Spiking unemployment around the country and dire predictions for second quarter economic growth have created a budget crunch for many state and local governments, and it could be a long-term drag on the United States economy.
Robert Dye, chief economist at Comerica, said that sharp declines in employment and consumer sales will hurt tax revenues for state and local budgets, which often have legal restrictions that keep them from filling shortfalls with debt, and weaken a key source of jobs in the country.
“That certainly is a big load of challenge for state and local governments … they can’t run deficit financing. And the other thing is that state and local government spending is bigger than federal spending, so it’s very important to the economy,” Dye said.
Read more: CNBC.
