Thursday, November 12, 2020
Darien Shanske (UC-Davis) & David Gamage (Indiana), The Case for State Borrowing as a Response to the Current Crises, 97 Tax Notes State 1137 (Sept. 14, 2020):
This essay explains how and why U.S. state governments can and should borrow funds in the absence of sufficient federal aid during the COVID-19 pandemic. ...
The coronavirus pandemic is a national emergency that requires a national response. Asking states to absorb the budgetary losses caused by the pandemic while they are tasked with providing essential frontline services is comparable to asking states during World War II to pay for the landing in Normandy.
This article is a contribution to Project SAFE: State Action in Fiscal Emergencies. We have already argued, more than once, that the federal government should borrow to prevent steep state and local budget cuts. But because the federal government will apparently not take sufficient action, we offer these ideas to states for how to proceed with borrowing absent sufficient federal aid.
To go back to the beginning, we reemphasize that what we are proposing here is inferior to the federal government stepping in to do its job adequately. However, especially if the only other feasible choice is savage cuts to needed spending programs, we consider borrowing of the sort that we have proposed to be the far superior option.