After delivering over $6 trillion of fiscal policy in response to COVID-19, lawmakers in Washington, D.C. have now turned to infrastructure discussions.
Democrats and Republicans should be able to find common ground here. Although a Memorial Day weekend deadline has passed, the possibility for a bipartisan infrastructure package still exists.
However, there has been a troubling development as some lawmakers have proposed clawing back part of the $1.9 trillion of American Rescue Plan Act relief to help fund it. Specifically, some have proposed repurposing some of the $350 billion allocated to state, local and tribal governments. This would be a mistake.
While the economy added jobs in May for a fifth straight month, last month’s report failed to meet expectations. The Labor Department reports that U.S. employers added 559,000 nonfarm jobs in May. This is twice the previous month’s gains, but still well below the median forecast.
At this rate, the country’s labor market will not return to pre-pandemic levels until the middle to end of 2022.
The state and local government labor market, which previously represented one out of every eight jobs in the U.S., remains challenged. The total number of jobs is still 1.2 million below its pre-pandemic high. This is almost 300,000 jobs less than what was observed during the post-Great Recession’s bottom.
Jobs did not bottom-out in state and local governments until four years after the Great Recession ended in June 2009. They did not return to the pre-Great Recession peak until the summer of 2019. This sluggish recovery in state and local government jobs contributed to the U.S. economy’s slow growth trajectory.
Federal policymakers are hoping to avoid a similar lag this time around, but a lag is already guaranteed, even with $350 billion of relief.
There are a number of reasons for this. The Treasury Department did not release guidance on how state and local governments could apply this funding until two months after the Rescue Plan was enacted. Additionally, many of the lost positions were related to state and local government education. Hiring should pick up this summer ahead of the 2021-22 school year. The resumption of these jobs, made possible by Rescue Act funding, positions the recovery to be much shorter than what we experienced following the Great Recession.
State and local government spending is about 11% of U.S. GDP. Without the $350 billion of American Rescue Plan Act funds, state and local governments will resort to cutting their budgets for years and slow the U.S. recovery.
If lawmakers care about a speedy economic recovery, they should not repurpose the Rescue Plan funding allocated to state and local governments.
