The Smartest Thing Congress Could Do to Aid States
Congress’s next Covid stimulus will work better if its support for local governments is tied to economic measures.
States need help until the Covid economy recovers.
Photographer: Spencer Platt/Getty ImagesIt’s great news that the fiscal relief package being debated in Congress includes another round of support for state and local governments. Once again, however, lawmakers are failing to learn lessons of the past by not designing this relief to be more automatically dependent on economic conditions.
All states except Vermont have some sort of balanced budget rule, mandating that they reduce spending or raise taxes in an economic downturn — thereby exacerbating the downturn by constraining demand. Over the past year, for example, state governments have reduced employment by more than 300,000, and local governments (which are partially supported by state governments) by almost 1 million.