Category Archives: Budget – United States

Helping America’s distressed communities recover from the COVID-19 recession and achieve long-term prosperity

Source: Timothy J. Bartik, Brookings Metropolitan Policy Program, September 2020

From the summary:
Even before the COVID-19 recession, distressed communities across the United States lacked sufficient jobs. The pandemic’s effects will further damage these local areas, while pushing even more places into economic distress. Without intervention, even a robust national recovery may leave many communities behind. Communities’ responses will be hindered by a lack of resources, and their residents will suffer from lower earnings and increased social problems.

As a solution, this paper proposes a new federal block grant to create or retain good jobs in distressed communities and help residents access these jobs. The block grant would provide long-term flexible assistance to increase local earnings and ensure those gains are broadly shared.

Corporate Culprits Receiving Covid Aid

Source: Philip Mattera and Mellissa Chang, Good Jobs First, September 2020

This new report combining data from Covid Stimulus Watch and Violation Tracker shows how many CARES Act recipients have a history of corporate misconduct.

More than 43,000 businesses and non-profit organizations that received CARES Act funds have a history of misconduct, collectively paying $13 billion to settle civil and criminal penalties over the last decade.

Together, the same companies received $57 billion in grants and $91 billion in loans through the federal economic stimulus bill passed by Congress to mitigate the economic fallout from the COVID-19 pandemic.

Among the violations are workplace safety issues, leading in one case to the death of a worker, flouting of environmental standards, wage theft and defrauding the federal government. They raise the question whether greater scrutiny should be given to how recipients are using taxpayer dollars.

What Is the Remedy for State and Local Fiscal Squeeze During the COVID-19 Recession? More Debt, and That Is Okay

Source: James W. Douglas, Ringa Raudla, The American Review of Public Administration, Special issue: Double Issue Dedicated to COVID-19, Volume 50 Issue 6-7, August-October 2020
(subscription required)

From the abstract:
The COVID-19 crisis is placing a tremendous fiscal squeeze on state and local governments in the United States. We argue that the federal government should increase its deficit to fill in the fiscal gap. In the absence of sufficient federal assistance, we recommend that states suspend their balanced budget rules and norms and run deficits in their operating budgets to maintain services and meet additional obligations due to the pandemic. A comparison with Eurozone countries shows that states have more than enough debt capacity to run short-term deficits to respond to the crisis.

Government Financial Management and the Coronavirus Pandemic: A Comparative Look at South Korea and the United States

Source: Sungho Park, Craig S. Maher, The American Review of Public Administration, Special issue: Double Issue Dedicated to COVID-19, Volume 50 Issue 6-7, August-October 2020
(subscription required)

From the abstract:
The novel coronavirus (COVID-19) is an infectious respiratory illness afflicting people to a degree not seen since the flu pandemic of 1968 when approximately one million lives were lost worldwide. What makes COVID-19 distinct is the rate at which it spread throughout the world, stress-testing health care systems and stymieing global economies. To confront this unprecedented crisis, nearly every country has been developing a wide range of policy responses, including fiscal measures. This study aims to discuss government fiscal responses to the pandemic from a financial management perspective. The core question is, “How does each country’s financial management system support its fiscal responses to the crisis?” We are particularly interested in reexamining commonly accepted norms about fiscal federalism and the fiscal condition of national and local governments heading into this pandemic. This study takes a comparative approach to the question, focusing on South Korea and the United States. Our findings suggest that the ability to respond to this pandemic in a comprehensive and effective manner is challenged by each nation’s financial management system that generates variation in policy coordination and responsiveness.

Biased Budget Scoring and Underinvestment

Source: Michael Simkovic, University of Southern California Gould School of Law; University of Southern California – Marshall School of Business, USC CLASS Research Papers Series No. CLASS20-11, Date Written: June 10, 2020

From the abstract:
Empirical studies routinely find evidence that public investments in education, science, and infrastructure have as high or a higher rate of return than private capital invested more broadly, and that such public investments are complementary to and crowd-in private investment. This implies that public borrowing or raising taxes to fund more public investment would increase the rate of economic growth and provide budgetary benefits.

However, when scoring the effects of legislation, the Congressional Budget Office and the Penn Wharton Budget Model, a think tank, use dubious assumptions that systematically put a thumb on the scale in favor of shrinking the government and against NPV-positive public investment. Rather than help correct shortcomings in CBO’s approach, the PWBM often amplifies them, making assumptions that are even less plausible than those of the CBO. PWBM’s errors are not random such that they offset each other, but rather have a single systematic direction — all of the problematic assumptions and methodological problems put a thumb on the scale in favor of low taxes on the ultra-wealthy.

PWBM, like CBO, assumes away the short-term benefits of public investments while treating private investments more favorably, even though many private investments — in particular those relating to development of new technologies — take a long time to produce positive cash flows. The PWBM assumes away the long-term benefits of public investment for reasons that are irrelevant and patently wrong under established principles of valuation. The PWBM elevates the role of arbitrary timing assumptions instead of focusing on lifetime IRR and NPV. The PWBM assumes crowding out of investment, when the empirical evidence is as strong, if not stronger, for crowding in. The PWBM assumes a coming crisis when both financial markets and ratings agencies suggest that this is very unlikely. The PWBM assumes that the United States is overwhelmingly a closed economy with respect to international investment when the evidence suggests that it is overwhelmingly open. The PWBM assumes a shortage of capital, when negative real risk-free interest rates point to a capital glut. The PWBM assumes that only the extremely wealthy can supply sufficient capital, and that changes to taxes and spending that benefit middle- and upper middle-income individuals will not enable these groups to serve instead as suppliers of capital. The PWBM assumes that the wealthy react to higher taxes by saving less, when it is possible that they react by working harder or consuming fewer luxuries.

The many problems with PWBM’s analysis raise serious doubts that the PWBM’s analysis can be used as a guide in selecting policy choices that will increase economic growth or improve the well-being of most U.S. citizens.

Congress’s counter-productive approach to scoring legislation should be revised to more accurately reflect the well-established benefits of public investment and the ambiguous effects of taxes or public borrowing.

Hands On! Part I: The Trilemma Facing the Federal Government During State and Local Budget Crises

Source: David Schleicher, Yale Law School, Public Law Research Paper Forthcoming, Date Written: July 12, 2020

From the abstract:
The economic crisis that accompanied the COVID-19 pandemic has left state and local budgets in tatters, with revenue falling quickly while demands for public services increase. The federal government responded in a number of ways, but the public debate over what it should do if there is an acute fiscal crisis – a state or a large city on the edge of default – has been theoretically confused and ahistorical.

This is no accident. The academic literature on state fiscal crises, while very impressive in many ways, is also somewhat confused. It focuses on two contrasting problems: the moral hazard that a federal bailout of an insolvent state government would create and the macroeconomic harm that a failure to bailout an insolvent state government would create. What these two branches of the literature agree on is that the federal government, for good or ill, has since the 1840s taken a “hands off” approach to acute state and local fiscal crises.

This Article and a companion piece will show that federal government simply does not have a history of “hands off” approaches to state and local defaults. While bailouts have been rare, officials from all three branches of the federal governments have intervened repeatedly in state and local fiscal crises to aid creditors and preserve confidence in the municipal bond market. These interventions are part of a long-running federal policy of encouraging states and local governments to borrow money to build civic infrastructure. Concern for the municipal bond market has led the federal government into all sorts of otherwise hard-to-explain policies, from President Ulysses Grant threatening to send troops to Iowa in 1870 to make a small town pay its debts to the Supreme Court’s radical transformation of the doctrine of Swift v. Tyson. Federal policy has been inconsistent, toggling between policies aimed at different and incommensurable goals, even during a fiscal crisis, perhaps most famously when it offered loans to New York City after the famous “Ford to City: Drop Dead” headline suggested aid would not be forthcoming.

Recognizing their real concern for the municipal bond market changes our understanding of what is at stake for federal policymakers when they respond to acute state and local budget crises. Federal officials face a “trilemma.” Whether they promote and/or enable bailouts, austerity, or defaults on municipal debt, federal officials can avoid two of these harms, but not three: (1) moral hazard for state budgets; (2) worsening recessions; (3) reducing future state and local infrastructure investment. The companion piece will suggest how federal officials can navigate this trilemma in the current crisis.

Tracking PPP Loans – Search Every Company Approved for Federal Loans Over $150k

Source: Moiz Syed and Derek Willis, Pro Publica, Coronavirus Bailouts, July 7, 2020

As part of the Paycheck Protection Program, the federal government provided up to $659 billion in financial support to banks to make low-interest loans to companies and nonprofit organizations in response to the economic devastation caused by the coronavirus pandemic. Search the loans approved by lenders and disclosed by the Small Business Administration (SBA).

Covid Stimulus Watch

Source: Good Jobs First, 2020

A new website from Good Jobs First combines CARES Act recipient data and accountability information on the companies from Violation Tracker, Subsidy Tracker and other sources.

The 2020 Coronavirus Aid, Relief, and Economic Security Act (or CARES Act) provides hundreds of billions of dollars in assistance to large and small corporations whose operations have been disrupted by the Covid-19 pandemic. The public deserves to know which companies are receiving the assistance and whether aid is flowing to firms with a poor record of corporate accountability.

Covid Stimulus Watch answers those needs. It assembles CARES Act recipient data and combines it with information about each firm’s history of regulatory violations, previous government assistance, federal tax avoidance, and CEO and worker pay practices.

Doing More for Less? New Evidence on Lobbying and Government Contracts

Source: Senay Agca, Deniz Igan, Fuhong Li, Prachi Mishra, International Monetary Fund (IMF), IMF Working Paper No. 19/172, August 2019

From the abstract:
Why do firms lobby? This paper exploits the unanticipated sequestration of federal budget accounts in March 2013 that reduced the availability of government funds disbursed through procurement contracts to shed light on this question. Following this event, firms with little or no prior exposure to the federal accounts that experienced cuts reduced their lobbying spending. In contrast, firms with a high degree of exposure to the cuts maintained and even increased their lobbying spending. This suggests that, when the same number of contractors competed for a piece of a reduced pie, the more affected firms likely intensified their lobbying efforts to distinguish themselves from the others and improve their chances of procuring a larger share of the smaller overall. These findings are stronger in government-dependent sectors and when there is intense competition. The evidence is more consistent with a rent-seeking explanation for lobbying.