The fiscal bind has already spurred some states to petition the federal government for more aid. California, New York and Texas have sought tens of billions of dollars in government loans for their unemployment trust fund accounts. Pavosevich expects that states will lobby for the federal subsidy to be extended beyond December.
“I don’t think there’s any amount of cuts or any amount of taxes that begins to fill the hole,” Murphy told Bloomberg Television, adding that without federal aid, state and local governments will have to dismiss firefighters, police, emergency-medical personnel and others.
Yet there’s also a risk that some elected officials may use the current crisis as political cover to purge public-sector payrolls beyond what’s fiscally necessary to advance certain policy priorities, according to Tracy Gordon, a senior fellow at the Urban-Brookings Tax Policy Center. Broad-based cuts could leave critical public services understaffed just as the need soars.
“There is an opportunity to do this in a strategic and targeted way,’’ Pattison said. “But I fear many will simply do across-the-board cuts and layoffs.”
--With assistance from Edward Dufner.
This article was provided by Bloomberg News.