The 2008-09 Great Recession has created an ongoing severe fiscal crisis for state and local governments throughout the United States. Republican leaders are now advancing an agenda to radically downsize state and local governments by cutting taxes, slashing wages and benefits for public workers, and selling off state-owned facilities. But Democratic Party lawmakers are also proposing sharp cuts in state and local government spending programs in the face of the budget crisis. We argue that these austerity policies are not the only possible responses to the crisis, and propose some alternative approaches that can accomplish three things: 1) Close the budget gaps in the short term; 2) Promote a sustainable recovery over the next few years; and 3) Over the long term, help insulate state and local government budgets from the effects of recessions. Our proposals include maintaining revenue-sharing support at the federal level. At the state and local level itself, we propose: 1) Raising taxes for the rich; 2) Pressuring banks to move their current huge supply of excess cash reserves into productive investments; 3) Putting state-level rainy-day funds to more effective use; 4) Pushing infrastructure projects forward more rapidly and 5) Eliminating tax giveaways to businesses.
