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Covid Recession Hurting State And Local Budgets, And The Economy – Forbes

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4 years ago

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As President Trump golfs in Florida after disrupting the Congressionally-authorized Covid relief package, state and local budgets continue suffering from the Covid pandemic.  And even if signed, this package contains little direct aid for them.  It will not be any easier for Joe Biden to get adequate funding from a divided Congress, with Republicans arguing that states and cities are mismanaged, not suffering from an extraordinary pandemic and recession.

We are halfway through fiscal year 2021 for states, which for almost all of them began on July 1.  The National Association of State Budget Officers (NASBO) tells us this is the first year since the Great Recession where state general fund spending is declining, “1.1 percent compared to fiscal 2020 and…5.5 percent compared to governors’ budgets proposed before the pandemic.”

States so far have avoided even deeper cuts by using their rainy-day funds, built up after the Great Recession.  But those funds are being spent, so they will be less and less available for additional cushioning.  Without budget aid, they will cut spending and jobs, making the economic recovery slower and more painful than it should be. 

In several states, revenues have done better than originally feared, in part because wealthier people have not suffered as much from the pandemic.  This is the so-called “K-shaped recovery”—people with higher incomes, higher education, and white-collar jobs didn’t suffer the lasting damages hitting lower-income workers.

Higher income people often own homes and stocks.  And both of those assets have risen in value.  In spite of dramatic stories about falling prices in New York City, house prices have risen substantially across the nation.  Driven by low interest rates and a lack of housing supply, in September the Case-Shiller national home price index saw an annual increase of 6.9%, with a 6.6% rise in the twenty largest metropolitan areas. And stock indexes have risen so high that some observers worry about an unsustainable bubble.   

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For states with progressive taxes, this unequal income and wealth has helped their budgets or at least prevented the worst-case forecasts from coming true.  States that depend more on specific industries and often more regressive taxes—tourism in Florida, Nevada and Hawaii or oil and gas revenues in Texas, North Dakota, and Louisiana—are seeing bigger budget gaps.

Some politicians claim higher-than-predicted tax collections eliminate the need for federal aid.  In rejecting further federal budget aid, Senator Rick Scott (R-FL) says “We’re seeing data now that clearly shows state and local governments’ projected revenue shortfalls from the coronavirus didn’t happen.”  This is in spite of Scott’s state of Florida having an 18 percent revenue gap from last year, fourth-worst in the nation.

These Republicans don’t—or won’t—understand the real picture.  True, revenues didn’t fall as far as first feared.  When the virus first hit, budget forecasters saw the abrupt drop in jobs and the economy and feared the worst.  But we didn’t get the worst case, because the federal government disbursed trillions of dollars in small business relief, expanded unemployment insurance, one-time direct household payments, and other spending.   

But avoiding the absolute worst case isn’t the same as achieving fiscal health.  Scholars at the Urban Institute tell us that although states had “better than expected tax collections,” the “actual revenue losses experienced by the states are deep and widespread, if not universal.”  

So even if Trump signs the relief bill, it isn’t enough, especially for hard-hit states and cities, and especially lower income and non-white workers, households, and children.  And his refusal to sign the bill as of Saturday means “millions of Americans will lose their jobless benefits” because the extension passed earlier this year expires at the end of 2020.

 Thea Lee, President of the Economic Policy Institute, says “the package is a fraction of what is required to address the monumental economic damage caused by inadequate response to the COVID-19 pandemic.”  There’s no real state and local budget aid and the unemployment insurance provisions are too weak.

But the difficulties in getting even this inadequate relief package through the Republican-controlled Senate with an (admittedly erratic and divisive) Republican President doesn’t bode well for the Biden Administration.  Republican legislators continue arguing that state and local budget problems are the fault of poorly managed governments, mostly (and falsely) by Democrats in their telling.

If they keep that narrative when a Democratic president takes office in January, prospects for adequate budgetary relief are not very promising.  And state and local budgets and the economy—and all of us, but especially low-income families—will pay the price.

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Economy

Bank of Canada trying to figure out how AI might affect inflation, Macklem says

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September 20, 2024

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OTTAWA – Bank of Canada governor Tiff Macklem says there is a lot of uncertainty around how artificial intelligence could affect the economy moving forward, including the labour market and price growth.

In a speech in Toronto at the Economics of Artificial Intelligence Conference, the governor said Friday that the central bank is approaching the issue cautiously to get a better understanding of how AI could affect its job of keeping inflation low and stable.

“Be wary of anyone who claims to know where AI will take us. There is too much uncertainty to be confident,” Macklem said in prepared remarks.

“We don’t know how quickly AI will continue to advance. And we don’t know the timing and extent of its economic and social impacts.”

The governor said AI has the potential of increasing labour productivity, which would raise living standards and grow the economy without boosting inflation.

In the short-term, he said investment in AI is adding to demand and could be inflationary.

However, Macklem also highlighted more pessimistic scenarios, where AI could destroy more jobs than it creates or lead to less competition rather than more.

The governor called on academics and businesses to work together to shed more light on the potential effects of AI on the economy.

“When you enter a dark room, you don’t go charging in. You cautiously feel your way around. And you try to find the light switch. That is what we are doing. What we central bankers need is more light,” he said.

This report by The Canadian Press was first published Sept. 20, 2024.

The Canadian Press. All rights reserved.

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Business

A timeline of events in the bread price-fixing scandal

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1 day ago

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September 19, 2024

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

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Economy

S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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September 19, 2024

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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