Senior Vice President for State Fiscal Policy
Unless federal policymakers provide enough aid to states, localities, territories, and tribal governments to offset all or nearly all of their massive revenue losses due to the pandemic, the longstanding inequities from historic and ongoing racism and discrimination — which have left Black and brown communities most harmed by COVID-19 and the economic crisis — will only worsen from the deep cuts in public services that these governments might have to make.
To prevent widening of racial and ethnic disparities, federal aid must be well targeted and substantial. Along with general-purpose aid to states, for instance, it should include components focusing specifically on Medicaid, public schools, and public colleges and universities, with “maintenance of effort” requirements that states continue their commitments to health and education programs that are proven to expand economic opportunity. And funding formulas should recognize that some places have higher needs. For example, federal aid to schools should prioritize low-income children, children of color, American Indians and Alaska Natives, English learners, students with disabilities, and other marginalized children and families and include a “maintenance of equity” requirement that states protect high-poverty districts from cuts.
Also important for equity is ensuring adequate funding for tribal governments and territories like Puerto Rico, which also must balance their budgets and are suffering particularly severe economic hits. Tribal governments have lost casino and other revenues that typically help pay for health care, schools, and other services. For Puerto Rico, the pandemic and recession followed multiple natural disasters and well over a decade of virtually uninterrupted economic decline. Federal aid is vital to expanding opportunity in these historically neglected jurisdictions.
If adequately funded and well designed, state and local services can help reduce barriers to opportunity that keep major parts of our society, from jobs to education to housing, largely segregated along racial lines. Most state spending goes for education, health care, human services, and transportation, all of which can make communities more equitable if targeted appropriately.
High-quality preschool, public schools, and colleges and universities can give more students a leg up in the job market if they’re accessible to everyone. Income support programs like unemployment insurance and cash assistance through the Temporary Assistance for Needy Families program help families with few resources weather bad economic times, particularly if they serve immigrants on the same basis as U.S.-born people. Public health care programs like Medicaid and the Children’s Health Insurance Program help families stay healthy; both Black and Hispanic people are roughly twice as likely to get health coverage through Medicaid as white people, Census data show, because they’re likelier to have low-wage jobs that lack affordable job-based health coverage. Public transit systems connect working people to their jobs. And so on.
Now, though, state tax revenues are dropping off the table. We project that state budget shortfalls will total $615 billion through 2022. This figure is for state shortfalls only, not the additional shortfalls facing local and tribal governments and the territories.
These governments are required to balance their budgets each year, so they must offset each lost dollar of revenue — beyond what they can cover using federal aid and state reserves — with budget cuts or revenue increases. And the last time states suffered massive revenue losses, in the Great Recession of a decade ago, the cuts particularly hurt people of color.
Cuts in state funding, for example, forced K-12 public schools to rely more heavily on local funding, which comes mainly from property taxes. These taxes are heavily based on property values, which — due largely to historical housing segregation, racist redlining policies, ongoing forms of discrimination, and continuing disparities in income and wealth along racial lines — are much higher in wealthier areas where more white people live, making it easier for these residents to raise revenue for schools. Schools with more students of color often ended up worse off.
Similarly, state cuts to public colleges and universities in the wake of the recession sent tuition soaring, leaving many students and their families saddled with onerous debt or unable to afford college altogether. That’s especially true for students of color (who have historically faced large barriers to attending college), low-income students, and students from non-traditional backgrounds (such as those who didn’t receive a standard high school diploma, older students, and those who are parents).
The Great Recession also prompted a number of states to scale back unemployment insurance, meaning laid-off workers receive fewer weeks of benefits even if no jobs are available. While this hurts workers of all races, families with little savings and those who are slowest to be rehired — two groups consisting disproportionately of people of color due to historical discrimination — suffer the most.
Another, particularly pernicious effect of the Great Recession was that states and localities raised fees and fines on people charged with criminal offenses, many of whom were charged with only minor offenses and/or never convicted. These increases hit Black and brown people hardest: “Research indicates that economically disadvantaged communities and people of color are policed at greater rates than white, affluent areas are,” a Brennan Center for Justice report explains. “This means that fees and fines are imposed on and collected more frequently from them.” Those who don’t pay their fines can become trapped in the criminal justice system, with devastating effects on those families.
These fees also take a larger share of income from the lowest-income families, even more than general sales or excise taxes do, and are quite costly to collect. While these fees are receiving increased attention because they are so patently unjust, the huge state and local budget gaps will make it harder to scale them back and could even lead to their expansion.
The lesson of the Great Recession — when emergency federal aid closed only about a quarter of state budget shortfalls — is that we need more federal fiscal aid, not less. To be sure, states have their own choices to make to move an antiracist, equitable response to the crisis. But those efforts will likelier succeed with a strong federal response to such enormous need.