Mary: I’m Mary Walden with economist MW, welcoming you to the economic perspective. Today’s program looks at financial falls for state and local governments. Mike, unlike the federal government who can borrow for day to day expenses, most state and local governments can’t. This means most of their spending is directly tied to their tax revenues. Unfortunately, state and local tax revenues have been adversely impacted by the economic recession created by the virus. Will this situation create long-run problems?
Mike: Summary Answer
- State and local governments are a big part of the total economy – accounting for about 11% of spending and 13% of employment
- Most states and localities are looking at large decreases in their tax revenues this year and next as a result of the coronavirus recession
- Granted, the economy is expected to recovery, but total recovery is likely a couple of years off
- So the situation for state and local governments is this:
- Raise taxes -but this takes away from private spending
- Reduce spending, employment, and programs – impact on services?
- Or look to help from other sources – like the federal government and the Federal Reserve
- Federal Reserve has some lending programs for states and locals – but in NC, generally can’t be for operating budgets
- Federal government could have another large stimulus plan for states and locals – but financed by borrowing
- No easy answer
Mary: And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics.