Government Spending

States Aren't Getting a Federal Coronavirus Bailout. Most Will Be Fine.

The COVID-19 pandemic will strain some state budgets, but you shouldn't believe the predictions about catastrophic cuts.

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State and local governments hoping for a federal bailout are likely to be on their own for the foreseeable future. Congress failed to reach an agreement this week on another round of coronavirus spending.

After weeks of negotiations over the next coronavirus package, the Senate voted down a so-called "skinny stimulus" bill on Thursday. Sen. Rand Paul (R–Ky.) and Senate Democrats blocked the bill's advance—though they did so for very different reasons. Paul opposes additional emergency spending because the federal budget deficit is nearing an all-time high, while Democrats want to see yet more spending along the lines of the $3 trillion package the House passed earlier this summer.

Even if it had passed, the Republican-backed $500 billion "skinny stimulus" notably did not include the $1 trillion for cash-strapped states and cities that the House endorsed.

Without that aid on the horizon, some are warning of budgetary catastrophes. The New York Times warned this week of a "dire fiscal crisis" facing some states, declaring in the first paragraph that "Alaska chopped resources for public broadcasting" and that "New York City gutted a nascent composting program that could have kept tons of food waste out of landfills." Many states have canceled planned pay raises for teachers and other public officials too, the Times notes.

That doesn't sound like a crisis. It sounds like states are recognizing that falling tax revenue means they will be unable to spend as much as they'd originally planned in the next year or two. In other words, they are doing the important work of budgeting and setting priorities—work that Congress, with its nearly unlimited credit card, refuses to do.

While every state is different, the overall picture for state budgets looks less pessimistic now than it did a few months ago. In April, Moody's projected that the 50 states were facing a $275 billion revenue shortfall over the next two years due to the coronavirus—and projected that at least 12 states would be able to fully cover their shortfalls with rainy day funds and budgetary reserves. But more recent analyses from a variety of sources—including the Tax Policy Center, the Tax Foundation, and the National Conference of State Legislatures—estimate that the revenue hit will be less severe:

The American Enterprise Institute, a conservative think tank, published a paper this week estimating that state governments face a $105 billion revenue shortfall. When combined with local governments, the revenue shortfall will be about $240 billion.

Those are big numbers. But as a percentage of state revenues, they hardly represent a dire situation. According to the National Association of State Budget Officers (NASBO), state revenue for fiscal year 2020 (which in most states ended on June 30) fell by about 3 percent from fiscal year 2019 levels. High unemployment means that state revenue might take a few years to recover, and "many governors and their administrations have directed agencies to develop contingency plans to reduce their budgets, for fiscal year 2021 and/or fiscal year 2022, by as much as 15 or 20 percent," NASBO reports.

That seems like a prudent thing to do. It is exactly the sort of thing that policy makers should be doing in the face of a public health crisis and economic downturn: reevaluating budgets to prioritize the important things and cutting where possible.

Budget shortfalls can also push state officials to get creative by doing things they probably should have done a while ago. New Mexico and Pennsylvania, for example, are considering legalizing recreational marijuana, so they can tax it to refill their coffers.

"The states face budget challenges, but the situation in most places is not 'dire,'" writes Chris Edwards, director of tax policy for the Cato Institue, a libertarian think tank. "State officials can solve budget gaps without further federal aid by tapping rainy day funds, freezing hiring and wages, and improving program efficiencies."

There is little indication, even in the most pessimistic of scenarios, that states need a $1 trillion bailout from the cash-strapped federal government. And a bailout would create a moral hazard, giving states less incentive to address their own budgetary problems in the future.

Deliberately or not, Congress seems to be letting the states figure this out on their own. That's just fine.

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  1. No worries. Just confiscate the campaign funds of all the socialist democrats, cut all arts funding, eliminate all drag queen story hours at the closed libraries, and fire all teachers not inside a classroom on Monday morning.
    And Bob’s your uncle.

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    3. Yep. It’s high time folks on the state payrolls feel some of the pain lockdowns have caused many in the private sector. In fact I’m sure it would be appropriate that everyone who in any way had their income affected by a government mandate should take a complete two year tax-free holiday. Let them budget starting from zero for two years.

  2. Seems like more evidence of government malfeasance. But I have the feeling covid will suddenly be a nothing burger come January 21. The media will ho hum and find some way to get Biden his Nobel peace prize.

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  3. The democrat runs states can save money in many ways. Including extending emergency public health proclamations to other things beyond KungFlu.

    For example, states like CA could put a moratorium on homosexual sodomy. This would help prevent the transmission of HIV.

    Nothing says ‘superspreader’ like Tony at a San Francisco bathhouse on a Saturday night.

  4. “State officials can solve budget gaps without further federal aid by tapping rainy day funds, freezing hiring and wages, and improving program efficiencies.”

    Or, you know, let people be productive again and tax the shit out of them like always.

  5. Jay Inslee hardest hit. Now he has to pray that Biden wins to get his bailout.

  6. “New York City gutted a nascent composting program that could have kept tons of food waste out of landfills.”

    Oh, the humanities.

  7. Sounds right. Why would states and cities, where citizens live and pay taxes, get any money?

    I mean, SOMEONE has to pay for all these tax cuts that the wealthy get which jacks up the deficit.

    1. The deficit is jacked up by the government spending money it doesn’t have, not by people keeping money that belongs to them.

      1. wearingit is one of those retarded lefties that thinks the money belongs to the government.

        1. It certainly appears so.

          1. You are actually arguing that there is no such thing as revenue.

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            2. “You are actually arguing that there is no such thing as revenue.”

              You are confused and dishonest, shitstain.

        2. “wearingit is one of those retarded lefties’

          ‘Nuff said.

    2. They got money. Their money. It’s not MY job to bail out NYC.

    3. Maybe Soros, Gates, the Ford and Rockefeller Foundations could divert a lil’ sumpin from funding riots, coups, and government overthrow to keep the states (which produce NOTHING of real value) flush with blood money.

      1. Tax the rich! Amirite?

  8. “State and local governments hoping for a federal bailout are likely to be on their own for the foreseeable future. Congress failed to reach an agreement this week on another round of coronavirus spending.

    LO fuckin’ L

    Congress didn’t fail to reach an agreement.

    President Trump and the Republicans refused to give them a nickle on principle.

    Don’t take my word for it. Ask Nancy Pelosi and Chuck Schumer:

    “This emaciated bill is only intended to help vulnerable Republican senators by giving them a ‘check the box’ vote to maintain the appearance that they’re not held hostage by their extreme right-wing that doesn’t want to spend a nickel to help people,” House Speaker Nancy Pelosi (D., Calif.) and Senate Minority Leader Chuck Schumer (D., N.Y.) said in a joint statement Tuesday.”

    https://www.wsj.com/articles/republicans-roll-out-skinny-stimulus-bill-as-talks-with-democrats-remain-stalled-11599599646

    That’s what we’re talking about.

    The Democrats in the House passed a $3.5 trillion stimulus bill with $1 trillion for the states–and Donald Trump and the Republicans in the Senate offered them nothing and told them, “Fuck you, states, cut spending”.

    I can hardly imagine a more libertarian and capitalist response. Thank you, GOP. They deserve to be rewarded for this. It’s hard to cut off spending like this under normal circumstances. In the middle of a recession and eight weeks before an election, their actions are nothing short of heroic. Better than anyone should have expected.

    1. And ask her about that haircut for a good laugh.

    2. Kudos for the GOP Senators that are holding the line on NO MORE stimulus money. Then, August employment numbers were solid after NO stimulus deal. Apparently, the Dems are playing the role of “party of stupid” by not being willing to trim their stimulus package down to ONLY 1 trillion. LOL at those idiots for overplaying their hand.

      It’ll be interesting to see how the election plays out. If the Dems win POTUS, Senate and hold the house, then bail out the blue states, you might see the largest red wave mid-terms in history. Whether the party of stupid can nominate the decent POTUS candidate is the real question. The clown-car, shit show of candidates in 2016 is what led to Trump. What’s left for 2024?

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  11. This is a horribly dishonest article and Reason should correct and apologize for it. I knew that states weren’t facing a 3% loss in tax revenues. The source linked notes the first three quarters of FY 2019 were strong, but the fourth that ended June 30th was so bad the year ended down 3%. It then states: “many governors and their administrations have directed agencies to develop budget reduction plans of as much as 15 percent or 20 percent for fiscal 2021 and/or fiscal 2022.”

    1. So…….

    2. And how is that the Federal Governments problem again? Funny how red states are dealing with it but blue states are crying for a bailout. Fuck off slaver.

  12. It’ll be interesting to see how the election plays out. If the Dems win POTUS, Senate and hold the house, then bail out the blue states, you might see the largest red wave mid-terms in history. Whether the party of stupid can nominate the decent POTUS candidate is the real question. The clown-car, shit show of candidates in 2016 is what led to Trump. What’s left for 2024?

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