How Will States and Localities Divide the Fiscal Relief in the Coronavirus Relief Fund?

The new bipartisan economic stimulus legislation — known as the CARES Act — contains significant new resources to help states address massive, immediate budget problems due to COVID-19, though states will almost certainly need more aid in coming months.

The centerpiece of this aid is the $150 billion Coronavirus Relief Fund, which state, tribal, and local governments can use this year to meet costs connected to the virus. Each state will receive at least $1.25 billion, while the most populous states (California and Texas) will receive over $10 billion each, we estimate. (See Table 1 for total state allocations.)

A portion of each state’s allocation will go to local governments. Only local governments with populations over 500,000 are eligible for funding. In states with no city or county over 500,000 people, the state government will receive the entire allocation.

Each county and city exceeding the population threshold will receive funding based on the following formula:

• Take 45 percent of the state’s total allocation. Multiply that by the local government’s share of the state population.

We estimate that state governments will receive about $110 billion of the total allocation, or 79 percent of the total that is not set aside for tribes, the District of Columbia, Puerto Rico and other territories. Local governments will receive the other 21 percent of the funds — about $29 billion. In 16 states, the state government will receive the entire allocation, since no localities in those states have 500,000 residents.

States, tribes, and local governments are incurring huge new costs as they seek to contain and treat the coronavirus and respond to the virus-induced spike in joblessness and related human needs. At the same time, they’re projecting sharply lower tax revenues due to the widespread collapse of economic activity brought about by the virus’ spread and needed containment activities. If they respond to this dire fiscal crisis by laying off state and tribal employees, scaling back government contracts for businesses, and cutting public services and other forms of spending, those actions will make the recession worse. Tribes are uniquely vulnerable to the downturn since tribal businesses deeply affected by the virus and downturn, such as casinos, often generate vital government revenue for tribes to run programs such as public health and child care.

Given the economy’s extremely rapid decline and the extraordinary damage being done to state, tribal, and local budgets, federal policymakers will need to come back and provide more help to states and families affected by the crisis.