Five Facts on State and Local Government Aid
One of the most contentious parts of the recently passed $1.9 trillion COVID-19 relief bill is the state and local government aid provision, with critics noting that many localities are in decent financial shape amid a rebounding economy.
Here are five facts on state and local government aid:
- The COVID-19 relief bill provides $350 billion for state and local government aid.
The allocation to states, including D.C., totals $195.3 billion, with the division of funds being determined by each state’s share of national unemployed workers. Local governments, including cities and counties, will receive $130.2 billion. These funds will be equally split between cities and counties, with the allocation determination coming from the existing Community Development Block Grants formula. Additionally, $20 billion will go to tribal governments and $4.5 billion to U.S. territories.
- When the U.S. government declared COVID-19 a national emergency in March 2020, the Tax Policy Center forecast state and local government revenues would fall between 3 and 18% in 2020.
The U.S. economy contracted 34.3% in the second quarter of 2020, and state and local tax revenues were expected to fall significantly due to the decreased economic activity. The $2.2 trillion CARES Act, passed in March 2020, appropriated $150 billion to states to cover budget shortfalls and make necessary COVID-19-related investments.
- However, a recent JP Morgan Study showed an average decline of only 12% for state revenues between 2020 and 2019.
Alaska’s revenues fell the most, at 42.5%, while Idaho’s revenues grew the most, up 10.5%. Other state government taking a notable financial hit include Florida, down 11.3% and Texas, down 10.4%. Local governments have also seen greater projected declines in revenue, with localities like Oklahoma City and Douglas County, Nebraska forecasting up to 40% revenue declines.
- Many Democratic states have planned new spending in their budgets thanks to the stability of tax revenues and additional funding from the federal government.
For example, the governor of New Jersey’s most recent budget pledges to fully fund the state’s pension obligation for the first time since 1996. New York State alone will receive $44 billion, which includes $6.5 billion in federal funds for the Metropolitan Transportation Authority to stop service and employee cuts necessitated by travel slowdowns.
- Many Republican states have announced tax cuts due to higher-than-expected tax revenues.
Due to the higher-than-expected state revenues, the Kansas Senate passed a significant tax cut of nearly $475 million. Georgia also passed a bipartisan tax cut bill totaling $140 million that passed 171-0 in the Georgia House.
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