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States face cash crunch amid COVID-19

Yahoo Finance’s Adam Shapiro and Seana Smith speak with Aarthi Swaminathan about the funding problems facing state and local governments.

Video Transcript

ADAM SHAPIRO: All right, we want to welcome back to Yahoo Finance Live. One of the things we've been watching is the pinch on state and local governments, and we invite into talk about this and some other things that are going on broader than just that-- what's happening to people with student debt. We invite into the program Aarthi Swaminathan, our correspondent from Yahoo Finance. Let's talk about state and local governments right now. It's bad.

AARTHI SWAMINATHAN: It's really bad. Like Moody's had this report out in September which said, oh yeah, the worst is behind us, so this is our baseline forecast, and they had a serious focus. Looks like the severe forecast is going to come true. They're expecting state revenues to drop by-- state reserves to drop by 1% and then in 2021 almost 6%. That's insane. It's a $330 billion shortfall. It's kind of a conservative estimate. Some groups say $555 billion.

But what that means for, you know, state and local governments is this could be the worst shortfall since the Great Depression, and this is them saying that. So when you look at the whole map of it, there are certain states that stand out-- Florida, Nevada, Louisiana. And these states are very reliant on general sales tax. So the entire recession is going to come down hard on these states.

We're trying to reach out to these states to see what they have to say in terms of what they're doing. So a lot of implications here for how this could play out for people.

SEANA SMITH: Aarthi, in your conversations and who you've been talking to, is there any indication-- I know we don't have a firm grasp on this at this point, but just in terms of some of the steps that they have already taken since the COVID-19 pandemic came to the US several months ago.

AARTHI SWAMINATHAN: Right. So I cover the education sector, and it has been an historic shedding of jobs, right? And these are jobs that may not even come back-- bus drivers, cafeteria workers, teachers to some extent, but they still can do this whole remote-working thing.

But one of the interesting things someone flagged to me was we could see an increase in fines and fees, parking tickets. We could see more people getting fined for small offenses. And this would hurt Black and brown communities more, understandably.

So we could see a lot of-- not just in, like, specific sectors but also things like fines and fees that I didn't really consider that.