Back in April, as Congress was seeking to finalize an expansion of the Paycheck Protection Program, state governors and their Democratic allies in Congress delayed the rollout of much-needed small-business loans by a week in order to fight for a massive state aid package. That effort ultimately came to nothing, and as recent budget data shows, the restraint Congress showed was the right move.
In April, when the economy was just beginning to recover from the initial shock of lockdowns, the National Governors Association (NGA), headed by Maryland Governor Larry Hogan and New York Governor Andrew Cuomo, demanded $500 billion in federal aid. The NGA warned that, absent this enormous aid package, states may need to cut back services.
This amount of money was always likely to be overkill. Congress had already appropriated $189 billion in state and local aid through the Coronavirus Aid, Relief, and Economic Security (CARES) Act and Families First Act, and the NGA was asking for $500 billion on top of this amount. In total, the $689 billion states were asking for would have covered over three quarters of total 2019 state budgets.
Of course, even the NGA wasn’t anticipating a budget shortfall equivalent to three quarters of its budget in 2020 alone. States were hoping to also address anticipated 2021 shortfalls as well. But the reasoning behind holding off on a state aid package was solid as well — no one in truth had any idea what state budgets would look like by the 2021 fiscal year, and there was little sense in appropriating aid funds based off of the worst case scenario.
And thus far, the worst case scenario has not come to pass. California, for instance, was anticipating a$54.3 billion deficit for 2020 back in June. Now, Governor Gavin Newsom is proposing a FY 2021 budget that spends $25 billion more than last year while still enjoying a $15 billion surplus.
In fact, across the country, states are seeing rosier-than-expected budget projections as the economic recovery has taken hold. States like Utah and Idaho are also experiencing substantial budget surpluses, while Hogan’s state of Maryland experienced only a small deficit of just over $100 million (compared to prior estimates of over $1 billion).
That’s not to say that the economic recovery that has occurred was a foregone conclusion back in April or May. The pandemic is a unique and unprecedented situation, and no one could have known how exactly it would play out.
Yet that’s precisely the reason why appropriating state aid on the basis of anticipated revenue shortfalls more than a year away would have been foolish. Congress has done well to address state revenue shortfalls as they happen, not as they may happen.
And indeed, as state budget outlooks have improved, the flow of cash from Congress has stopped. Congress has not appropriated any additional state aid funds since the CARES Act. On the other hand, federal aid to individuals and businesses is also an indirect boon to state budgets, and Congress has provided an unprecedented level of relief to both groups.
Deficits aren’t the issue foremost in Americans’ minds at the moment, but failure to consider them at all by spending money that may never prove necessary leaves future generations on the hook. Credit Congress for avoiding an unnecessary state aid package despite constant pressure.
