Spiking unemployment around the country and dire predictions for second quarter economic growth have created a budget crunch for many state and local governments, and it could be a long-term drag on the United States economy.

Robert Dye, chief economist at Comerica, said that sharp declines in employment and consumer sales will hurt tax revenues for state and local budgets, which often have legal restrictions that keep them from filling shortfalls with debt, and weaken a key source of jobs in the country.

"That certainly is a big load of challenge for state and local governments ... they can't run deficit financing. And the other thing is that state and local government spending is bigger than federal spending, so it's very important to the economy," Dye said.

The economic impact from the coronavirus pandemic has resulted in more than 16 million new unemployment claims in just the past three weeks. The economic hit has already resulted in layoffs and furloughs for local government employees from Cincinnati to Santa Barbara, and governors slashing spending from budgets.

In Washington state, site of the first coronavirus outbreak in the U.S., Gov. Jay Inslee cut more than $400 million from the state budget over the next three years.

The federal government has started to step in to help its smaller cousins. The $2.2 trillion CARES Act included money for state and local governments, though some, including New York Gov. Andrew Cuomo, have said the assistance was not enough as health expenses rise. On Thursday, that Federal Reserve announced a $500 billion liquidity facility for municipal debt to help cash-strapped local governments.

However, funding issues for the public sector are unlikely to disappear when the health crisis passes, Dye said, and weak government spending could be one of the areas that prevents a sharp, V-shaped recovery for the U.S. economy.

"The second quarter hole is so deep that it's going to take several quarters to get back, and that's going to have an impact on state and local government budgets because that has a direct correlation to tax receipts. The economy is not going to get back to that level for two years or three years, and tax receipts are going to be weak for quite some time," Dye said.