CBPP report: States, localities need more federal aid to avert deepening budget crisis

As states revisit their spending plans for the 2021 budget year, which began July 1 in most states, they are making deep budget cuts to offset huge revenue shortfalls triggered by COVID-19 and the worst economic downturn since the Great Depression. The initial state and local cuts enacted in spring and early summer caused sizable harm through layoffs, furloughs, and cuts to vital public services. Unless federal policymakers provide a new round of flexible fiscal aid, the harm will only worsen.

With business closures and layoffs sharply reducing state income and sales taxes, we estimate that state shortfalls will total about $555 billion through 2022. That’s a sharper drop than even in the worst three years of the Great Recession and its aftermath of a decade ago, and it doesn’t include the added state and local costs to confront the virus, such as more testing centers and hospital capacity. States must balance their budgets even in recessions, so state policymakers face enormous pressure to fill these shortfalls however they can, including with damaging cuts. Read more