Special Briefing: The Year Ahead for States and Municipalities

On January 14, 2020, Penn IUR and the Volcker Alliance hosted a virtual briefing to discuss the outlook for further federal stimulus and aid to state and local governments amid the nationwide rollout of COVID-19 vaccines.

Moderated by William Glasgall, Senior Vice President and Director of State and Local Initiatives, Volcker Alliance, and Penn IUR Co-Director Susan Wachter, this briefing was the 17th in a series of 60-minute online conversations featuring experts from the Volcker Alliance’s national research network and Penn IUR, along with other leading academics, economists, and fiscal policy leaders from around the U.S.

This briefing featured presentations by Shelby Kerns, Executive Director, National Association of State Budget Officers (NASBO); Eric Kim, Senior Director and Head of U.S. State Ratings, Fitch Ratings; Vikram Rai, Managing Director and Head, Municipal Strategy Group, Citigroup; and Mark Zandi, Chief Economist, Moody's Analytics.

Kerns kicked off the discussion by sharing data from NASBO’s recently released 2020 fall fiscal survey which collects data on enacted state budgets. The survey showed that states face significant fiscal stress and project a decrease in general fund spending in 2021. The strategies states used most often to address shortfalls were budget cuts and personnel adjustments, such as layoffs and furloughs, with some states noting one-time measures like the use of rainy-day funds. Kerns also noted that improved revenue projections from some states show reason to be optimistic.

Kim provided an outlook from the ratings and economic perspective, discussing Fitch Rating’s credit outlook for state and local governments and how it informs expectations for ratings. He shared that approximately 4 percent of local government ratings were downgraded due to the pandemic, which indicated the extent of the impact of the pandemic on local credit strength. He noted that because many jurisdictions had stable outlooks going into the pandemic, Fitch does not anticipate wide ratings changes.

Zandi shared outlooks for job growth and federal aid to state and local economies. Given the likelihood of widespread vaccinations by the summer, he noted that “pent-up demand for various consumer services, particularly by high-income households that have saved a lot of money,” could lead to a better outlook for local economies going into the fall. He also expressed optimism for additional federal support later in the year on top of the Biden administration’s early aid package proposal.

Rai spoke to how aid to state and local governments, tax reform, and infrastructure initiatives might get approved at the federal level with new democratic majorities. While direct aid to state and local governments seems to be around the corner, Rai predicted that “if direct aid is a part of the stimulus, we can be sure that democrats will lose support in congress.” He also shared the expectation that with federal aid, turning to the municipal market will become less likely.

Full recordings and recaps of each event can be found here.