States, Local Governments Now Flush With Cash Even Without Federal Aid

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What a difference two years—and $5.7 trillion in federal money—makes in fostering dramatic reversals of fortune for state and local budget managers.

In spring 2020, governments were confronted with cascading costs in managing the public health response to the COVID-19 outbreak, spiking unemployment, and steep revenue declines resulting from business disruption and restrictions.

Two years later, with legislatures in 40 states now convened in 2020 sessions, lawmakers are awash in federal funding after Congress approved five COVD-19 assistance packages, pumping at least $5.7 trillion into the economy, including $900 billion to state and local governments.

Washington, D.C.-based Committee for a Responsible Federal Budget estimates that as much as $800 billion of that $5.7 trillion remains uncommitted on the table across a spectrum of federal, state, local, and public-private agencies, and in statehouses, county seats, and city halls.

The scenario has flipped from spring 2020. During that second quarter, April-June, the U.S. Government Accounting Office (GAO) reported state and local government revenues declined by $61 billion compared to the same time the previous year.

Overall in 2020, state and local governments reported $117 billion less in revenues than the previous year, mostly stemming from the second quarter, according to estimates of 2020 pandemic-related revenue losses filed with the U.S. Treasury,

But the economy—and state and local government coffers—rebounded sharply beginning in July 2020, largely fueled by the March 2020 adoption of the $2.2 trillion Coronavirus Aid, Relief and Economic Security Act (CARES) Act.

The U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) reports government revenues in the third quarter 2021 were 23 percent above pre-pandemic levels “thanks to massive federal transfer payments from COVID relief legislation.”

Other factors that boosted government revenues cited in a Jan. 28 Associated Press analysis include inflation ignited by stimulus-check spending that leavened sales tax collections, a spike in capital gains tax revenues generated by a strong stock market, federal padding of state unemployment relief, and a pandemic-induced increase in home-based employment.

In reviewing 3,700 reports from governments estimating 2020 pandemic-related revenue losses filed with the U.S. Treasury, AP found two-thirds documented declines during 2020’s “steep but short-lived national recession” in the second quarter.

Texas said it lost $12 billion in anticipated revenues in spring 2020, according to Treasury.

Epoch Times Photo
The Texas State Capitol is seen in Austin, Texas, on Sept. 20, 2021. (Tamir Kalifa/Getty Images)

In many places, the AP reports, state and local government 2021 revenues exceeded those of pre-pandemic levels.

A December 2021 Urban Institute report documents total state and local government revenues in the second quarter of 2021 increased by 20 percent over the same period in 2019.

Among examples of sudden red-to-black transitions cited by AP is Poughkeepsie, N.Y., which had a $7 million deficit and nothing in reserves going into 2020. It reported a $4.5 million revenue loss to Treasury and was authorized to receive more than $20 million in Coronavuris State and Local Fiscal Recovery Funds (SLFRF).

The federal money is authorized to allocate but much remains unspent.

The deadline to expend CARES Act Coronavirus Relief Fund (CRF) money was Dec. 31, 2021, but sunsets for the last of the five federal packages, the March 2021 $1.9 trillion American Rescue Plan Act (ARPA), extend through Dec. 31, 2026.

The CARES Act’s $150 billion coronavirus fund for state and local governments could not be used to cover revenue shortfalls. ARPA includes a $350 billion recovery fund that provides more discretion.

States will receive $195.3 billion and local governments $65 billion from the fund they must earmark by Dec. 31, 2024 and spend by Dec. 31, 2026.

As of Sept. 30, 2021, Treasury had distributed $245 billion in SLFRF although most recipients had not spent most of their allocations. Determining how to do so is being discussed now in state houses, county seats, and city halls across the country.

Under Treasury’s May guidelines, governments that showed a revenue loss could spend an equal amount in SLFRF money on nearly any priority, including roads and infrastructure. A final rule issued Jan. 6 expanded recovery fund flexibility to allow governments to claim up to $10 million of revenue losses.

“What we’re seeing now with the ARPA is certainty,” National Association of State Budget Officers (NASBO) director of budget process studies Kathryn Vesey White said.

“Both pots of money provided a fair amount of discretion for states. States were able to use CRF to cover public health, public safety, payroll expenditures. With (SLFRF) you’re going to see recipients using some for revenue loss.”

National Association of Counties (NACo) deputy director of government affairs Eryn Hurley said the Jan. 6 rule provides two options to calculate revenue loss.

“There’s a lot of flexibility under the final rule that counties are very appreciative of,” she said, noting the nation’s 3,000 counties lost more than $202 billion in revenues the past two years.

The GAO, U.S. Treasury and U.S. Office of Inspector General’s (OIG) Pandemic Response Accountability Committee (PRAC) are now posting data that confirms state and local governments are flush with cash—even before many expend SLFRF allocations, adding weight to criticism by watchdogs who maintain the $350 billion fund is an unneeded bailout for bad budget managers and a boondoggle.

According to reports detailing plans that outline how they will use ARPA SLFRF allocations filed with Treasury, some of the nation’s most prosperous cities and zip codes are benefitting greatly from the federal assistance.

OpenTheBooks.com CEO and founder Adam Andrzejewski, whose website features an interactive map that allows users to look up SLFRF allocations for each county and city, said the fund favors the big and wasteful, and the small and wealthy.

The largest cities are receiving huge allocations under SLFRF, Andrzejewski notes, with New York earmarked for at least $4.3 billion—more money than half the state governments—and Chicago “with their bonds at junk status” is receiving $1.98 billion, more than 12 states will receive.

According to OpenTheBooks, some of the nation’s most wealthy cities will receive plugs of federal cash to spend locally. In fact the nation’s 50 richest places, as defined by Bloomberg, would receive more than $100 million in “bailout funds.”

For example Atherton, California, “the wealthiest city in America with an average household income of $525,000, received $1.3 million from the legislation,” OpenTheBooks states.

Others: Beverly Hills, California ($6.3 million); Hamptons, New York ($8.6 million); Key West, Florida ($10.1 million); Greenwich, Connecticut ($21 million); Oyster Bay, New York ($32.7 million); and Cambridge, Massachusetts ($65 million).

SLFRF earmarks $1 billion for the top 10 richest counties across the United States, OpenTheBooks maintains, but Andrzejewski told The Epoch Times the giveaways are not restricted to big and the wealthy.

He said “a boondoggle in the ARPA that nobody is talking about” is why 574 federally recognized Native American tribes with a total population of 6.8 million received more than $20 billion in SLFRF.

Michigan has 10 million people and received roughly $10.1 billion in SLFRF, he said. “Tribes have a third less people but got twice as much aid. I don’t understand why. Why did they get so much? Nobody wants to answer this question,” he said.

So Andrzejewski provided his own: “Why did tribal governments get so much more money than others? They have a big lobbyist association in D.C.”

Taxpayers for Common Sense, a Washington, D.C-based nonpartisan budget watchdog, in a Jan. 14 “Emergency Spending is Endemic” statement said wasteful spending by state and local governments is guaranteed unless lawmakers and budget managers stop acting as if they are in a house-on-fire emergency.

“Nearly two years, and $5 trillion+ of federal spending into the COVID-19 pandemic, the budgetary emergency nature of COVID-19 is waning,” the group warns.

“COVID-19 is here and will be for some time. Lawmakers who want to continue, or even expand, federal spending in response need to plan and budget accordingly.”

But with billions on the table and mid-term election campaigns heating up after legislatures convene in spring, politics will likely trump prudence in how SLFRF and other federal aid is allocated at state and local levels, Taxpayers for Common Sense concedes.

As a result, “long-term fiscal emergency may be upon us,” it said. “And it’s in large part because lawmakers in both parties continue to designate spending in response to COVID-19 as an ‘emergency’ to avoid making tough choices.”

John Haughey

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