Center for American Progress

RELEASE: CAP Predicts Municipal Budget Shortfalls of More Than $390 billion and Calls for At Least $400 Billion in Direct Assistance to Local Governments
Press Release

RELEASE: CAP Predicts Municipal Budget Shortfalls of More Than $390 billion and Calls for At Least $400 Billion in Direct Assistance to Local Governments

Washington, D.C. — A new analysis from the Center for American Progress calls for an immediate commitment of at least $400 billion in direct federal aid to local governments. The report projects that, collectively, U.S. municipalities will have a budget shortfall in the range of $390 billion dollars to more than $460 billion dollars. Without substantial, immediate, direct aid to local governments, the recession will be deeper and more long lasting and endanger the jobs of some of the 14.5 million local government employees, including first responders, health care workers, and teachers.

While the CARES Act provided about $29 billion for local governments, this aid was inadequate for several reasons, including: the fact that it was only available to municipalities with more than 500,000 residents; the aid was subtracted from the amount going to state governments, which are also facing budget shortfalls; it was restricted from being used for COVID-19-related revenue shortfalls; and was not a sufficient amount to meet budgetary shortcomings.

In order to adequately address the crisis local governments are facing, a future aid package should also address the following issues:

  • Speed of enactment: Aid must be distributed quickly because many localities are required to have balanced budgets for the fiscal year ending on June 30; have laid off more than 800,000 workers last month alone; and may be forced to resort to laying off even more of their employees to meet this requirement. Second, municipalities are preparing their budgets for the upcoming fiscal year—which starts on July 1.
  • The duration of the aid should be determined by economic conditions: Direct aid to localities should be coupled with automatic stabilizers tied to economic conditions that determine when that aid phases down and ends rather than arbitrary calendar dates
  • Safeguards to prevent reductions in state aid to municipalities: The aid provided by the federal government should not be allowed to reduce the amount that state governments otherwise provide to municipalities
  • Borrowing from the Fed does not solve the problem: While the Fed has expanded its short-term lending to municipalities, this was only intended to help municipalities meet short-term liquidity crises. It is not an adequate solution to the long-term fiscal crises municipalities are now experiencing.

“Municipal governments are vital to keeping Americans safe, healthy, and educated, both in times of crisis and during more tranquil times. They are also an important job creator, providing employment to more than 14 million employees” said Alan Cohen, senior fellow at the Center for American Progress. “As one fiscal year ends and another begins during this profound public health and economic crisis, it is essential that they quickly receive the sufficient aid they need to balance their budgets, maintain their workforces, and continue to provide essential services for the duration of the crisis and for years to come and to prevent the recession from becoming even deeper.”

Read: “The Need for Direct Assistance to Local Governments in Response to the Coronavirus” by Alan Cohen and Michael Madowitz

For more information or to speak to an expert, contact Julia Cusick at [email protected].

To find the latest CAP resources on the coronavirus, visit our coronavirus resource page.