Loading...

Experts Call for More Federal Aid for State and Local Governments

February 11, 2021 by Victoria Turner

State and local government revenues were not hit as hard as expected by the pandemic, but the looming uncertainty of its long-term impact points to the need for more federal aid, leading economists say.. 

At the start of the pandemic, state and local governments anticipated sharp declines in revenues due to the ensuing economic contraction. 

However, the total revenue for 2020 was only 0.5% below that of 2019, not at all the loss that many estimated, according to Byron Lutz, assistant director and chief of the fiscal analysis section of the Federal Reserve Board.

Presenting his co-authored analysis on the novel coronavirus’s impact on these fiscal budgets during the Brookings Institution’s annual winter Municipal Finance Conference webinar, Lutz said the year-to-date findings are “starkly different” from any other recession the country has faced – even the Great Recession of 2008. Revenue gains and losses have not decreased as severely as previously estimated, he said.

State and local government tax revenues have positively “held up” more than anyone expected, Lutz said. Personal income taxes, which were experiencing strong pre-pandemic growth and a severe decline at the start of last year, “bounced back” up to a 2% growth by the end of 2020. Sales and state tax collections remained much the same as the prior year. 

With the “unprecedented” financial aid from the federal government, a concentration of unemployment at the lower-income level leading to less of a revenue hit, an unprecedented level of taxable unemployment benefits, the sales taxes holding up due to an increase of durables consumption per household, and a continuous rise in the stock market, Lutz said the “story up until this point has been pretty rosy.” 

However, the “key part of the story” is in fact the financial aid that state and local governments received, said Rachael Eubanks, treasurer of the state of Michigan, which ended up receiving about $44 billion in federal aid through the Paycheck Protection Program, enhanced unemployment benefits and the stimulus checks. 

Echoing Lutz, Eubanks said Michigan had rapidly adjusted their budget at the onset of the pandemic but came to realize by the summer that “this recession was just not like previous recessions” and they could not use the typical economic indicators, like the unemployment rate, because the “recessionary trends” are so dissimilar.

 In one month, she noted, 25% of the workforce was unemployed – even when doing a comparison to Michigan’s worst year during the Great Depression, the current unemployment “eclipses” 2009. Spending had dropped across the board, but then spiked above pre-pandemic levels once unemployed individuals received their benefits, she said, seeing a switch to buying durable goods in light of the drop in service spending. 

Another uptick in Michigan sales tax came from the switch to online shopping over brick-and-mortar stores, which normally would be in the $10 to $30 million range but increased to about $300 million.

“Revenues are where they are today because of federal aid,” Eubanks said, pointing out the difficulty of budgeting for the long-term when this aid keeps coming in “in pieces” instead of knowing what you have to work with. 

“We all want to make the best decisions we can with those taxpayer dollars,” she said.

A rough estimate of revenue loss from 2020 to 2022 puts it at $200 – $300 billion for the states and local government, said Lutz. Including the last round of financial relief in December, they have received around $400 billion in federal financial aid, which more than covers the expected loss. This does not mean, however, that there is no more need for more financial aid as the uncertainties surrounding the ongoing path of the pandemic and the “rosy” picture could turn dim.

Any additional federal aid would “boost spending” and provide a “buffer” for any new and unexpected expenses created by the pandemic — such as the likelihood of funding remedial education in the future, any restrictions the stimulus has on how it can be used in each state, and the “extreme uncertainty over future budget conditions” with the varying levels of strain per state. 

Think Tanks

September 28, 2021
by Kate Michael
AI Commission Final Report Confirms U.S. Lagging

WASHINGTON — To keep up with technological advancements and provide for enhanced national security, the National Security Commission on Artificial... Read More

WASHINGTON — To keep up with technological advancements and provide for enhanced national security, the National Security Commission on Artificial Intelligence was created. Its purpose was to make recommendations to the president and Congress that would “advance the development of artificial intelligence, machine learning, and associated... Read More

September 15, 2021
by Kate Michael
Ambassadors Stand With Palestine While Celebrating First Year of Abraham Accords

WASHINGTON — One year ago the United States, UAE, and Bahrain signed a historic agreement and charted a new course... Read More

WASHINGTON — One year ago the United States, UAE, and Bahrain signed a historic agreement and charted a new course in Arab-Israeli relations which recognized the state of Israel and normalized diplomatic relations between the countries. But the desire for a two-state solution recognizing both Israel... Read More

September 15, 2021
by Kate Michael
American Immigration System Not Prepared for Afghan Refugee Situation

WASHINGTON — After a frantic two weeks of the biggest military evacuations in history, the United States is trying to... Read More

WASHINGTON — After a frantic two weeks of the biggest military evacuations in history, the United States is trying to figure out what to do with tens of thousands of Afghan refugees that will soon be flooding into the country.  “This is not the time for... Read More

September 10, 2021
by Victoria Turner
Federalist Society Event Focuses on Competition and Antitrust Issues

WASHINGTON -- President Joe Biden’s controversial executive order on competition was the topic being discussed at a Federalist Society event... Read More

WASHINGTON -- President Joe Biden’s controversial executive order on competition was the topic being discussed at a Federalist Society event held Thursday.  The July 9 Executive Order 14036 entitled, “Promoting Competition in the American Economy,” seeks to address competition issues and reform the antitrust laws governing... Read More

August 24, 2021
by Victoria Turner
Veterans Need to Be Part of the Fight to Preserve Democracy, Voting Rights According to Advocates

Jake Harriman, a veteran Marine who was deployed abroad for almost 15 years, did not recognize the country he left... Read More

Jake Harriman, a veteran Marine who was deployed abroad for almost 15 years, did not recognize the country he left to fight for when he returned to the U.S. in 2015.  During two combat tours in Iraq, the now CEO and founder of More Perfect Union,... Read More

August 19, 2021
by Kate Michael
Van Hollen Wants ‘Equity of the Tax System’ To Pay for Infrastructure, Reconciliation Spending

WASHINGTON -- The Senate has passed both the $1.5 trillion bipartisan infrastructure bill and the framework of the $3.5 trillion... Read More

WASHINGTON -- The Senate has passed both the $1.5 trillion bipartisan infrastructure bill and the framework of the $3.5 trillion budget reconciliation bill made up largely of potential investments in social programs and climate policy. While these massive budgetary items move through the House, Democrats continue... Read More

News From The Well
Exit mobile version