“Corona-economy” Effects Could Hit Michigan Hard; Now is Time to Prepare

Posted on April 8, 2020 by Dene Westbrook

There’s an excellent column in The Hill Monday about the importance of spending time now to think about how communities like Michigan are going to recover economically in the days, weeks and months following the COVID-19 pandemic.

The piece was co-authored by John Austin, a Michigan resident and a friend and supporter of the Michigan Municipal League. Austin directs the Michigan Economic Center and is a research fellow with the Upjohn Institute. He wrote the piece with Timothy Bartik is a senior economist and Michelle Miller-Adams is a senior researcher with the W.E. Upjohn Institute.

Here is an excerpt of the article that really got our attention:

The actual economic effects of the “corona-economy” will hit some areas harder than others. Our colleagues at the Brookings Institution recently documented how the effects could vary across regions, with the hardest-hit areas including states and localities dependent on hospitality and tourism, like Florida and Nevada, and manufacturing, like our home state of Michigan.

Regionally severe recessions have long-run effects. Residents of an area that experiences 5 percent more job loss during a recession will, in the long run, be less likely to find work: Out of every 100 residents, 2 fewer will be employed. These effects occur because regional recessions damage the skills of workers and the ability of state and local governments to provide public services. 

What is to be done? Over the long term, we need better economic development policies to deal with regional disparities. But in the short run – in April and May, when Congress reconvenes to consider another stimulus package – we need state and local fiscal aid that is generous, flexible and targeted at the hardest-hit areas.

Aid to states should amount to at least $250 billion over the next year and preferably more to account for the expected decline in state and local tax revenue. Because there is no way to foresee the magnitude of that decline, we urge Congress to approve a fiscal aid formula under which the amount of state and local fiscal aid is tied to the health of the national economy. If the recession is deeper than expected, aid would go up as needed. If the nation does achieve a rapid V-shaped recovery, aid levels would automatically fall.

Aid should be flexible so governors and mayors can make choices about which services are most needed. Any congressional temptation to tie strings to state and local aid should be resisted.

And aid should be targeted to the state and local areas that are hardest hit. Aid formulas should adjust for local unemployment rates, so the states and local areas that experience the largest revenue shortfalls get the resources they need to maintain public services.

It is hard in the midst of a crisis to think around the next corner. But only by doing so can the worst economic effects of the current crisis be understood and addressed.”

We agree that the time to be preparing is now. If we’re not thinking about what happens around the next corner who will?

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