June 16, 2020
Congress is currently debating whether the next pandemic rescue package should include substantial aid for state and local governments. These governments are experiencing massive budget shortfalls as revenues have plummeted due to the pandemic at the same time as demand for pandemic-related services rises.
These shortfalls dwarf the shortfalls they faced in prior downturns, as none match the severity of the current situation. It will take at least $500 billion to make up the budget gap facing state and local governments, and the shortfall could end up being twice this size. Since most of these governments are required to have balanced budgets, they have little choice but to meet shortfalls with cuts and/or tax increases, both of which slow growth.
It has been widely noted that state and local government cutbacks due to budget shortfalls between 2010 and 2012 significantly slowed the recovery from the Great Recession. Without substantial amounts of federal aid, the cutbacks these governments will be forced to make will be considerably larger this time.
One dimension of this fiscal crisis that has not received the attention it deserves is that the state and local government workforce is disproportionately Black. In 2019, 14.0 percent of state and local government workers were Black; that is 2.4 million out of 17.2 million workers. This compares to 11.7 percent of the private sector workforce. All else being equal, the workers who lose their jobs as a result of layoffs in the public sector are 20 percent more likely to be Black than workers who lose their jobs in the private sector.
Black workers face less wage discrimination in the public sector than in the private sector and the jobs are comparatively well paying. An analysis from the Economic Policy Institute found that Black workers’ earnings amounted to only 87.1 percent of white workers’ earnings in the private sector, when controlling for age, education, and other factors. By contrast, in the public sector, Black workers earned 97.8 percent as much as their white counterparts.
If budget shortfalls lead state and local governments to declare bankruptcy, as advocated by Senate Majority Leader Mitch McConnell, this would also likely lead to cuts in the pensions of retired state and local employees. These retirees are even more disproportionately Black than current workers. In the late 1990s, the Black share of state and local employment was roughly 40 percent higher than in the private sector. This means the Black community would be affected to a far greater extent by any pension cuts forced by the budget crisis than the population as a whole.
In short, the effort to use the pandemic to strangle state and local governments should be recognized as a policy that will disproportionately harm Black workers and retirees. If the nation is serious about renewing its commitment to racial equity, forcing state and local governments to make huge budget cuts in the middle of this downturn is a giant step in the wrong direction.