US state and municipal governments plan massive austerity to meet COVID-19 budget shortfalls
8 May 2020
As the US begins “reopening the economy,” sending millions to potentially be exposed to COVID-19, a variety of state and municipal governments are announcing cuts to medical programs and education and furlough workers to make up for major budget shortfalls. Most local governments have cited unexpected costs from the COVID-19 pandemic and loss of revenue from the lockdown as causes of their budget crises.
According to the Center on Budget and Policy Priorities, a think tank focused on the impact of federal and state budget policies, most states will face budget shortfalls of roughly 10 percent for the current fiscal year that ends on June 30 for most states, and more than 25 percent for the 2021 fiscal year. Since they are required to balance the budget before the end of the fiscal year, some states will be arranging to cut billions of dollars within the next few weeks.
Maryland is projected to have a drop in revenue of as much as $2.8 billion while Arkansas is estimated to have $353 million less than expected. The think tank has also noted that next fiscal year Alaska and New Mexico could lose up to $815 million and $2 billion, respectively, because they rely heavily on oil-related industries, which have taken a major hit from the recent collapse in oil prices.
Most states and municipalities have agreed to overcome the budget shortfall either partially or completely through slashing social programs, instead of raising taxes on wealthy individuals and corporations. The result puts vital programs on the chopping block as unemployment reaches as high as 20 percent.
While specifics of the cuts for many states have not yet been determined, a handful of both Democratic and Republican governors have already released plans to cut hundreds of millions from Medicaid alone. Ohio Republican governor Mike DeWine has announced $210 million in Medicaid cuts and Colorado Democratic governor Jared Polis has announced $183 million in cuts to the program. Georgia Republican governor Brian Kemp has called on all state agencies to make a 14 percent reduction across the board.
New York Democratic governor Andrew Cuomo, who has been hailed in some liberal circles for his response to the COVID-19 pandemic, has expressed a willingness to make $10.1 billion in cuts from the mid-year budget. The new budget could cut 20 to 30 percent of Medicaid funding.
Medicaid—which provides health insurance to roughly 70 million low-income adults, children and disabled—is partially funded by the federal government, and frequently experiences high enrollment during recessions. In the fiscal year of 2019, Medicaid made up just short of 20 percent of state budgets.
On April 21, the National Governors Association (NGA) sent a letter to leading Democrats and Republicans in Congress and the Senate requesting that Federal Medical Assistance Percentages (FMAP) be doubled to 12 percent. FMAP, which helps provide federal funding for state-administered programs like Medicaid, had been temporarily increased to 6.2 percent as a result of the Families First Coronavirus Response Act. The letter notes that the 2009 Recovery Act raised FMAP to 12 percent and encourages the federal government to help expand unemployment insurance, education programs and help states acquire medical equipment and COVID-19 tests.
Other states have targeted education programs to make up for the budget shortfall. California, which has a budget deficit of $54.3 billion, could cut $18 billion from schools and community colleges. Tennessee has decided to cut a $48 million literacy initiative program and a $250 million trust fund deposit for mental health programs in schools. Raises for teachers and other state employees have been cut from four to two percent for next year.
New Jersey Democratic governor Phil Murphy has announced a freeze of $920 million in appropriated 2020 fiscal year spending. The freeze would also stop $45 million in state aid to municipalities.
In a separate statement, the NGA and six other organizations representing the state and local governments called on Congress to “immediately provide robust, flexible relief.” The statement notes that the Coronavirus Aid, Relief, and Economic Security Act, better known as the CARES Act, did not provide a fund to offset budget shortfalls and does not provide relief for local governments with a population below 500,000.
The United States Conference of Mayors, which cosigned the statement, has noted that only 36 out of 19,000 cities, towns and villages have a population above 500,000. They have also noted that, “Nearly 100% of cities with populations above 50,000 will see a revenue decline this year.”
The conference recently requested $2 billion “to reimburse states and localities for uncompensated care.” For comparison, the CARES Act provided $454 billion for finance guaranteed loans to big corporations.
Municipalities of virtually every size have responded to the crisis with cuts and furloughs of workers:
- Philadelphia, Pennsylvania is proposing a $370 million reduction with hiring freezes and layoffs of part-time and temporary employees.
- Dayton, Ohio furloughed roughly a quarter of municipal employees, and announced that more furloughs are expected in the future.
- Detroit, Michigan cut $348 million in a recently passed budget that primarily slashed the funding for parks and recreational activities.
- Milwaukee, Wisconsin has announced plans to furlough 260 employees and cut hours for another 500.
- Houston, Texas has announced the possibility of furloughing all employees, except those working for the police and fire departments, to overcome a $200 million budget deficit.
New York City Democratic mayor Bill de Blasio has announced the possibility of the city furloughing essential employees to help pay for the city’s budget deficit. While New York has remained one of the global epicenters of the COVID-19 pandemic, de Blasio announced on Wednesday that without a stimulus package from the federal government “all options are on the table” for addressing the deficit.
Last month Senate Majority Leader Mitch McConnell called on state governments to declare bankruptcy instead of receiving a bailout from the federal government. If a state declared bankruptcy it would then allow the government to tear up pension agreements with retired workers.
The introduction of massive cuts to social programs with seemingly unlimited resources turned over to Wall Street speaks to the complete irrationality of capitalism. As millions of workers across America are impacted by COVID-19 and driven into unemployment, programs that provide healthcare, education, and jobs are being destroyed.
At the same time, the ruling class has utilized
the pandemic to organize a transfer
of trillions of dollars to the financial markets
through the Federal Reserve. The total assets
on the balance sheet of the US central bank
rose this week to more than $6.7 trillion, up
from less than $4 trillion before the pandemic
hit. Every day, the Fed is spending $80 billion
to buy up assets from banks and
corporations to fuel the market rise.
Depression USA
9 May 2020
Yesterday, the US Labor Department released its April unemployment report, revealing a level of joblessness that is without historical precedent. On the same day, the stock market rose sharply, with the Dow Jones Industrial Average finishing up more than 450 points, or nearly two percent. Wall Street continues not only to feast on death, as the toll from the coronavirus continues to grow, but to profit from the mass social misery that the pandemic has produced.
The Labor Department report recorded a drop of employment of 20.5 million people. Not only is this the largest monthly collapse in history, it exceeds the previous record more than 10 times over. The official unemployment rate increased from under 4 percent to 14.7 percent, far above anything seen since the Great Depression of the 1930s.
As bad as these numbers are, they significantly underestimate the scale of the social dislocation. The April report is based on estimates calculated during the middle of last month, so they do not take into account the millions of people who have lost their jobs over the last three weeks. Some 33.5 million have filed for unemployment claims since the beginning of state and federal lockdowns seven weeks ago.
According to the report, moreover, 6.4 million additional workers have left the labor force entirely and are not counted as unemployed, bringing the labor force participation rate to its lowest level since 1973. Another 11 million workers reported that they were working part time because they could not find full-time work, an increase of 7 million people since before the pandemic.
When all factors are taken into account, something in the area of one third of the work force is out of work.
Mass joblessness is impacting nearly every sector of the working class. Employment in the leisure and hospitality sector was the most extreme, falling by nearly 50 percent, or 7.7 million people. There were 2.1 million job losses in business and professional services, 2.1 million in retail, 1.3 million in manufacturing and 1 million in construction.
Stunningly, amidst an expanding pandemic, there were 1.4 million job cuts in health care. And under conditions of an enormous social crisis, there were 650,000 job cuts in the social assistance sector.
The report notes, moreover, that mass unemployment has impacted workers of all races and genders. The unemployment rate among adult men soared to 13.0 percent, adult women to 15.5 percent, and teenagers to 31.9 percent. The rate was 14.2 percent for whites, 16.7 percent for blacks, 14.5 percent for Asians and 18.9 percent for Hispanics.
While a large number of the job cuts are categorized as “temporary,” a growing proportion are permanent, as corporations begin to implement mass layoffs. Indeed, there were two million permanent job losses in April. This, taken by itself, would be the largest increase in unemployment in post-World War II American history.
Tens of millions of workers live paycheck to paycheck and rely on credit cards and other forms of debt to make up for the difference between their income and their expenses. Household debt rose by 1.1 percent in the quarter ending March 31, to $14.3 trillion, a new record. This does not take into account the piling on of debt by tens of millions of people as the economic crisis intensified in April and into May.
With no savings and no government assistance, workers are turning in record numbers to food banks, which are running out of basic goods. A report by the Hamilton Project earlier this week found that 41 percent of families with children under the age of 12 are experiencing food insecurity—that is, they are unable to afford enough to eat.
The ruling class has no policy to deal with the social catastrophe. On Friday, the Trump administration declared that the jobs that have been destroyed “will be back and they’ll be back soon.” He added that “we’re in no rush” to pass a bill that would provide some assistance. The administration’s top economic advisor, Larry Kudlow, said that talks over further “stimulus” measures are “in a lull right now.”
As for the Democrats, while mouthing phrases about additional aid, they are haggling over minor measures that they know will never be passed by Congress. Both parties display a combination of indifference, bewilderment and reaction in the face of the greatest economic crisis since the Great Depression. Their proposals in response to this crisis make the US in the era of Herbert Hoover appear almost philanthropic.
Mass social immiseration is, in fact, a deliberate policy, supported by the entire political establishment. It is aimed at creating conditions in which: 1) the ruling class can force a return to work even as the pandemic continues to spread throughout the United States; and 2) workers will be compelled to accept sharp reductions in wages and benefits and an increase in exploitation to pay for the massive handout to the super-rich.
To pressure workers to endanger their lives by returning to work, the majority of the population is being systematically starved of resources. Six weeks after the passage of the CARES Act—the massive boondoggle to the corporations adopted unanimously by the Democrats and the Republicans—the majority of Americans have not received their $1,200 “stimulus” check.
States are going bankrupt and beginning to implement brutal austerity measures. A report from the Economic Policy Institute earlier this month found that 50 percent more people are unemployed than have even been able to file for unemployment benefits—the result of overburdened application systems and onerous restrictions. Millions who have filed for benefits have not received anything.
The approximately 11 million undocumented immigrants in the United States are excluded from receiving any benefits. Millions of workers in the “gig economy,” while supposedly able to qualify for federal assistance, face impossible barriers to obtaining it. In the state of Illinois, for example, these workers will be able to start applying only on May 11, and they will not have any possibility of getting assistance for several weeks thereafter.
At the same time, the ruling class has utilized
the pandemic to organize a transfer
of trillions of dollars to the financial markets
through the Federal Reserve. The total assets
on the balance sheet of the US central bank
rose this week to more than $6.7 trillion, up
from less than $4 trillion before the pandemic
hit. Every day, the Fed is spending $80 billion
to buy up assets from banks and
corporations to fuel the market rise.
The enrichment of the oligarchy through rising share values is premised on mass impoverishment and an intensification of the exploitation of the working class. The profits and wealth of the corporate-financial elite have been saved at the expense of society.
Two agendas stand opposed to each other. One is the defense of the financial oligarchy, which means both an expansion of the pandemic, with all the horrific consequences this will bring, and a further immiseration of the population. The other agenda is that of the working class, which wants to fight the pandemic, save lives and defend the interests of the vast majority of the population.
The fight against the pandemic is not just a medical question. It is a political struggle to mobilize the working class against the Trump administration, the entire political establishment and the capitalist system it defends.
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