Vice President for State Fiscal Policy
Some wrongly argue that federal policymakers should “wait and see” before giving states more fiscal aid to help address their huge, recession-driven revenue shortfalls, in part because they haven’t spent all the aid they’ve received so far. States, however, have good reasons not to spend all of that aid just yet. And, in any case, they’ll need far more to address their extraordinary shortfalls and avoid further layoffs and other cuts that would hamper an economic recovery.
Business closures and lost income and jobs — including some 1.5 million furloughs and layoffs of state and local workers — have severely shrunk states’ sales and income tax revenues. All 39 states (plus the District of Columbia and Puerto Rico) that have released new revenue projections are reporting shortfalls, generally very large ones. Nationwide, we estimate, these shortfalls total about $615 billion over the next three fiscal years, not including the added costs of fighting COVID-19.
The federal aid to states thus far includes only about $70 billion to address these revenue losses. That’s far too little to help states avoid layoffs and impose school funding and other cuts that would harm families and communities while making the recession worse and delaying a recovery. States undoubtedly will spend all of that aid and still fall far short of meeting needs.
States, localities, tribal governments, and territories can also access the $150 billion Coronavirus Relief Fund (CRF), which is primarily intended to cover state and local costs of fighting COVID-19 and cannot be used to make up for revenue losses. Policymakers created the fund in the CARES Act of March, the Treasury Department sent about $110 billion of it to states in late April, and states must spend all the funds by December 30.
States haven’t yet spent much of this funding for good reasons that include the following:
To be clear, states have begun spending their CRF allocations and increasingly agree on how to do so. In just the last week, for example, policymakers in Michigan and Kansas announced plans on spending substantial portions of the funds. And others in states including Alabama, Idaho, and New Hampshire have already appropriated a large share of the funds, even if some of these funds have not yet been disbursed. But because states still face huge budget shortfalls due to the pandemic, they desperately need more federal aid to avoid laying off more workers, cutting back on health care and other services, and taking other steps that would extend the harm to families and communities, and delay the economy’s recovery.