Toward a National Resilience Fund

Abstract

The economic impact of COVID-19 has been catastrophic for state and local governments. By Federal Reserve estimates, income and sales revenues will have declined by over $50 billion in fiscal year 2020 and may decline by as much as $137 billion in 2021. Pandemics are, of course, not the only catastrophic risks we may face in coming years. Financial crises, natural disasters, social justice crises, and climate change-related catastrophes all present serious risks, and often have a compounding and exacerbating effect on one another. These risks are also especially salient for state and local governments, which are at the forefront of crisis response. The legitimacy of government is tested and measured by its ability to respond to these challenges, but existing state and local financial frameworks have proven too thin and brittle to absorb shocks like COVID-19 or the Financial Crisis. This commentary describes how a national resilience fund, with subaccounts created for each state and territory, would strengthen the ability of state and local governments to respond to crises that are likely to arise in the coming years. A national resilience fund could be based on a familiar, flexible structure that has been in use for decades: the unemployment trust fund. Such a structure would help insulate the resilience fund from local political pressures, yet would have the financial strength to help state and local governments absorb the costs associated with severe crises such as pandemics and natural disasters, thereby helping to preserve governmental legitimacy in times of severe social stress.

Keywords: Resilience, state and local finance, rainy-day funds, state budgets, legitimacy