Tuesday, October 20, 2020

Lehner: "COVID’s Impact on State and Local Governments"

by Calculated Risk on 10/20/2020 04:08:00 PM

Josh Lehner, at the Oregon Office of Economic Analysis, has an interesting post today: COVID’s Impact on State and Local Governments

This started with a seemingly basic question: “Why is public sector employment down so much this year?” The normal pattern we see is that the public sector is more of a stabilizing force in the economy. Job losses and budget cuts come with a delay as it usually takes time for lower levels of economic activity to translate into fewer tax collections. Those impacts usually hit the budget the fiscal year after the recession starts. However, so far in 2020 local governments have shed nearly as many jobs as the private sector. Both the size of the losses and swiftness with which they came is highly unusual.
The Housing TrilemmaClick on graph for larger image.
After digging into the data it is quite clear that the local government job losses are not a result of your standard budget cuts. That traditional recessionary dynamic is likely to come, but will hit next year, not this. The losses today are directly related to the pandemic and social distancing ...

In terms of higher education, the impacts of the pandemic, social distancing, and online schooling are clear. ... Besides education, the public sector does a lot of things. Employment here is down largely due to zoos, convention centers, recreation facilities, public pools, libraries and the like being limited during the pandemic. The losses in public administration are relatively small to date.

All of that said, there is still the traditional recessionary dynamic at play. Those impacts will largely come next year, not this.
emphasis added
Without fiscal relief from the Federal Government, we will probably see significant state and local government layoffs next year. There is much more in the post.