No Time for Complacency: Strong, Sustained Action Needed to Minimize Lasting Economic Damage from COVID-19 Pandemic

Photo by Anna Shvets

While there is enormous uncertainty about the severity, duration, and long-term impacts of the COVID-19 pandemic, it is increasingly clear that the crisis is causing deep economic harm to Maryland communities, in addition to the severe public health impacts. Our state and federal governments have taken a number of positive steps to support workers, families, and businesses amid the growing economic upheaval. However, the work needed to prevent widespread hardship in the coming months and years is far from complete. As Maryland’s experiences during and after the Great Recession made clear, the state and federal governments must take bold action and resist the temptation to return prematurely to business as usual.

We have already seen a historic spike in unemployment insurance claims, and experts predict Maryland could lose nearly 350,000 jobs by July—costing about one in seven private-sector workers their jobs. It is impossible to know how long this economic contraction might last, given the amount of uncertainty about how long drastic measures like social distancing will have to continue to save thousands of lives. Maryland’s experience during the Great Recession can give us an idea of the scale and duration of economic hardship Marylanders may face:

• From 2005–2007 period to 2008–2010, the number of Maryland households who couldn’t always afford to put food on the table increased by about half, from just under 180,000 to about 260,000.
• While exploding home prices before the Great Recession made it hard for many families to afford their mortgage or rent, this hardship did not subside after the bubble burst. As of 2018, nearly half of Maryland renters had rent and utility costs that exceeded 30 percent of their income—essentially unchanged from the number facing unaffordable housing costs at the height of the financial crisis, and well above the number struggling with housing costs at the turn of the century.
• The number of Maryland adults receiving health insurance through their jobs has steadily declined over the last 20 years. Maryland’s wise decision to expand Medicaid eligibility under the Affordable Care Act currently enables many thousands of Marylanders to get the medical care they need and will likely cushion the blow brought about by widespread job losses. However, harmful administrative actions by the Trump administration, as well as a weakly supported lawsuit, could strip many of their health coverage right when they need it most.

Both Congress and state policymakers have taken positive steps to contain these human costs; much more still needs to be done:

• Recent federal legislation made COVID-19 testing free to everyone, regardless of insurance coverage—but if someone without insurance tests positive, they will still need to pick up the tab for treatment on their own. Congress should make COVID-19 treatment available free of charge to everyone, and should strengthen overall access to needed medical care by further expanding Medicaid eligibility. Today, Marylanders born outside the United States are more likely than any other group to go without health insurance, in large part because counterproductive eligibility rules exclude them from most kinds of help. It is clearer now than ever that everyone benefits when people can access the care they need, when they need it.
• Federal legislation passed so far has not increased food assistance benefits to help struggling families put food on their tables. Nonpartisan experts at the Congressional Budget Office found that during the last recession, increasing these benefits was among the most effective ways to boost consumer spending and support local businesses. Based on post-recession enrollment levels, this analysis implies that a 10 percent increase in Marylanders’ food assistance benefits could generate up to $220 million in added economic activity.
• The state and federal governments have improved unemployment insurance benefits that provide a lifeline to workers who unexpectedly lose their livelihood, such as by temporarily increasing the level of benefits and extending eligibility to many gig workers and part-time workers who were historically excluded. The state should strengthen its unemployment insurance system for the long run by making these improvements permanent, and should raise our comparatively low weekly benefit cap.

In addition to the direct harm thousands of Marylanders are already facing from job losses, the growing downturn is likely to cause additional harm by making it harder for the state and local governments to invest in services Maryland communities rely on, from local departments of health to world-class public schools:

• State and local revenue fell significantly over several years after the Great Recession, and this drop would have been even more severe if we had not taken positive steps to boost revenue. Adjusted for inflation and population growth, the sales tax base declined by 23%, the income tax base declined by 15%, the corporate income tax base fell by 34%, and the property tax base—the most important revenue source for county governments—fell by 26%.
• Although policymakers took some prudent steps to shore up revenues in the aftermath of the Great Recession, they also made deep cuts to state services. State-source investments in K-12 and higher education fell by about 8 percent from fiscal year 2009 to 2011, adjusted for inflation and population growth. Total state-funded expenditures fell by nearly 16 percent from 2007 to 2011.

Federal and state policymakers should take robust action to protect our ability to invest in the foundations of Maryland’s economy:

• The most recent federal legislative response to the COVID-19 economic fallout included $150 billion in aid to state and local governments, vital help to cushion the blow from near-immediate revenue losses. Maryland will receive $2.3 billion in aid from this fund, of which slightly less than $1.7 billion is expected to go to the state government and about $690 million is expected to go to our five largest local jurisdictions. However, more and longer-lasting support is needed to ensure the state can keep investing in things like health care and public schools—and to prevent potentially thousands of teachers, sanitation workers, and other public employees from losing their jobs. The Congressional Budget Office found that federal aid to state and local governments was among the most effective responses to the Great Recession. However, this needed assistance dried up long before state and local revenue losses subsided. For example, federal support for K-12 and higher education in Maryland increased by nearly 80 percent from 2009 to 2010, offsetting a deep drop in state education funding. However, that assistance disappeared only two years later, leaving inflation-adjusted federal education aid lower than its pre-recession level—while state education funding remained well below its 2009 level even five years later. Congress should act quickly to guarantee meaningful support as state and local governments face long-lasting revenue losses.
• When the Maryland General Assembly next convenes, lawmakers should act swiftly to raise new state revenues to protect our vital public services, as they did on several occasions during and after the Great Recession. Raising more revenue—especially asking more of large corporations and wealthy individuals—is an effective way to reduce economic pain during a downturn. This is because cutting state services would unavoidably require laying off or furloughing large numbers of public employees who currently make a decent, but not extravagant, living. These workers would have little choice but to cut back on necessities, harming sales at local businesses. On the other hand, wealthy individuals are more likely to have significant savings and therefore do not change their spending habits as strongly in response to a change in income. In fact, economic research out of Johns Hopkins University confirms that individuals with significant built-up assets are the least likely to change spending habits when their income changes. Cleaning up Maryland’s tax code and closing loopholes for large, multistate corporations would significantly strengthen Maryland’s ability to weather a deep recession.