The first slide of any lecture on fiscal policy makes it clear that we are talking about the federal government. But the fates of state and local (municipal) governments are closely intertwined with their "bigger cousin", and this is has never been clearer as Congress plans for the next fiscal stimulus package. The first CARES Act provided some relief, but it has been far from enough for state and local governments who are at the frontlines of pandemic management. They are looking at steep shortfalls in tax revenues from sources like income tax and sales tax.
State and local governments are a large sector of the economy-- here is a infographic from Govtech Navigator:
Based on this, you can see how this severe hit to state and local governments, resulting in layoffs and cuts in public services, will be a big hit to the economy overall. As this article from CNBC also points out, the budget problem for the "smaller cousins" is even more difficult as they are not allowed to run deficits. After some political rhetoric ("scolding") about debt and deficits by "big cousin" in the past few days, it looks like state and local governments will get the fiscal help they need.
Based on this, you can see how this severe hit to state and local governments, resulting in layoffs and cuts in public services, will be a big hit to the economy overall. As this article from CNBC also points out, the budget problem for the "smaller cousins" is even more difficult as they are not allowed to run deficits. After some political rhetoric ("scolding") about debt and deficits by "big cousin" in the past few days, it looks like state and local governments will get the fiscal help they need.
