Analysts reviewing the $1.9 trillion aid package conclude that it’s more than enough to solve most state and local governments’ budget woes. We’ll note again, Washington has no state budget shortfall. An emerging concern is that the windfall revenues may lead legislators and local officials to make commitments now that will be unsustainable in the future.
Alan Greenblatt writes in Governing magazine,
State and local officials begged Washington most of last year for fiscal help, to little avail. By now, however, their revenues have rebounded much faster than expected, particularly at the state level, leading some to wonder whether this isn’t a case of too much, too late. For some states, the windfall will equal more than 20 percent of their 2020 operating revenues.
Revenues supporting the state budget in Washington have rebounded better than in many states. So the new federal funds are solving a problem that is in the rear-view mirror for many state budget writers.
“You’re talking roughly $300 billion more than necessary to keep the lights on and not lay people off,” says Dan White, director of government consulting and public finance research at Moody’s Analytics. “It’s definitely big enough. It’s probably more than big enough.”
Another public finance expert makes a similar point.
“This is going to be an injection, a shot in the arm that’s very good for states,” says David Brunori, a public finance expert at George Washington University. He thinks the amount was probably excessive. That said, he notes that “the money will be welcome and will be spent and will be a boost to the economy.”
A new concern, however, is that the windfall may add to the ever-present pressure on budget writers to make a commitment today than will not be affordable tomorrow. Greenblatt writes,
State and local officials still have to be careful about how they spend the money. It’s more than enough to fill general fund budget holes in most cases, but lawmakers can’t get giddy and take on ongoing expenses they won’t be able to afford once the federal dollars run out. Few people would bet on another round of relief of this magnitude.
In some respects, it’s not unlike the pressure on Washington school districts to increase teacher compensation beyond budget sustainability as the final round of McCleary funding came through. Recent experience here, then, shows that the risks of overcommitment are real.