Are feds sending too much money to states?
Mass. among a number of states with robust revenue picture
NO ONE HAS ever been inclined to give back free money handed to them by the federal government, so don’t look for Massachusetts state officials to start now, but the not-so-secret truth is we’re hardly in desperate need of the billions of DC dollars slated to come our way.
While some warned that we should brace for an enormous falloff in state revenue due to the pandemic, after a short-term hit, the state has actually seen year-over-year gains in revenue — something more typical of stable economic times than what would be expected amid an enormous spike in unemployment and shutdown of big parts of the economy.
Writing last month in CommonWealth, Evan Horowitz, director of of the Center for State Policy Analysis at Tufts University, pointed to two big factors: The infusion of federal money through earlier rounds of pandemic relief, including PPP loans to businesses and unemployment aid, and a 2018 Supreme Court ruling that expanded states’ ability to collect sales tax from online retailers, a change that made a huge difference as people switched to online purchases while hunkered down at home.
Nevertheless, the state is now poised to get $5.3 billion in federal aid, to be spent over five years, as part of the $1.9 trillion American Rescue Plan signed by President Biden in March.
California, where officials had feared a shortfall that might exceed $50 billion, is now anticipating a budget surplus this year of $15 billion. California may be more of an outlier, Horowitz said in an interview Tuesday morning, pointing to its very progressive tax structure that captures lots of revenue from the state’s top earners — and their stock-market winnings. “But for the bigger picture, we are very much one of the states that they’re talking about in that story, which doesn’t right now need federal money to address COVID-related shortfalls,” Horowitz said of today’s Times report.Some states, especially those heavily reliant on tourist spending, such as Nevada and Hawaii, may be in dire need of the federal help. But the Times says the overall rosy picture for state budgets is putting pressure on the Biden administration to “repurpose” some of the money for a bipartisan deal on infrastructure spending.
Horowitz said it could even be to our benefit to redirect some of the federal money to infrastructure projects. But that’s now subject to the political give-and-take of Congress, where it may be difficult to pull off a reworking of the massive spending plan given all the competing interests at play.