The Economic State of the States

Economic troubles facing state and local governments have dominated headlines. Local governments are on the frontlines of the crisis we are facing today, and states are grappling with responding in a way that best supports communities.

As calls on the federal government to support states and localities increase, let's take a look at the economic state of the states — and why planners are so critical to response and recovery.

Research released in April by the Center on Budget and Policy Priorities details what amounts to be an alarming picture of anticipated budget shortfalls for states, emphasizing the need for more relief to states and local governments. Projections show that it is possible states could see shortfalls of up to $290 billion in the next fiscal year, which would be the largest on record.

Tax revenues decrease, unemployment rates and public health costs increase, leaving states with a much greater need than what exists in reserves.

State Action

About half of the states have enacted budget legislation in response to COVID-19. Additionally, nearly all states are required to have a balanced budget in place for the next fiscal year by the end of June.

At the same time, many legislatures are dealing with the reality of interrupted sessions and new legislating operations. Some state legislatures shifted to remote participation, but not without navigating existing rules regarding being present in person. These new dynamics combined with an unsettling and uncertain economic outlook are making this budgeting season particularly difficult.

There are a few factors that experts are using to predict which states will face economic challenges more immediately. MultiState Associates shares three factors worth considering:

  • the state's rainy day fund reserves
  • the unemployment rate
  • whether the state has finalized a budget for the current period

Based on these three factors, MultiState Associate's analysis predicts Kentucky, Pennsylvania, Louisiana, Arkansas, Illinois, and New York to be among those with immediate challenges. Even so, it is not possible for states to know the true impact the pandemic will have on their economies, and responses are varied.

Some states are borrowing funds, while others are already looking at hiring freezes, employee pay cuts, or layoffs.

Concerns are mounting around areas that could face budget cuts, such as planned infrastructure and transportation investments.

On the executive branch side, governors are continuing to issue executive orders and forming task forces focusing on economic recovery. They are balancing immediate response needs while looking toward the horizon of recovery, both in terms of public health and the economy.

As such, the National Governor's Association (NGA), in conjunction with the Association of State and Territorial Health Officials (ASTHO), recently released a Roadmap to Recovery. It outlines steps for governors to prioritize public health while beginning to set the foundation for economic recovery.

Planners as Problem Solvers

Planners have a role to play as state legislatures and governors move forward seeking economic relief and ultimately recovery for states and local communities.

If there was ever a time to create new ways of collaborating, engaging, and planning ahead, it is now — and if there were a group of people who have an ability to do so, it would be planners.

Consider the NGA and ASTHO roadmap. The first step listed in this plan to reopen economies is: "Develop a strong and clear communication and public engagement plan." This recommendation is followed by: "build partnerships between public and private sectors to implement the plan." Planners by nature are pursuing these goals in their work.

Raise your voice

So, what now? There's an immediate next step to expand response and begin down the path of recovery. States and local governments need more funding from the federal government.

APA sent a letter to Congress requesting additional federal funding to ensure that states and localities can continue meeting immediate response needs, but also continue to support the plans, projects, and people that will be instrumental in restarting the economy.

We need your help to bolster this message: robust, flexible, and direct funding and infrastructure investment that supports future-focused planning are essential for saving local governments and states from fiscal calamity now and laying the foundation for a durable recovery tomorrow.

Keep Digging In

For more on economic impact, explore APA's COVID-19 resources and watch one of the NPC20 @ Home keynote addresses, On the Frontlines of Pandemic Response and Recovery, available on APA Learn.

Finally, check out these great resources for insights on state responses and budget status:

National Association of State Budget Officers
Summaries of Fiscal Year 2021 Proposed Budgets

Pew Charitable Trusts
States Take Early Steps to Manage COVID-19 Budget Fallout

National Governors Association & Association of State and Territorial Health Officials
Roadmap to Recovery

National Conference of State Legislatures
COVID-19 Fiscal Resources

Top image: The marquee of the Lindenhurst Theater in Portland, Oregon, announces its temporary closing because of COVID-19. Photo by Sararmirk, Wikimedia Commons (CC BY-SA 4.0).

About the Author
Catherine Hinshaw is APA's senior state government affairs associate.

May 6, 2020

By Catherine Hinshaw