Slashing state budgets impacts families of color, extends recession – Business Insider – Business Insider

  • Paul Constant is a writer at Civic Ventures, a cofounder of the Seattle Review of Books, and a frequent cohost of the “Pitchfork Economics” podcast with Nick Hanauer and David Goldstein.
  • Last week, the Trump administration celebrated the addition of two million jobs, but there’s an unfolding jobs crisis in state and local government.
  • Constant writes that cutbacks at the state and local level could create a destructive cycle that extends the recession — which is exactly what happened in 2008.
  • Instead of cutting safety nets, Trump should direct a stimulus package to cities and states.
  • Visit Business Insider’s homepage for more stories.

When unemployment numbers exceeded expectations last Friday, the Trump administration wasted no time in rolling out the metaphorical mission accomplished banner. President Trump himself declared the addition of two million jobs to be “the greatest comeback in American history.” While it is undeniably good news that two million Americans went back to work in April, anyone who reads beyond the headlines knows that those gains reflected the early reopening of some states that are now facing a second wave of coronavirus infections, and the administration’s celebration ignored the tens of millions of Americans who have lost their jobs since the coronavirus pandemic began.

And the tone-deaf premature celebration ignores another huge jobs crisis that’s unfolding in slow motion around the country: the loss of state and local government jobs to budget cuts. Over half a million state and local government employees lost their jobs in May, according to the Bureau of Labor Statistics, and one million more were laid off in April. 

Still more job losses are sure to follow. State and local governments are trapped in a negative feedback loop. The coronavirus shutdown effectively killed revenue from sales taxes and other income for government services, which blew a hole in state and city budgets. Lawmakers in city halls and state houses around the country are responding to those lowered income levels by laying off or furloughing employees. Of course, those laid-off employees then have to cut back on spending, which causes the economy to contract even further, thereby decreasing revenue for state and local governments. 

If cutbacks at the state and local level continue, we’ll be stuck in a destructive cycle that could extend the recession for months, even years. How do I know that? Because it’s exactly what happened in the Great Recession of 2008. Pew Reports found that states which embraced austerity and cuts in the Great Recession saw slower recoveries and fell behind their peers in what Pew characterized as a “Lost Decade.” Many states hadn’t made up the losses their budgets suffered by the time the pandemic hit American shores, and now they’re preparing to cut their budgets again.

We are just now beginning to see what austerity in the time of coronavirus might look like. Earlier this year, the Office of Financial Management in my home state of Washington directed all state agencies to file reports suggesting where they might cut 15% of their budgets. This week, those reports were published online. 

These proposed budgets paint a grim picture of Washington’s future. Education agencies propose cutting financial assistance for 11,000 low-income students seeking higher education. The state Department of Health proposes ending a program that tests school water supplies for lead, and another health program that collects information about student head injuries would be slashed. Washington State Attorney General Bob Ferguson warns that a 15% budget cut would “result in children remaining in the foster care system longer, consumers compromised at possibly the worst moment in our lifetimes, and weakened environmental enforcement.” Nearly every agency proposes significant staff cuts, from food safety supervisors to social services employees who help connect struggling Washingtonians to food, clothing, and shelter. But this isn’t just a Washington problem — no matter which state you live in, agencies near you are likely preparing documents like this as they brace for a wide array of budget cuts and austerity.

Obviously, this is a moral outrage. It’s ridiculous for states to cut access to assistance at a moment in history when more Americans are desperate for assistance than ever. Making it harder for people to access educational and small business opportunities right now will have disastrous effects for decades to come. Cutting the safety net just at the moment that people are plunging downward is unspeakably cruel. These cuts — particularly to financial aid and safety net services — will also have a grossly unbalanced impact on Black and Latinx families and other communities of color, who have already borne the brunt of both the pandemic and its resulting economic crisis.

But it also makes no economic sense for state and local governments to slash budgets right now. Tax cuts for the wealthy, deregulation for the powerful, and throttling of state investments don’t pull economies out of recessions. It’s consumer demand — as many people as possible spending money in their communities and investing into their future by creating businesses and going back to school — that turns economies around.

The role of all government in times of recession should be to ensure that as many people as possible can participate in the economy as broadly as possible. Cutting budgets, laying off employees, and making it harder for people to invest in their economic futures is exactly the wrong thing to do. 

If Trump and his economic advisers were truly in search of the “Great American Comeback” they were bragging about, they’d direct a brand-new stimulus package to America’s states and cities, with a charge to keep as many Americans working and investing in local economies as possible. It’s painfully clear that’s not coming, at least any time soon. So it’s up to states and local governments to find new ways to avoid making the mistakes of the past.

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