State Governments Didn’t Need Coronavirus Bailouts. They Got Billions of Dollars Anyway.

Warnings that state and local governments faced a fiscal calamity were predictably plentiful when it became clear in early 2020 that COVID-19 would cause major social and economic disruptions. Predictable because it has become gospel that the solution to an economic downturn is to have the federal government suck money out of the private sector, redistribute it to state and local governments minus a cut for all three levels of bureaucracy, and then spend the remainder—often wastefully—according to political desires and special interest dreams.

There were a few of us who argued that federal bailouts for state and local governments were both unnecessary and unwarranted. As it turns out, state and local tax revenues hardly collapsed. In fact, state and local tax revenues are up after a brief drop early in the pandemic. While state and local revenue levels are lower than pre-pandemic projections, state and local politicians have come away with more of their constituents’ money to spend—hardly a calamitous outcome. According to the National Association of State Budget Officers, “state general fund spending is projected to grow 5.0 percent in fiscal 2022 compared to fiscal 2021 levels, with 39 states proposing spending increases according to governors’ budgets.”

But the handful of heretics were ignored, and the Trump and Biden administrations teamed with Congress to allocate almost $1 trillion in combined federal aid to state and local governments on pandemic relief grounds. So, in addition to state and local politicians getting to spend more of their own constituents’ money, they also get to spend more money from current and future taxpayers in the other 49 states—an even sweeter deal from their perspective because it’s all political gain and no political pain. Just ask embattled California Gov. Gavin Newsom, who is facing a recall election due to dissatisfaction with his handling of the pandemic and is using part of his state’s unexpected bounty to send out $600 checks to voters.

What’s extra galling about the federal government’s financial coddling of state politicians is that it rewarded governors for destroying their own economies and wreaking havoc on countless lives through haphazard lockdowns and other illogical pandemic policies. That nearly $1 trillion in federal aid to state and local governments doesn’t include funds for the millions of people having their businesses and careers upended by these policies. – READ MORE