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