Report: Weak local economies may slow growth
Local governments’ ongoing budget shortfalls and economic struggles could slow the entire nation’s rise from recession, according to a new report from the Washington-based Economic Policy Institute (EPI). Without additional state and local budget relief, current and future shortfalls will cause millions of job losses and likely contribute to a drawn-out and painful recovery, according to EPI’s policy analyst Ethan Pollack.
State and local governments, most of which are required to balance their budgets, have been forced to do so by either raising taxes or cutting services, according to Pollack’s report. “These actions depress consumer demand, cause job losses (a majority of which will be in the private sector), and in general create a drag on the economy,” Pollack writes in the report.
States face a total $357 billion budget shortfall for the fiscal years 2010 (which began in July) and 2011, while local governments face an additional $80 billion shortfall, according to Pollack. The American Recovery and Reinvestment Act has provided some relief, but its $106 billion in aid to states totals only about 25 percent of the $437 billion state and local shortfall, leaving $331 billion that must be met by spending cuts and tax increases.
“Spending cuts would be particularly harmful to the economy,” Pollack writes. “Not only do they deprive individuals of needed public services like health care, transportation, education and safety, they also fall disproportionately on the backs of low-income individuals, who respond by cutting their spending.” Pollack contends that each dollar of spending reduction by state and local governments results in $1.41 in lost economic activity.
Read Pollack’s entire report.
