States and local governments always complain about needing more funds from the federal government. Congress has already provided a substantial amount of debt-financed state and local aid as part of the CARES Act and other relief: $150 billion for a Coronavirus Relief Fund, $30 billion for an Education Stabilization Fund, $45 billion for the Disaster Relief Fund, $25 billion for public-transit systems, an increase in the federal government’s share of Medicaid spending, and billions more for a slew of programs, including the Community Development Block Grant Program and the Economic Development Administration. The Federal Reserve has also set up a $500 billion program to facilitate short-term state and local borrowing needs.
States and local governments now want an additional $500 billion federal bailout. The speaker of the House wants to give them $1 trillion. My colleague Tad DeHaven and I have written about why we should not bail out the states. David Henderson at Hoover has written about it too, as have others. I recently wrote a column about it here. But there is another argument against bailing out state and local governments. And it won’t come as a surprise to those of us who have studied relief to state and local governments during the last recession.
The Department of the Treasury Office of Inspector General (OIG) recently released a report that looks at how much the state and local governments have spent of their CARES Act funds as of June 30. It is much less than you think. Some states have spent virtually none of the money allocated by the California, such as South Carolina, which hadn’t yet touched its $2 billion in relief. The most a state has spent is California, which had spent 74.5 percent of the $15 billion allocated up to that point.
Writing about the report, Republicans on the House Ways and Means Committee noted the following:
In Michigan, where Governor Gretchen Whitmer has demanded more federal funding this week, only 3 percent of the more than $3 billion the state received has been spent thus far.
And in New Jersey, where Governor Phil Murphy has levied complaints against the new Senate Republican proposal, the Treasury Department reports that only 2.1 percent of the funds they received have been spent.
It seems some states are sitting on their funds while asking for more. Back in May, a report from the National League of Cities showed that the states themselves weren’t great at sending the money to local government either. And finally, based on the information I received during a Senate hearing on Tuesday, states often aren’t very forthcoming with Congress when asked about how much money they have left and what the have done with the funds.
These are all good reasons not to bail out state and local governments.
UPDATE: It occurred to me that states may look at this report and argue that they need more flexibility to be able to use federal funds to address their revenue shortfalls. As it is right now, they have to use the money on COVID-related expenditures. If those expenditures are lower than the funds allocated, then all they can do is sit on the federal funds.
I think this is a ludicrous argument. It is one thing for state and local governments to ask the federal government for help for expenditures they couldn’t foresee, such as COVID-related expenditures. But they shouldn’t be asking federal taxpayers for money to pay for their routine state and local expenditures, especially when they have failed to plan appropriately for a fall in these revenues. After all, emergencies happen on a regular basis and governments should prepare for them. As such, these governments should turn to their states’ taxpayers for non-COVID expenditures if they don’t want to cut spending.