The absence of state aid is a huge problem, because state and local governments, unlike the federal gov, are required to balance their budgets. But why? Important question 1/ nytimes.com/2020/12/17/bus…
In general, discussions on this point emphasize the impact of the rules but don't say much about their justification 2/ taxpolicycenter.org/briefing-book/….
My take is that the difference from the federal rules is ultimately driven by the difference in likely permanence of economic shocks. The nation as a whole can be expected to bounce back from a recession, which means that revenue will return 3/
State and local economies, however, are more likely to experience permanent adverse shocks, when, say, a principal industry like coal in WV or minicomputers in MA in the 1980s goes into long-term decline 4/
In the national economy, new industries arise to take declining industries' place. At a state level, the adjustment to adversity may involve workers just moving somewhere else, hence permanent loss of revenue. So less leeway to borrow across a gap 5/
But here's the thing: this time around we know that the pandemic is a temporary shock, which means that state and local government *should* be borrowing to cover part of the temporary fiscal gap 6/
There are rules to prevent this, but there are also ways to circumvent these rules, at least to some extent. Ideally states wouldn't have to do this, bc aid from DC would make it unnecessary. But that's not going to happen, at least unless Dems win big in GA 7/
So isn't there a good case for bending the budget rules to get through the pandemic slump with less austerity than might otherwise be required? Curious to see how experts would react 8/
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