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State and Local Government Finances Are Better Than Expected

But governors and mayors say they still need federal assistance

State and local governments’ tax revenues have held up better than expected—one reason Republicans in Congress oppose including more aid to them in a coronavirus relief package. But governors and mayors say they still need help to tide them over until the pandemic is vanquished. “Cities are a huge economic engine. The sooner we’re able to recover, the better off our country is going to be,” Jeff Williams, mayor of Arlington, Texas, said in a Dec. 14 interview.

Last spring, Capital Economics predicted the economic devastation wrought by the coronavirus would mean a plunge in the tax receipts of state and local governments, causing budget shortfalls of $300 billion to $400 billion over two years. But deficits in the year ended June 30 were only about $30 billion above pre-pandemic projections, and deficits in the current year are likely to be in the same range, according to a Dec. 14 report by Capital Economics Senior U.S. Economist Andrew Hunter.