What’s at stake for state and local governments in the year-end government funding negotiations

As the clock ticks toward the end of the 117th Congress, legislators on Capitol Hill are reportedly still locked in negotiations on how to fund the government for 2023. Congress faces the deadline this week—December 16—to pass a plan for government funding, when the short-term continuing resolution (CR) to fund the government will expire.

The federal appropriations fight has serious stakes for state and local governments. Democrats in Congress, in particular, are pushing to not merely pass another short-term CR to keep the funding as is, but to pass a comprehensive spending bill, or omnibus, that fully appropriates funding that meets the realities of the moment. The outcome of these negotiations will, as always, have real consequences for working people and our economic stability overall.

The appropriations debate has especially high economic stakes because of long-standing inaction on Capitol Hill to address the debt limit. The new House Republican majority in the 118th Congress has already signaled their willingness to once again use the debt ceiling to force harmful spending cuts.

State and local governments need significant funding to restore public services

The public sector is in rough shape. While private-sector employment has recovered from the COVID recession of 2020, the same is not true for the public sector. There are 461,000 fewer people in public-sector jobs since February 2020, and specifically in state and local governments, we are still 2.3% below pre-pandemic levels. Even worse, state and local employment is more than 5% below February 2020 levels in many states, including Louisiana, West Virginia, and Michigan.

While the American Rescue Plan’s State and Local Fiscal Recovery Funds (SLFRF) have helped fuel transformative investments and state and local fiscal conditions are generally strong, governments need to spend the money required to hire highly qualified workers to alleviate today’s shortfall. SLFRF dollars should have given them the fiscal capacity to do this, but those funds are finite. Crucially, rebuilding the public sector will require substantial investments from state and local governments long after SLFRF funds have been expended. The ongoing effort to rebuild a better public sector will be compromised if Congress fails to pass an omnibus appropriations bill—or if they pass one that shortchanges the needed increase in non-defense spending.

These shortfalls in state and local government services have real impacts on people’s lives. About 45% of public school report vacancies in special education teachers, and 31% report shortages of elementary teachers. More than 14% of school bus driver jobs are vacant. Key government agencies like health departments are experiencing critical staff shortages as burned-out staff depart and replacements cannot be found at current wage levels. Additionally, a return to the pre-pandemic status quo is not sufficient. State and local governments never fully recovered from the waves of austerity that followed the Great Recession in 2008-09.

The shortfall in state and local government jobs is clearly driven by the inadequate wages paid to public-sector workers. Fully one-third of state and local government workers are paid less than $20 an hour, and 15% are paid less than $15 an hour. Black and Latinx employees are especially likely to be paid inadequate wages in the public sector, which also employs a disproportionate share of women workers. These workers need a raise, and state and local governments will need assistance in raising pay for their workers.

Some conservatives have claimed that non-defense spending priorities have already been addressed through the big public investment legislation of the last two years, such as the Inflation Reduction Act and the bipartisan infrastructure bill. While the scale of these investments has been at historic levels, state and local governments still face an upcoming fiscal cliff when those funds expire. Without an omnibus that boosts state and local funding, Congress could threaten the future fiscal capacity of state and local governments. And those governments that already struggle to provide services or staffing at needed scale, such as those in rural areas, would be left unable to keep up with inflation and vulnerable to any upcoming economic downturns.

Any omnibus budget bill needs to provide state and local governments the resources they need to fill existing vacancies, expand public services in areas of highest need, and rebuild sufficiently to withstand future shocks. Failing to reach agreement on an omnibus spending bill, and instead retreating to uncertain and flat-lined short-term continuing resolutions, will dissuade many state and local policymakers from making these needed investments.