towns.
Congress provided $150 billion to states and local governments in a relief package last month. Democrats have pushed hard to up the ante, while Republicans have resisted or sought new conditions on aid.
Governors have suggested they need as much as $500 billion in new federal aid.
Leachman said no more than $65 billion of earlier federal aid could be used to help close state revenue shortfalls. States also collectively have $75 billion in rainy day funds, he said, leaving a net shortfall of $510 billion from the $650 billion estimate.
“Without substantial federal help, they very likely will deeply cut areas such as education and health care, lay off teachers and other workers, and cancel contracts with businesses,” Leachman said in the report. “That would worsen the recession, delay recovery, and hurt families and communities.”
The report also calls for the next round of fiscal relief to come with “triggers” based on economic conditions to determine when aid should be stepped up or phased out.
“A national trigger would ensure that relief measures continue nationwide as long as needed but no longer,” the report said. “Since the recovery may occur at different rates across the country, additional state-specific triggers could provide longer-lasting help in states facing greater challenges after nationwide relief triggers off.”