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1 1 (March 20, 2020)

handle is hein.crs/govcavr0001 and id is 1 raw text is: Researh Sevice State and Local Fiscal Conditions and Economic Shocks March 20, 2020 Policymaker attention to the COVID- 19 economic shock has included its potential effect on state and local governments. This Insight summarizes the underlying forces affecting state and local finances following a negative economic shock, examines tools available to them in response to such forces, and briefly discusses federal assistance offered in recent recessions. State and Local Finances and Economic Shocks State and local governments are an integral part of U.S. economic activity, with S3.7 trillion in 2017 spending (19% of GDP). Federal, state, and local government revenues tend to increase when the economy is growing (as taxes are paid on increased economic output) and decrease when the economy is not growing. Unlike at the federal level, state and local governments must routinely balance their operating budgets, typically every one or two years. All else equal, state and local governments therefore must offset reductions in revenues caused by negative economic shocks with increases in revenues, reductions in spending, or a combination of the two. Balanced budget requirements can limit state and local ability to meet increased spending program demands during economic downturns. In contrast, the federal government has typically enacted larger spending increases in response to economic shocks. Table 1 shows federal, state, and local spending levels in the years leading up to and during the Great Recession. Measured as a share of economic output, federal outlays were 21% larger during the period FY2009 through FY2011 than during the FY2006- FY2008 period. State and local operating expenditures rose by 8% over the same timeframe. Table I. Government Spending Before and During the Great Recession, FY2006-FY201 I (as a percentage of GDP) FY2006-FY2008 FY2009-FY201 I State and Local Operating Expenditures 13.9 15.0 Federal Expenditures 19.6 23.7 Source: U.S. Census Bureau and Office of Management and Budget. Congressional Research Service https://crsreports.congress.gov IN11258 CRS }NStGHT Prepared for Membes and cornm ittees o4 Co nqress --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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