Massive Fiscal Relief for Local Governments Is Vital to Keep the Economy Alive

The U.S. economy is built upon the stability of the nation’s counties, towns and cities. Local governments provide an employment backbone for millions of Americans, the infrastructure that keeps local economies thriving and the services that support community connections.

Since the beginning of the Covid-19 pandemic, local governments, particularly America’s counties, have been called into action to lead the public health response. Counties are operating emergency rooms, organizing first responders and utilizing public assets to help mitigate the spread of the virus. Counties are partnering with nonprofits to provide food and hot meals to the elderly, children and the unemployed, while also providing support to small businesses and enhancing broadband access for remote students and workers.

But while local county leaders are protecting the public’s health, our budgets are facing a stress test that could engulf the prosperity of the American economy. County budgets have been hit hard, as leaders deal with increased expenditures related to the virus and decreased revenues as a result of local business closures and slowed consumer spending. For example, Charleston County, South Carolina is estimating that the county of nearly 400,000 residents has already lost $30 million in revenues in this budget cycle and will lose another $40 million in the next because of sales tax shortfalls. The county also expects to continue to spend unbudgeted dollars. Meanwhile, Cameron County, Texas, has lost $9.4 million of revenue in the current budget cycle and is therefore cutting spending across all departments. Knox County, Tennessee. is estimating millions in budget shortfalls and has furloughed workers. And Laramie County, Wyoming has lost significant sales tax revenue, with officials expecting to lose at least five times more in the next budget cycle. The government is in the process of cutting all department budgets by 20%. These are just a few examples.

Recent analysis from the National Association of Counties (NACo) estimates a $202 billion budget impact to county governments through the 2021 federal government fiscal year. The revenue losses alone will reduce local government services and investments, slashing the GDP by an estimated $344 billion.

Overall, local government investments, which include counties, made up 15% of the nation’s economic output in the first quarter of this year. With an economic footprint of that size, spending cuts in local governments result in broader suffering in the nation’s economy.

In a recent NACo survey of county governments, 71% of counties reported cuts or delays in capital investments, including infrastructure and economic development projects. Without federal assistance, these cuts in local services will only worsen and have layered, far-reaching impacts. This is especially true as counties provide many services that are critical to our nation’s recovery, including infrastructure maintenance, public health and hospital services, emergency operations centers, child protective services, police and fire protection, nursing homes, small business assistance and more.

Local government service cuts ultimately pull back dollars that would have been infused in the nation’s economy. When families hurt financially, their contribution to the economy erodes. This decline in consumer spending has been the driving force in the pandemic’s economic damage. The Bureau of Economic Analysis released a review of GDP in the second quarter of 2020 that revealed the largest quarter-to-quarter decrease in GDP on record. The report notes that the state and local government spending decline contributed to the sharp economic drop.

Additionally, local governments have had to furlough or lay off nearly a million employees since February, according to the Bureau of Labor Statistics. More than half of a million of these job losses are unrelated to the education sector, meaning the jobs won’t return as schools reopen. And many temporary job losses are turning permanent. In the most recent jobs analysis, local government jobs show little improvement. While the labor market outlook overall is bleak, local government job loss is a thorn in the national economy’s side that cannot be ignored.

We’ve already experienced significant economic damage to our communities, and the nation must stop the bleeding before it gets worse. Counties need flexible and responsible fiscal support, with reasonable guardrails to ensure that dollars are allocated strictly to COVID-related costs and lost revenue. With the nation’s economic health in a state of uncertainty, flexible state and local government funding could boost county fiscal viability. The time for Congress and the Trump administration to act and provide direct and flexible funding to counties of all sizes. The federal government—and all Americans—need fiscally sound local governments to keep the U.S. economy vibrant.