Coronavirus Layoffs: Public Sector Employees Brace For Unemployment As State, City Coffers Run Dry

Municipal workers across the country were bracing for a wave of layoffs as cash-strapped local governments saw their coffers running dry as a result of the coronavirus pandemic, which has decimated sales tax and other sources of revenue.

The $2.2 trillion CARES Act, passed last month, provided $150 billion to state and local governments to help defray the costs of the public health emergency and can only be applied to costs incurred beginning March 1. State and local officials say the rules are way too strict, considering the enormity of the crisis.

The National League of Cities, the National Association of Counties and the U.S. Conference of Mayors have asked for $250 billion more in aid.

“Local governments were the first to respond with extraordinary measures to the pandemic – and without dedicated emergency funding for state and local aid, we will not be able to sustain our efforts,” warned Joe Buscalno, president of the National League of Cities.

Estimates indicate as many as 1 million public sector workers will face layoffs.

As House Speaker Nancy Pelosi pledged the next coronavirus relief package would contain funds for states and municipalities, Senate Majority Leader Mitch McConnell and other Republicans expressed reluctance to provide the funds.

New York Gov. Andrew Cuomo Wednesday pleaded for aid.

“People are dying,” Cuomo said during his daily briefing. “You can’t stop the politics even in this moment?”

The Federal Reserve on Monday expanded its municipal lending program, allowing small cities and counties to sell $500 billion in short-term debt to the Fed but it is doubted that would be enough.

“Some of the most insidious pain will emanate from a coming crisis within state and local governments: collapsing revenues, increased demand for safety net programs like Medicaid, and the direct costs of leading the COVID-19 response,” Mark Muro, senior fellow and policy director of the Metropolitan Policy Program at the Brookings Institution, said in a blog post.

He added: “Only massive federal aid to states and localities—to the tune of $700 billion to $1 trillion over the next 18 months—will be sufficient to blunt the coming service cuts and layoffs as well as keep regional fiscal contractions from deepening the crisis and slowing the recovery.”

Muro said any aid package for state and local governments should be targeted to the areas most in need, based on unemployment rates and other factors.

“Brookings Metro depictions of the geography of industries and occupations vulnerable to COVID-19-related layoffs reinforce that the deepening recession is not going to damage all local economies equally. Instead, it will most affect economies tied intensively to tourism, travel, discretionary retail, and energy—think Florida, Louisiana, Nevada and Hawaii—more than others,” he said.

Muro notes a number of communities never fully recovered from the Great Recession and risk becoming “semi-permanent traps of underdevelopment” that sap the nation’s vitality.

Muro suggested federal aid be distributed monthly, based on the number of unemployed added to a state’s rolls.

Some 26 million Americans have filed first time unemployment claims since mid-March, with a report on last week’s numbers due Thursday. The hardest hit sectors include bars and restaurants as well as tourism-dependent operations.