How Would the Proposed $160 Billion in State and Local Aid Be Allocated?

Accounting News

A bipartisan coalition of U.S. Senators has unveiled a $908 billion COVID-19 relief bill which includes, among other provisions, $160 billion in additional aid to state and local governments. It is worth briefly exploring what this would mean, and the amounts of aid each state might expect.

While well short of amounts contemplated in the HEROES Act, introduced by congressional Democrats in the spring, this amount would be nearly enough to cover likely revenue declines for state and local governments in aggregate across FYs 2020 and 2021 (an estimated $178 billion in losses compared to FY 2019 collections). Aggregate figures, however, disguise the steep losses a handful of states have experienced. While some states are running modest surpluses, several—particularly California and New York—have experienced dramatic revenue losses, or project doing so.

The way state and local relief is distributed, therefore, is nearly as important as the amount, and this raises difficult prudential questions. Targeting proven revenue losses would be the most efficient, patching budget holes at the lowest cost, but would be unfair to states which saved more for a rainy day, had less volatile tax codes, or budgeted more prudently—and would encourage states to act more profligately in the future. (It could also encourage states to game their revenue systems to yield higher losses during the targeted years.) At the same time, completely indifferent targeting—such as using population figures alone, for instance—either means that it takes a far larger overall relief package to meet certain states’ needs, or, alternatively, that some states’ needs go unmet.

Replacing every dollar of lost revenue would be a mistake. States are expected to prepare for recessions, and federal relief which obviated that need would create perverse incentives for future state tax and budget decisions. But no state anticipated a global pandemic, and it is reasonable for the federal government to provide some measure of relief to account for the difference between an “ordinary” recession and the deep hole many states are now in.

Direct aid is not the only way that the federal government has propped up state revenues, of course. The Pandemic Unemployment Assistance program (an additional $600 a week initially, and now $300 a week, for those collecting unemployment benefits) generates additional taxable income for states, and the Paycheck Protection Program, by propping up employment levels, has also helped stabilize state tax collections.

But direct aid to states and localities still has its place. The federal government previously provided $150 billion in aid through the Coronavirus Relief Fund, but these funds were dedicated to state pandemic responses (health and economic) and could not be used to backfill state budget gaps. Indirectly, the federal government also picked up another $385 billion in costs, though here too, much of the money was spent on expenses directly arising from the pandemic. Only a fraction of existing aid was “flexible,” meaning that states could spend it however they chose.

The $160 billion in state and local aid proposed by this bipartisan coalition would presumably be flexible relief, but thus far, we do not know how it might be allocated. Lawmakers could use the HEROES Act formula, which took population, COVID-19 cases, and unemployment levels into account, with breakout allocations for cities, counties, and unincorporated areas. This, however, seems relatively inefficient in hindsight; with coronavirus cases surging everywhere, case counts are no longer a particularly accurate measure of a state’s revenue needs, if they ever were. Population, meanwhile, has a certain fairness to it, but fails to capture a state’s economic standing.

Unemployment levels, which only accounted for about 22 percent of the HEROES Act formula, are the most sensible means of allocating aid at this juncture.

The following table explores how $160 billion in state and local aid might be distributed under three allocation scenarios: first, using the HEROES Act’s formula; next, distributing funding based on unemployment levels; and finally, by distributing funding solely on the basis of population. (Calculations rely on the latest official data.) Since we do not yet know what formulas lawmakers may have in mind, these are only hypothetical allocations. If, however, Congress wants to provide the most meaningful relief, focusing primarily or even exclusively on unemployment levels would be a prudent choice.

Possible Allocations of $160 Billion in State and Local Aid
State HEROES Formula Unemployment Levels Population Totals
Alabama $2.371 billion $2.224 billion $2.364 billion
Alaska $0.671 billion $0.349 billion $0.353 billion
Arizona $3.668 billion $3.543 billion $3.509 billion
Arkansas $1.612 billion $1.315 billion $1.455 billion
California $18.214 billion $19.039 billion $19.047 billion
Colorado $2.955 billion $3.1 billion $2.776 billion
Connecticut $1.728 billion $1.829 billion $1.719 billion
Delaware $0.706 billion $0.473 billion $0.469 billion
District of Columbia $0.712 billion $0.393 billion $0.34 billion
Florida $8.923 billion $9.984 billion $10.354 billion
Georgia $4.454 billion $5.028 billion $5.118 billion
Hawaii $0.83 billion $0.635 billion $0.683 billion
Idaho $1.149 billion $0.903 billion $0.862 billion
Illinois $6.248 billion $6.16 billion $6.109 billion
Indiana $3.252 billion $3.3 billion $3.245 billion
Iowa $1.83 billion $1.613 billion $1.521 billion
Kansas $1.706 billion $1.499 billion $1.404 billion
Kentucky $2.105 billion $1.939 billion $2.154 billion
Louisiana $2.176 billion $2.087 billion $2.241 billion
Maine $0.818 billion $0.669 billion $0.648 billion
Maryland $2.534 billion $3.114 billion $2.914 billion
Massachusetts $3.158 billion $3.564 billion $3.323 billion
Michigan $4.312 billion $4.8 billion $4.814 billion
Minnesota $2.971 billion $2.977 billion $2.719 billion
Mississippi $1.509 billion $1.276 billion $1.435 billion
Missouri $2.959 billion $2.949 billion $2.959 billion
Montana $0.8 billion $0.53 billion $0.515 billion
Nebraska $1.259 billion $1.017 billion $0.933 billion
Nevada $1.659 billion $1.526 billion $1.485 billion
New Hampshire $0.846 billion $0.719 billion $0.656 billion
New Jersey $3.823 billion $4.359 billion $4.282 billion
New Mexico $1.234 billion $0.914 billion $1.011 billion
New York $8.442 billion $8.973 billion $9.378 billion
North Carolina $4.546 billion $4.873 billion $5.056 billion
North Dakota $0.728 billion $0.395 billion $0.367 billion
Ohio $5.202 billion $5.736 billion $5.635 billion
Oklahoma $2.11 billion $1.849 billion $1.908 billion
Oregon $2.121 billion $2.113 billion $2.033 billion
Pennsylvania $5.208 billion $6.285 billion $6.171 billion
Rhode Island $0.797 billion $0.535 billion $0.511 billion
South Carolina $2.254 billion $2.357 billion $2.482 billion
South Dakota $0.769 billion $0.457 billion $0.427 billion
Tennessee $3.238 billion $3.298 billion $3.292 billion
Texas $13.026 billion $13.916 billion $13.978 billion
Utah $1.881 billion $1.623 billion $1.546 billion
Vermont $0.568 billion $0.317 billion $0.301 billion
Virginia $3.527 billion $4.224 billion $4.115 billion
Washington $3.538 billion $3.94 billion $3.671 billion
West Virginia $0.978 billion $0.755 billion $0.864 billion
Wisconsin $3.025 billion $3.094 billion $2.807 billion
Wyoming $0.609 billion $0.292 billion $0.279 billion
Territories $4.241 billion $1.145 billion $1.77 billion

Sources: U.S. Census Bureau; U.S. Bureau of Labor Statistics; Centers for Disease Control and Prevention; Tax Foundation calculations.

Was this page helpful to you?

Thank You!

The Tax Foundation works hard to provide insightful tax policy analysis. Our work depends on support from members of the public like you. Would you consider contributing to our work?

Contribute to the Tax Foundation


Products You May Like

Articles You May Like

The stock market frenzy feels like 1999 dot-com bubble, global investor Barry Sternlicht warns
Schwab earnings top estimates in first report since TD Ameritrade merger, accounts near 30 million
Massachusetts Flavored Tobacco Ban Has Severe Impact on Tax Revenue
IIRC revises integrated reporting framework
The 2021 Tax Season will Start Feb. 12

Leave a Reply

Your email address will not be published. Required fields are marked *