State budget balances without additional federal assistance, but more money from Congress could be put to good use.

The Washington Research Council expands on several recent analyses of the state budget that take into account the improved revenue outlook, rainy day fund, and estimated savings. The analyses conclude that the state budget is now in balance. WRC senior analyst Emily Makings discusses the importance of the federal assistance provided previously.

Earlier this year, Congress enacted relief packages that appropriated trillions of dollars. But since the spring, Congress has failed to enact additional funding. A new federal aid package may be welcome for many reasons—including for businesses and individuals. State and local governments have asked for more funding as well. But such additional funding for state and local governments has been a major sticking point in congressional negotiations.

As she writes, there is reason to believe Congress may yet act. But the importance of providing additional direct assistance to state and local governments to balance their operating budgets has waned somewhat. 

Makings walks us through the restrictions on some of the funds currently available. (Read the post for details.) 

Now, though, it doesn’t look like Washington has a budget shortfall at all. As Schumacher suggested at the ERFC meeting, increased revenues have filled the budget gap rather than potential additional federal funds. Indeed, after the Nov. 18 forecast, I estimated that total reserves (including the rainy day fund) in 2021–23 would be negative by just $12 million (without assuming likely additional savings).

And since then, Gov. Inslee has used $122.2 million from the CRF to replace funds that the Legislature previously appropriated from the rainy day fund (the budget stabilization account, or BSA). The replaced state dollars will likely be transferred back to the BSA at the end of FY 2021. With those dollars replenished, the state will have total reserves of about $110 million–$1.271 billion in 2021–23, depending on how much will actually be saved from various items. 

The conclusion:

…the state does not need additional federal help in order to balance the current budget. A new relief package that includes funding for state and local governments would, however, provide the Legislature with more options as they build the 2021–23 budget.

As we’ve noted, the financial support Congress provided households and businesses has been instrumental in maintaining economic activity, particularly the patterns of consumption that have fueled state revenue growth. You might consider that indirect financial aid to state and local governments. 

The U.S. Bureau of Economic Analysis today released reports on  third quarter GDP and on personal income and outlays for October.

As previously estimated, Q3 was good.

Real gross domestic product (GDP) increased at an annual rate of 33.1 percent in the third quarter of 2020 (table 1), according to the “second” estimate released by the Bureau of Economic Analysis. In the second quarter, real GDP decreased 31.4 percent.

The chart shows the dramatic swings.

The other report was mixed: Income down, spending up.

Personal income decreased $130.1 billion (0.7 percent) in October according to estimates released today by the Bureau of Economic Analysis (tables 3 and 5). Disposable personal income (DPI) decreased $134.8 billion (0.8 percent) and personal consumption expenditures(PCE) increased $70.9 billion (0.5 percent).

Given the importance of those pandemic programs, this stands out for us:

The decrease in personal income in October was led by a decrease in government social benefits (table 3). Within government social benefits, “other” social benefits decreased which primarily reflected a decrease in Lost Wages Supplemental Payments, a Federal Emergency Management Agency program that provides wage assistance to individuals impacted by the pandemic.

Households were able to build savings and reduce debt over the summer, as a result of these programs. As these benefits expire, savings can help sustain spending for a while. Concerns, however, increase mount as the third wave of the pandemic continues. 

There’s a good argument for additional federal assistance, the earlier the better.