Weathering State and Local Budget Storms: Fiscal Federalism with an Uncooperative Congress

55 Pages Posted: 2 Apr 2021 Last revised: 2 Jun 2021

See all articles by David Gamage

David Gamage

Indiana University Maurer School of Law

Darien Shanske

University of California, Davis - School of Law

Gladriel Shobe

Brigham Young University - J. Reuben Clark Law School

Adam B. Thimmesch

University of Nebraska College of Law

Date Written: 2021

Abstract

Throughout most of 2020, state and local governments faced severe budget crises as a result of the COVID-19 pandemic. Increased demand for state welfare services and rising state expenses related to controlling the spread of COVID-19 stretched state and local budgets to their breaking points. At the same time, layoffs, business closures, and social distancing measures reduced states’ primary sources of tax revenues. The traditional practice of American fiscal federalism would be for the federal government to step in to provide aid during a national emergency of this magnitude because state and local governments lack the monetary and fiscal powers of the federal government. But during the 2020 national emergency, the majority coalition in control of Congress was skeptical of this traditional practice of the federal government, and federal aid was thus limited and insufficient.

Although partisan control of Congress and the Presidency switched in early 2021, at the time of this writing it remains unclear whether the federal government will act sufficiently to resolve the currently ongoing state and local budget crises. Regardless, due to heightened partisan polarization and related factors, it seems highly likely that future national emergencies will occur during times in which the federal government is again controlled by a majority coalition skeptical of the federal government’s traditional role of providing aid to state and local governments during downturns.

This Article thus proposes a series of innovative state tax reform measures and other related reform proposals for modernizing the states’ outdated tax bases and for crisis-proofing American institutions of fiscal federalism. These proposals were initially designed as reforms meant for mitigating the harmful state and local budget consequences of the COVID-19 pandemic. But a central role of legal academic scholarship should be to develop law-reform solutions for legislatures and for other policymakers, to prepare for possible future emergencies when those solutions may be urgently needed. To that end, this Article elaborates and memorializes proposals initially developed for the 2020 crises, so that these proposals might be further developed to be ready as potential responses for future crises in which the federal government might once again prove unwilling to act sufficiently.

Keywords: COVID-19, Fiscal Federalism, 2020, State Budget Crisis

JEL Classification: G01, H3, H6, K34

Suggested Citation

Gamage, David and Shanske, Darien and Shobe, Gladriel and Thimmesch, Adam B., Weathering State and Local Budget Storms: Fiscal Federalism with an Uncooperative Congress (2021). University of Michigan Journal of Law Reform, Forthcoming, Indiana Legal Studies Research Paper No. 443, BYU Law Research Paper No. 21-17, Available at SSRN: https://ssrn.com/abstract=3817008

David Gamage (Contact Author)

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States

HOME PAGE: http://www.law.indiana.edu/about/people/bio.php?name=gamage-david

Darien Shanske

University of California, Davis - School of Law ( email )

400 Mrak Hall Dr
Davis, CA CA 95616-5201

Gladriel Shobe

Brigham Young University - J. Reuben Clark Law School ( email )

430 JRCB
Brigham Young University
Provo, UT 84602
United States

Adam B. Thimmesch

University of Nebraska College of Law ( email )

103 McCollum Hall
P.O. Box 830902
Lincoln, NE 68583-0902
United States

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