PUBLISHED WED, APR 22 202010:34 AM - CNBC
State and local governments are warning of a wave of layoffs and pay cuts after getting left out of the federal coronavirus relief package expected to pass Congress this week.
In many places, such as Detroit and Los Angeles, those painful reductions are already taking shape.
State and local governments received aid under the $2.2 trillion CARES Act signed late last month, but they are pleading for new relief as Congress prepares to pass a bill to help small businesses and hospitals.
WASHINGTON — State and local governments are warning of a wave of layoffs and pay cuts after getting left out of the federal coronavirus relief package expected to pass Congress this week.
In many places, those painful reductions are already taking shape:
Los Angeles plans to force city workers to spend 26 days on unpaid leave as revenues are forecast to drop as much as $600 million next fiscal year.
Detroit has proposed laying off 200 workers and furloughing thousands more.
In Ohio’s Hamilton County, Commissioner Denise Driehaus is taking a 10% pay cut alongside county workers.
“We are really struggling,” Driehaus said.
The $2.2 trillion emergency legislation known as the CARES Act, which President Donald Trump signed late last month, included $150 billion in direct help for state and local governments grappling with the impact of the deadly outbreak. Democrats pushed to include another $150 billion in the next tranche of aid, but Republicans sought to keep the bill narrowly focused on support for small business.
By Tuesday night, Democrats yielded on their demand. The Senate passed the legislation by unanimous consent — without additional help for state and local governments. The House is slated to vote Thursday, and Trump is expected to sign it.
Senate Minority Leader Chuck Schumer vowed to revisit the issue in the coming round of negotiations over what could be an even bigger package of relief.
“The people who are on the front lines, they should get extra money, and at the top of the list is a robust state and local plan,” Schumer said. “We’re going to fight for that and many more things” in the next aid bill. It “will soon be upon us because the nation will demand it.”
But local jurisdictions may not be able to wait that long. They’re facing higher expenditures on health care and other services to combat the disease at the same time that revenues are plunging as Americans stay home and businesses remain shuttered. According to the Center on Budget and Policy Priorities, states could be $500 billion in the hole over the next two years.
“The approaching state budget cuts … will cause the U.S. economy to contract further — making the economic downturn deeper and more protracted, causing many more people to lose their jobs, and magnifying the serious hardship we already see,” said Robert Greenstein, the think tank’s president.
Roughly 20 million people work in the public sector at the state and local level, which is more than the number employed in the hard-hit retail industry. The last time the public sector faced such steep budget cuts was during the Great Recession a decade ago. State and local governments shed 627,000 jobs in the three years following the downturn, according to the Economic Policy Institute.
Experts are worried this time could be even worse, but plugging the hole could require a staggering infusion of cash, which the union representing public sector workers readily acknowledges. The American Federation of State, County and Municipal Employees is pushing for at least $700 billion in the next relief package.
“If you were to ask the average American, they are grateful for what these workers are doing,” AFSCME President Lee Saunders said. “Then all of a sudden they get a pink slip? I think the average American would say, ‘Whoa, whoa, whoa. Wait, that’s not right.’”
According to the National Association of Counties, at least 5,000 workers in county governments across the country have been laid off or furloughed. A recent survey by the National League of Cities and the U.S. Conference of Mayors found that 26% of the nation’s smallest towns expect they will have to lay off workers. Nearly half of large cities are planning to do so. A majority of localities of all sizes are facing cuts to public services.
“With respect to our federal leaders, local governments were the first to respond with extraordinary measures to the Covid-19 pandemic by reallocating funds to support first responders,” said Irma Esparza Diggs, director of federal advocacy for the National League of Cities. “But as a result of historic losses of revenue at the local level, most local governments will not be able to sustain these efforts, or maintain uninterrupted operation of core functions, without dedicated emergency funding for state and local aid.”
The public sector job losses and service reductions could have consequences for the private sector as well. Many businesses function as suppliers to local governments, while others rely on county services to operate.
Hamilton County Commissioner Driehaus, whose jurisdiction includes Cincinnati, said both pieces need to be in place before the economy can return to normal.
“County government has to be up and running for the small businesses to be up and running,” Driehaus said. “If restaurants were to open, we need county health to open to inspect those restaurants. … We are an important piece to opening up the county.”