Fed’s Powell says state and local governments are rebounding faster right now than during the financial crisis

Jerome Powell testifies before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, U.S., November 28, 2017.   REUTERS/Joshua Roberts
  • State and local government tax revenues have performed “better than expected,” Fed Chair Jerome Powell said.
  • Employment is still down by 1.3 million jobs, but school reopenings should bring back some payrolls, he added.
  • Expenses related to the pandemic are still murky and could present risks, the Fed chief said.
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One of the biggest laggards of the previous economic recovery is recovering better this time around, Federal Reserve Chair Jerome Powell said Wednesday.

The direct payments and expansion to unemployment benefits included in President Joe Biden’s $1.9 trillion relief plan are already among its most popular elements. But the inclusion of state and local government funding also addresses what many deem the biggest mistake of the 2009 stimulus package.

A lack of sufficient funding for governments allowed for budget shortfalls that forced job cuts and gutted social programs for years. Economists at JPMorgan estimated the absence of adequate aid slowed economic growth by an average of 0.26 points in the four years after the financial crisis.

The Fed feared a similar dynamic would emerge at the start of the COVID-19 recession, but data so far has been encouraging, Powell told the House Financial Services Committee on Wednesday.

“What we see is that revenues have performed better than expected. They’re about flat overall. Some states are down a lot, other states they’re actually up,” the central bank chief said.

Employment in state and local government is still down about 1.3 million payrolls. Yet many of those jobs are in education and school reopenings should lift that labor market, Powell said.

To be sure, the Fed chair avoided commenting on Democrats’ stimulus plan, noting central bank officials should stick to deliberating monetary policy and leave fiscal matters to lawmakers.

Certain areas remain murky. Fed policymakers “don’t have a great picture” of state and local governments’ expenses, Powell said, particularly those linked to the COVID-19 crisis like testing and vaccine distribution. Fiscal support passed in 2020 addressed some costs, but discrepancies across states make for a “complicated picture,” he added.

The Fed’s overall outlook, however, is fairly optimistic. Powell on Tuesday told the Senate Banking Committee that falling COVID-19 case counts and vaccine rollouts “offer hope for a return to more normal conditions later this year. He reiterated his positive view during the House hearing, saying the US is well on its way to reversing the pandemic’s impact.

“What I see is an economy where there is still a great deal of slack. I see the prospect of really significant progress as we put the pandemic behind us,” Powell said.

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In a rare show of solidarity, Republicans and Democrats are working together to pass sweeping criminal justice reform in Michigan as the state’s jail population grows

Michigan's Electors Meet
Michigan Lt. Gov. Garlin Gilchrist opens a session at the state Capitol

  • Michigan lawmakers will have advanced more than two dozen criminal justice reform bills when they close the current session this week.
  • Governor Whitmer created a bipartisan commission in 2019 to look at jails across the state to better understand the problem. Much of the reform effort is modeled on its recommendations.
  • The overhaul aim to reduce the state’s jail population, which has tripled over the past 3 decades even as crime rates have fallen to a 50-year low. 
  • Supporters spanned grassroots racial justice organizations to Amway co-chairman Doug DeVos, the brother-in-law of education secretary Betsy DeVos and a major conservative force in Michigan.
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For years, Michigan courts have been taking away peoples’ drivers licenses for reasons that have nothing to do with their behavior behind the wheel.

Instead, suspending the right to drive has been used as a cudgel to get people to pay traffic tickets, court fines, or child support. But because people need to work in order to afford to pay these fees, thousands thousands of them have been driving on suspended licenses in order to get to work. And if they got caught, they wind up in jail. 

Today, driving on a suspended license is one of the leading reasons Michiganders wind up in jail, and the system often appears more designed to squeeze money out of the state’s poorest citizens rather than as a tool to ensure public safety. It’s part of the reason the state’s jail population has tripled over the past 30 years even as crime rates have fallen to a 50-year low.

No one knew how seriously out of whack the jail system had become until earlier this year, when a first-of-its-kind commission took a look at who was going to jail and why. And now, when Michigan has become emblematic of just how broken our political system has become – with right-wing terrorists plotting to kidnap the state’s Democratic governor and some Republicans working to overturn President-elect Joe Biden’s victory in the state – lawmakers who are often at each others’ throats are determined to make big change before they adjourn for the year. By the time the state legislature wraps up this week, it will have advanced more than two dozen criminal justice reform bills.

“Right now, America is kind of at a reckoning,” said Pastor Kevin Harris, who served 14 years in prison for drug-related offenses and is now a community organizer who chairs the board of the group Michigan Liberation. “Even the most corrupt system has to recognize that we went overboard.” 

Detroit BLM
Detroit Activists March, Nov. 7th, 2020.

This session, Michigan lawmakers have already enacted legislation that automatically wipes people’s criminal records clean of most misdemeanors – and some felonies – after several years. It is the most progressive law of its kind in the US. They’ve also passed legislation that makes it easier for those with a criminal record to get an occupational license to work as a barber, roofer, or cosmetologist. 

This week, lawmakers are scrambling to pass a package of 20 more reform bills before their session ends, including one that will stop courts from suspending people’s licenses for reasons unrelated to their driving records. That alone could lift the risk of arrest from over the heads of hundreds of thousands – more than 350,000 people had their licenses suspended because they failed to appear in court for other reasons or because they had unpaid fees or fines in 2018 alone, according to a recent audit. That’s equal to around 1 in 20 drivers in the state.

House Judiciary Chair Graham Filler, a Republican from just north of Lansing whose website describes him as “pro-law enforcement” and “not politically correct,” coordinated the effort in the House. 

Even if lawmakers “start at different places, [we] end at the same place,” Filler told Insider. “Can we have a justice system that is proportional and fair and at the same time does not impact public safety?”

NOT A “PARTISAN ISSUE”

In a month where some Republican politicians attempted to overturn Biden’s election victory in the state, criminal justice is one of the only issues where both parties have been able to work together. The coalition that has advanced criminal justice reform in Michigan spanned the progressive ACLU to the right-wing, Koch-funded Americans for Prosperity. A similar alliance of strange bedfellows was also instrumental in passing national legislation signed by President Donald Trump in 2018, which overhauled mandatory minimum sentencing laws and made other changes to the federal prison system.

“We need to reject the idea that this is a partisan issue,” Democratic Lieutenant Governor Garlin Gilchrist, who co-chaired a bipartisan commission on criminal justice reform, said in an interview. 

Michigan Lt. Gov. Garlin Gilchrist
Lt. Gov. Garlin Gilchrist with Supreme Court Chief Justice Bridget McCormack, right, April 17, 2019.

In Michigan, supporters of this legislation spanned grassroots racial justice organizations to Amway co-chairman Doug DeVos, the brother-in-law of education secretary Betsy DeVos and a major conservative force in Michigan. The politics are good for both the right and left: Progressive ss can tout the reforms package as a win for racial justice, while conservatives can say they managed to shrink the reach of government and bring savings for tax-payers. The state jails cost Michigan’s counties around half a billion dollars each year, eating up around one-quarter of their public safety budgets.

The system “is not actually promoting public safety,” Gilchrist said. “It’s just disrupting people’s lives in dangerous ways.”

Donald Talley knows this cycle first hand. Talley, a 65-year-old who lives west of Detroit in the city of Inkster, first lost his license in 1985 because he had unpaid traffic tickets and child support. He was homeless at the time, earning some money here and there as a mechanic, so he had little choice but to keep driving. 

He was arrested repeatedly over the next 20 years as his fees continued to mount. The arrests became so predictable he even figured out how to use them to his advantage: getting put away in the winter meant he could have a warm place to sleep. Then, through a chance encounter at a soup kitchen, Talley connected with pro bono attorneys who helped him get his fees set aside. By that time, Talley said, he owed well over $180,000 in child support, traffic tickets, and other fees and fines.

Getting out from under the threat of arrest turned his life around, Talley said, and he hoped this legislation would do the same for thousands of others.

“Once you get a smell of victory, you can see the light as far as your life getting better,” Talley said. 

Whitmer jail task force
Michigan Gov. Gretchen Whitmer, left, announces the creation of the bipartisan task force, April 17, 2019.

No one had really conducted a comprehensive study of who was in jail and why until February 2019, when Governor Whitmer created a bipartisan commission to look at jails across the state co-chaired by Lieutenant Governor Gilchrist and Chief Justice Bridget Mary McCormack. This week, lawmakers are working on a package of 20 bills modeled on the report recommendations, including the one that reins in drivers license suspensions. If passed, Chief Justice McCormack told Insider, “it would really make Michigan a national leader.”

The commission took aim at the state’s jails. On average, Michigan’s jails hold more than 16,000 people, usually for stays of less than one week. Jails are often described as the “front door” of the criminal justice system, since people go there to await trial or to serve short sentences. But far more people spend time in jails than go to prison – nationwide, seventeen times more people cycle through jails than prison.  Even a short stay in jail can mean lost jobs, lost custody of children, and fees that can prove hard to escape.

The commission’s work was supported by the Pew Charitable Trusts, which provided a team of technical advisors who have staffed lawmakers as they turned the panel’s recommendations into legislation.

“There are not [other] states, as far as we know, that have tried to understand statewide what’s driving jail populations and what’s contributing to jail growth. This is new and pretty exciting,” said Pew’s Terry Schuster. “With increasing partisanship, criminal justice issues remain one of the few areas where we see continued bipartisan consensus.”

A “KUMBAYA MOMENT”

It took a lot of work to get to this point, especially on the right, said Joe Haveman, a Republican from the Western Michigan city of Holland who tried to advance criminal justice reforms while serving as a state representative between 2009 and 2014. Haveman said his efforts to reform the state’s criminal justice system ran into “brick walls” from “old-school Republicans” during the administration of the Republican Governor Rick Snyder. 

But Michigan has strict term limits, sweeping in a younger crop of lawmakers who look at criminal justice reform through a more libertarian lens. And the opioid epidemic, which hit rural and white communities hard, have also changed attitudes about the role of law enforcement in Republican areas. 

“When I was growing up, I wouldn’t have known anybody who had a problem with the law – I think that was true for a lot of Americans,” Haveman said. “When the opioid epidemic exploded it became somebody we knew… It’s not just a ‘bad person’ – that stereotype that I may see on TV, somebody from a big city.”

Several lawmakers also credited the evangelical community for building support for criminal justice reform among Republicans. Judiciary Committee Chairman Filler said this was an issue of special importance to Speaker Lee Chatfield, son of an evangelical minister who was involved in a prison ministry. (Chatfield declined to be interviewed for this story.)

Lawmakers don’t plan to stop working on criminal justice reform after this session ends. The commission co-chaired by Gilchrist and McCormack made recommendations that the legislature did not act on this year, including provisions to divert people with mental illness away from jail. Lawmakers from rural areas also want to make it easier to wipe arrests for driving under the influence, a common offense outside major cities, from criminal records.

“You’ve had this left-and-right Kumbaya moment on criminal justice reform for the past couple years,” said David Guenthner with the conservative think tank the Mackinac Center for Public Policy. “The objective should be to use prison for those we are scared of, not those we are mad at. And when someone’s coming out of prison, they should have sufficient training and opportunity to earn a living and be a success.”

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