New York needs billions from Washington, no strings attached
May 5, 2020
Washington has responded to the unprecedented economic disruptions brought on by the coronavirus pandemic with extraordinary measures to bolster our nation’s health-care system, keep businesses afloat and support tens of millions of unemployed Americans. Given the vast scope of the public health and economic challenges we face, our federal government must go further. Federal aid for state and local governments that matches the depth of the crisis is urgently needed.
The language of “revenue shortfalls” and “fiscal cliffs” used to describe these challenges may seem distant from the concerns of New Yorkers who are struggling to pay their bills and keep their families safe. Make no mistake: Ensuring that states and local governments get through this crisis is a bread-and-butter issue with immediate and tangible consequences.
Keeping states and municipalities solvent means keeping police, firefighters, teachers and health-care workers on the job; maintaining social services for our most vulnerable residents; and avoiding tax increases that could hurt working families and small businesses, or longer-term deficit borrowing that would impose today’s costs on tomorrow’s taxpayers.
The case for direct, unrestricted federal aid is clear. An assessment of the impact of the pandemic on New York conducted by the Boston Consulting Group for the State Division of the Budget estimates a cumulative loss of $243 billion to the state’s economy over multiple years. The resultant revenue loss to the state stands to trigger significant reductions to schools, hospitals and a broad range of other vital services — cuts that would add to the human and economic damage brought on by COVID-19.
New York is at the epicenter of the pandemic, but the problem is nationwide. States and local governments are seeing sales tax collections shrink, income taxes deferred and diminished, and demand for services growing by leaps and bounds. The National Governors Association has called for $500 billion in direct federal aid for states. The National League of Cities, among others, requests at least $250 billion in flexible funding for local governments. Washington must heed these calls. The amounts are large, but the costs of inaction would be greater.
The Federal Reserve is lending up to $500 billion through the Municipal Liquidity Facility to help eligible state and local governments manage cash flow pressures to continue to serve their communities. The importance of this program in cushioning the economic blows from the pandemic shutdown and providing a much-needed bridge to federal aid cannot be overstated.
In the near term, the program can help eligible municipal borrowers avert the immediate need for draconian actions — like massive layoffs and dramatic cuts in essential services — and can help avoid compounding the economic damage already inflicted. I encourage the Federal Reserve to continue exploring ways to support state and local governments as much as possible, through this initiative and other means at its disposal.
But while the Municipal Liquidity Facility provides crucial temporary relief, more actions are needed to prevent a cascading series of damaging outcomes. Swift provision of direct federal aid is essential to preserve public health and safety services, and to enable state and local governments to achieve the fiscal stability that is vital for our country’s subsequent economic recovery. Federal “revenue sharing” is not a new concept. The case for it is more compelling than ever.
Without federal action, public employee layoffs and severe cuts to services we all rely on will cause hardship and a deeper, more prolonged recession. Lost revenues needed for essential public services must be replaced — and only direct and unrestricted federal aid can alleviate this burden and spare our residents further dire consequences. The strength, security and economic vitality of our communities depend upon wise and vigorous federal action during this crisis.