On Tuesday, President Donald Trump slammed the door on the possibility of another Covid-19 relief package, announcing that his administration would withdraw from negotiations until after the election. While he’s since followed up with an offer to pass parts of the bill, the development has dire consequences for unemployed workers, struggling small businesses, and state and local governments — which are now staring into a fiscal abyss.
Faced with cratering revenues since the start of the pandemic, states have already cut billions from their public education budgets. More than 200,000 state and local government employees, many of whom are K-12 teachers, lost their jobs in September. Washington state is currently considering eliminating Medicaid coverage for all adult dental care. New Jersey has already halted plans to replace more than 300,000 unsafe lead service lines. At least 65 percent of U.S. cities plan to delay or cancel capital spending to fix roads, upgrade water systems, or make other infrastructure improvements, according to a survey by the National League of Cities.
Unlike the federal government, most states must balance their budgets. That means that their options are limited to begging the federal government, borrowing on Wall Street, and gutting services. Many were banking on further federal aid to avoid even deeper cuts. When California passed its 2021 budget this summer, for example, Gov. Gavin Newsom agreed to restore $11 billion in cuts to housing programs, court services, and public universities if additional federal aid arrived by October 15.
There could be another way to stave off a devastating wave of austerity, according to a new report. Instead of slashing spending on health care or social services, governments could cut back on the money they send to Wall Street. In offering low-interest lending, the Federal Reserve would simply be extending the same benefit to public entities that it already offers to banks and private companies.