In Plymouth, Massachusetts, 2020 was supposed to be a big year. A summer-long series of events had been planned to mark the 400th anniversary of its settlement by English Puritans. The Mayflower II, a replica of the legendary ship that carried them to America, was ready for a relaunch after an extensive facelift.

That’s all off, thanks to Covid-19. Instead of splashing out on celebrations, the town of about 60,000 –- like communities of all sizes across the country -- is getting ready for some painful budget austerity instead.

As the U.S. tries to lift its economy out of the worst slump in modern history, a looming round of spending and job cuts at state and local governments threatens to drag it back in. That happened after the last recession, too. Now the numbers look even worse.

Last week’s surprise jobs report showed American business back in hiring mode, but state and local governments were still laying off workers in May -- almost 600,000 of them, on top of the 1 million public employees who lost jobs in April. And with most localities starting a new fiscal year on July 1, the trend may persist into the second half of 2020.

Budget managers at every level can’t see much of an alternative. Commerce has screeched to a halt, opening big holes in their finances. Congress is deadlocked over sending more federal aid to the states, which in turn will have less cash to pass on to cities, counties and towns.

Plymouth has already begun laying off a handful of workers after cutting the budget for the coming fiscal year by $2.9 million. That’s likely to be just the start. The proposed saving matches the drop in state aid that the town suffered in 2009 during the last recession -- but it may take a bigger hit this time, and there’ll be lost revenue from other sources to make up too.

Municipal officials “are being asked to make a decision based on very few facts,” says Town Manager Melissa Arrighi. “What will state aid be? What will property tax revenue and excise taxes be, the hotel and meals taxes? We don’t know.”

‘Hollow Out’
Add a few zeroes and big jurisdictions like New York and New Jersey are in pretty much the same boat.

State-level shortfalls across the country in the coming fiscal year will add up to almost $300 billion, followed by another $200 billion in 2022, according to Mark Zandi, chief economist at Moody’s Analytics. If the federal government doesn’t plug the gap, another 1.5 million public-sector jobs are likely to disappear by next year, according to his calculations.

“These are teachers, fire, police, emergency responders, social workers -- the folks that we need in a crisis,” Zandi says. “If we lose these jobs, it’s just going to further hollow out middle-income America. And it’s every community across the country.”

Washington is split over how much of the tab it should pick up.

Congress appropriated $150 billion for state and local authorities, including funds to bolster health services, under earlier pandemic relief packages. House Democrats last month voted to send another $1 trillion -- but their bill was more gesture than policy. Republicans who control the Senate already said they would block it. The real bargaining remains to be done.

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