$2,000 Stimulus Checks Vs. State And Local Government Aid: It’s Not About The Money.

With many Americans already set to receive $600 federal stimulus checks, Congress is now considering upping it to $2,000 at the urging of President Trump. House Democrats have jumped on the idea, and swiftly passed a measure approving the larger checks. Now it’s in the hands of the Senate.

The larger stimulus checks, however, would be expensive. The Joint Committee on Taxation estimates that approving stimulus checks of $2,000 would cost $464 billion. That’s a price tag that’s nearly three times the $160 billion that Congress was going to set aside for state and local government aid — until nixing that provision earlier this month.

Clearly, then, this is not about the math. Democrats say the aid would help prop up the economy until a genuine recovery can take hold. For example, during the Great Recession, Congress provided about $280 billion in aid to state and local governments but most of it ran out in 2010. That’s when severe budget gaps began in many places and persisted into 2012. The result was that drastic cuts to core services like public education and transportation weren’t restored well into the economic recovery.

Republicans objected to the direct government aid, calling it a blue state “bailout.” Direct payments to Americans, however, don’t totally leave state and local governments out. But that type of stimulus has more of a trickle-down effect because both the direct payments and increased unemployment benefits included in the relief bill keep money moving in the economy. And that helps state and local governments to a degree because many purchases are taxed and sales tax revenue is a key part of government budgets.

(Notably, sales tax revenue, is pivotal for certain red states that don’t tax wage income. According to the Pew Charitable Trusts, sales tax revenue accounts for more than half of revenue in six states: Florida, Texas, Washington, South Dakota, Nevada and Tennessee.)

Already in this recession, 1.3 million state and local employees have lost their jobs. Many governments have so far held off on drastic budget cuts, largely thanks to the Coronavirus aid issued earlier this year and because many places have been able to draw upon their budget reserves.

But revenue shortfalls across, state, local and county governments are expected to collectively total around $1 trillion over the next few years. This all means that upcoming budget debates in city halls, county council chambers and statehouses could be some of the darkest ones in a decade.

Moody’s Investors Service noted in a recent analysis that the $910 billion relief package likely means the “budgets most states will start to consider in January will in some cases begin to exercise more fiscal austerity.” In other cases, Moody’s added, states will delay budget consideration to await additional federal action. 

“The health of fiscal positions varies from state to state,” the analysis said, “but overall the coming year’s revenue environment will remain difficult until vaccinations are widespread and the economic recovery gains more traction.”