Bailouts

State Governments Didn't Need Coronavirus Bailouts. They Got Billions of Dollars Anyway.

As it turns out, state and local tax revenues hardly collapsed.

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Warnings that state and local governments faced a fiscal calamity were predictably plentiful when it became clear in early 2020 that COVID-19 would cause major social and economic disruptions. Predictable because it has become gospel that the solution to an economic downturn is to have the federal government suck money out of the private sector, redistribute it to state and local governments minus a cut for all three levels of bureaucracy, and then spend the remainder—often wastefully—according to political desires and special interest dreams.

There were a few of us who argued that federal bailouts for state and local governments were both unnecessary and unwarranted. As it turns out, state and local tax revenues hardly collapsed. In fact, state and local tax revenues are up after a brief drop early in the pandemic. While state and local revenue levels are lower than pre-pandemic projections, state and local politicians have come away with more of their constituents' money to spend—hardly a calamitous outcome. According to the National Association of State Budget Officers, "state general fund spending is projected to grow 5.0 percent in fiscal 2022 compared to fiscal 2021 levels, with 39 states proposing spending increases according to governors' budgets."

But the handful of heretics were ignored, and the Trump and Biden administrations teamed with Congress to allocate almost $1 trillion in combined federal aid to state and local governments on pandemic relief grounds. So, in addition to state and local politicians getting to spend more of their own constituents' money, they also get to spend more money from current and future taxpayers in the other 49 states—an even sweeter deal from their perspective because it's all political gain and no political pain. Just ask embattled California Gov. Gavin Newsom, who is facing a recall election due to dissatisfaction with his handling of the pandemic and is using part of his state's unexpected bounty to send out $600 checks to voters.

What's extra galling about the federal government's financial coddling of state politicians is that it rewarded governors for destroying their own economies and wreaking havoc on countless lives through haphazard lockdowns and other illogical pandemic policies. That nearly $1 trillion in federal aid to state and local governments doesn't include funds for the millions of people having their businesses and careers upended by these policies.

The governors shuttered the businesses, but in the form of the Paycheck Protection Program, federal taxpayers were put on the hook for another $800 billion to help those businesses survive—not to mention hundreds of billions more for their unemployed workers. And one can only imagine the long-term taxpayer costs associated with peoples' physical health needs being put on hold, the increase in drug and alcohol abuse, the widespread mental health damage, and the millions of children whose educational and social growth was stunted because of governors who cared more about self-serving teachers unions.

Yet state dependency on federal largesse was a growing problem well before the pandemic. As originally designed, the federal government was to have responsibility for areas that were national in scope (e.g., common defense) with everything else left to the states (e.g., education, policing). But whereas federal aid to the states in 1940 was only $13 billion in today's dollars and "only" $239 billion in 2000, it's projected to be over $1 trillion for 2021 and to continue rising as the Biden administration and congressional Democrats aim to have the federal government finance yet a greater share of overall government spending.

With the federal government accounting for roughly a third of total state spending prior to the pandemic, it's fair to wonder what the future holds for the relationship between the federal government and the states. The Constitution gave the states sovereign powers and limited (or at least tried to limit) the propensity for federal domineering. Today, the federal government not only dominates the states, it often does so with the encouragement of state and local officials who are all too happy to cash Uncle Sam's "free" checks. The strings attached are a mere inconvenience. As a result, we're continuing to move even further down the road toward the states effectively becoming administrative units of the federal government.

That's kind of a big deal, and yet it seems like nobody cares—perhaps because so few are even aware.

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  1. But the feds can just print more money.

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    2. They can’t print *resources*. It’s just another form of taxation.

      1. What!?!

        I have been told that only government directives can make food, water, and energy (and my precious internet news feed) show up at my house.

        1. …and give you a house for them to show up at, if you don’t have one.

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    4. If “MMT” is right and there’s no limit to or consequence from unlimited soverign debt, then why does anyone pay any federal taxes?

      If printing money has no downside, then there’s no need for any other source of funding the federal government.

  2. If only one of the presidential candidates had opposed state government COVID bailouts….

    1. More than one did.

  3. Blue States, Counties, and Cities have *always* had the ability to make their socialist ‘utopia’. The ideology talking point is nothing but a wolf in sheep’s clothing.

    Using *National* Gov-Gun-Forces to *steal* other peoples labor who don’t want to be part of the Blue State ‘utopia’ has *always* been the bottom-line. It’s the re-enactment of slavery ‘Nationally’..

    None of them are really *stupid* enough to think ‘National’ Gov-Gun-Forces can *create* wealth but like criminals they’ll come up with 1-Trillion excuses to justify their criminal *theft* behavior and suck-up every last dime from every working person at the end of a Gov-Gun.

    1. Conquer and Consume mentality.

    2. Except the red states are the net takers of tax money which completly upends your fantasy.

      1. Lard ass strudel still believes fake news nonsense

      2. Ironically; Even if that was true (which it isn’t) considering the Nazi’s have claimed 70% of Nevada as their own they’re not really paying for anything but their own theft.

      3. Going out on a limb and saying blue cities and counties in those red states sucking up that sweet cash

  4. And many [R] States passed legislation refusing Nazi-Bribe Money.
    And one day they just might refuse to pay the Nazi-Bill.

    And the Nazi-Regime will either have to launch a Civil War to keep *stealing* from it’s enslaved citizens or fall apart like many many many other nations who listened to socialist indoctrination ideology.

    Or maybe a Convention of States will succeed at peacefully restoring the USA to it’s Non-Nazi-Invaded foundation and *all* citizens can enjoy their Individual Liberty and Justice once again.

    1. Unfortunately, FEDGOV set it up so that money doesn’t flow through the states to get to Washington.
      So the states can’t, even if they wanted to, “refuse to pay the Nazi-Bill”.
      We’d have a much more representative government if FEDGOV had to please the states, to get the tax money they demand from state’s citizens.

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  8. “the solution to an economic downturn is to have the federal government suck money out of the private sector”

    Oh reallly? That’s not what happened. There was no taking from the private sector. The opposite was done. They showered the private sector with money.

    “And one can only imagine the long-term taxpayer costs”

    Ok we can agree to that.

    1. They forbade much of the private sector from conducting commerce. They should have showered them with liberty.

      1. The federal govt wasn’t responsible for the vast majority of that. It was state govts and the businesses themselves.

        1. Exactly. The individual states made their beds and they should sleep in them.

    2. “People with money” are also part of the private sector. And the government’s policies have taken about 5% of that money’s value this year with their inflationary cash deluge.

  9. Hey, if decades of state government budget mismanagement, especially pension funds, can’t be blamed on COVID, what can?

  10. This is exactly what you campaigned for, Reason

    1. Wasn’t very reasonable was it?

  11. Flush with cash and yet Newsom is getting recalled and Cuomo got fired (ok resigned sure sure)

    Two of the biggest states in the nation and their blue democrat governments keep fucking things up.

    Meanwhile red states although not perfect are at least keeping things going, and blue staters are moving there.

    Democrats are going to get shattered in 2022 and 2024 elections.

    1. They got ‘shattered’ in 2020 by people that actually EXISTED in PERSON.

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  13. Federal employees making sure state employees are taken care of by inflating away the wealth of civilians? Feels pretty cold being on the outside of this cozy cartel.

  14. The states didn’t need the printed money because of what happened with the Chinaflu.
    They needed it because they, almost all LieCheatSteal party run, had fucked up their finances before, and they had been begging for a bailout from the rest of the country, for years.
    Calling it Chinaflu related was your typical leftist lie, to fool the low-infos, who don’t know any better.

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