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The coronavirus pandemic has already spurred a jobs crisis and recession unlike anything we have ever experienced.
But if the federal government does not act quickly, it will also cause an unprecedented state budget crisis — one that could force the state to make painful cuts that will hurt Maine families and make the recession worse.
Maine faces a $1.2 billion revenue shortfall in the next fiscal year, according to new analysis by the Maine Center for Economic Policy. That is roughly equivalent to what the state spends on public education every year and represents a 30 percent decline in budgeted revenue.
It would be the steepest drop on record. Maine is likely to face further losses in subsequent years, as state revenue shortfalls nationwide are projected to total $650 billion by the end of fiscal year 2022.
Without more emergency funds from Congress, states will be forced to consider widespread layoffs, cuts to education and health care, and reductions in public services and investments when they are needed most.
The federal government has unparalleled borrowing power, which it can use to stabilize state and local budgets. Congress can lead by taking bold action to prevent state budget collapse.
But so far, fiscal aid to states has been too little and too limited.
With the CARES Act, Congress created a Coronavirus Relief Fund for states. That fund is a good start but its $150 billion balance is far short of what is needed and comes with too many restrictions.
States can use the fund to cover new costs associated with the pandemic. Unfortunately, the CARES Act bars Maine and other states from using the funds to cover shortfalls in revenue used to fund pre-existing budget items, such as jobs, education, health care and other investments.
This spending is critical to create a strong economy and thriving communities in the best of times. During this acute crisis, it is more important than ever. State spending in Maine accounts for roughly 6 percent of the state’s GDP, but its impact is far bigger than that single-digit number would suggest.
Roughly one-sixth of Maine’s labor force — 128,000 workers — is employed in public service. Those public workers use their earnings to help power Maine’s economy.
Shoring up state and local budgets is key to stabilizing this large portion of Maine’s labor force. It could prevent additional, widespread layoffs at a time when Maine has already seeing more unemployment claims in seven weeks than in the previous three years.
With so many Mainers unemployed, state spending becomes even more important to protecting families’ health, housing, and ability to cover basics like food and utilities.
For example, of the 108,500 Mainers to lose their jobs between the pandemic’s beginning and April 25, an estimated 47,900 have also lost their employer-sponsored health insurance plan. This estimate does not include additional Mainers — such as children, spouses, and other dependents — who may have lost coverage that they received through a family member’s employer-sponsored plan.
Many of those newly uninsured Mainers will need Medicaid to maintain coverage while they’re out of work. April data show an additional 7,490 Mainers enrolled in the past month — a larger-than-usual 3 percent increase in total enrollment. Medicaid data tend to lag unemployment, but enrollment growth is likely to accelerate. During the Great Recession, enrollment increased by roughly two people for every job lost.
Health care is only one example of state spending that will need to increase because of the coronavirus, highlighting the need to backfill revenue shortfalls.
State and local spending also can make the difference between a faster recovery or a longer recession.
In the wake of the Great Recession, when federal assistance failed to meet the scale of the crisis, state and local governments across the country filled about three quarters of their budget gaps with spending cuts. A conservative estimate shows those spending cuts directly reduced GDP by 0.7 percent in the third quarter of 2012, when per-capita spending was at its lowest.
Policy leaders cannot make the same mistake again. Congress must increase emergency funds for states and provide more flexibility to use those funds to cover rising costs and make up for lost revenues.
The economic fallout from coronavirus is unlike anything we have ever experienced. It threatens Mainers’ education, health care and other basic investments necessary for a strong society and a thriving economy. The federal government must meet the severity of this crisis with substantial funding to protect families and state governments facing economic catastrophe.
Garrett Martin is executive director of the Maine Center for Economic Policy.