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New Analysis - Many state and local governments need help. But it's hard to make the case for $510 billion of support in the House hill.http://www.crfb.org/blogs/state-and-local-governments-do-not-need-half-trillion-covid-relief ( @BudgetHawks)
1) State and local government revenue fell sharply in the Spring of 2020. But thanks to a strong (but uneven) partial recovery & other factors, revenue has mostly rebounded.
Our best rough estimate is total S&L revenue was 2% higher at the end of 2020 than the end of 2019.
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Our best rough estimate is total S&L revenue was 2% higher at the end of 2020 than the end of 2019.
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2) Importantly, 2% growth is well below trend - and it might be a bit of an overestimate (others think revenue is flat) - so state and local governments aren't "all better". But nor was revenue literally decimated like back in 2009. (And w/ fed aid, it was way up!)
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3) Of course, averages don't tell the whole story. There are wide disparities between states/localities.
Alaska, Hawaii, North Dakota, Texas, & Florida are hurting. Idaho, Utah, Colorado, South Dakota, & California are doing quite well.
h/t @urbaninstitute/ @washingtonpost.
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Alaska, Hawaii, North Dakota, Texas, & Florida are hurting. Idaho, Utah, Colorado, South Dakota, & California are doing quite well.
h/t @urbaninstitute/ @washingtonpost.
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4) According to http://COVIDMoneyTracker.org , the federal government has so far allocated at least $360 billion to support states and localities - through a higher Medicaid match, the Coronavirus Relief fund, and support for public schools and transit.
This is a low estimate. 5/
This is a low estimate. 5/
5) http://COVIDMoneyTracker.org takes a relative narrow view of what is considered State and Local Aid. In reality, states and localities are/will be at least half a trillion better off as a result of COVID relief. That's one reason *total* state/local receipts are way up!
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6) The American Rescue plan proposes to send at least $510 billion of addition state and local aid - including $350b of direct, $130b for public schools, and $30b for transit.
States like California and Idaho that are doing quite well will get generous further support.
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States like California and Idaho that are doing quite well will get generous further support.
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7) The aid even appears to be relatively large for some states that aren't doing well. Florida is faces a $3.3 billion 2-year shortfall and will get $10 billion of state aid (plus $15b of local aid)
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8) As @JHWeissmann, @MichaelRStrain, Chuck Lane, and others have written, the total aid in the package appears much larger than the total need.
S&L govs likely need ~$100b, maybe as much as $225b. It's hard to make the case for $510 billion.
8/ http://www.crfb.org/blogs/state-and-local-governments-do-not-need-half-trillion-covid-relief
S&L govs likely need ~$100b, maybe as much as $225b. It's hard to make the case for $510 billion.
8/ http://www.crfb.org/blogs/state-and-local-governments-do-not-need-half-trillion-covid-relief
9) So what's the consequence of spending too much on state & local aid?
For starters, it's a key reason the overall package is probably too large, and yet does too little to support unemployed workers through the end of the crisis. http://www.crfb.org/blogs/how-much-would-american-rescue-plan-overshoot-output-gap 10/
For starters, it's a key reason the overall package is probably too large, and yet does too little to support unemployed workers through the end of the crisis. http://www.crfb.org/blogs/how-much-would-american-rescue-plan-overshoot-output-gap 10/
As @JHWeissmann and @jasonfurman have suggested, excessive State and Local aid could lead Governors and legislatures to enact large permanent tax cuts that could ultimately weaken both state and federal finances. 11/ https://slate.com/business/2021/02/state-budgets-relief-bill-congress-covid.html
There is such a thing as too much of a good thing. State and local governments need support to make it through this crisis. But they don't need half a trillion dollars of support - they don't need a quarter of the entire COVID relief package.
http://www.crfb.org/blogs/state-and-local-governments-do-not-need-half-trillion-covid-relief
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http://www.crfb.org/blogs/state-and-local-governments-do-not-need-half-trillion-covid-relief
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