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1 Jared Walczak, Designing a State and Local Government Relief Package 1 (2020)

handle is hein.taxfoundation/tfdslgf0001 and id is 1 raw text is: Designing a State and Local Government Relief Package FISCAL FACT No. 709 May 2020 Jared Walczak Director of State Tax Policy Key Findings The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, and global levels. We are a 501(c)(3) nonprofit organization. @2020 Tax Foundation Distributed under Creative Commons CC-BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 taxfoundation.org * The COVID-19 pandemic and the attendant economic contraction will wreak havoc on state and local tax revenues, with projections of a 15-20 percent decline in state revenues. * Lawmakers and governmental associations have called for between $300 billion and $1 trillion in state and local aid. * As much as $535 billion of the nearly $3 trillion the federal government has already appropriated flows through to states and localities, though only a portion is flexible funding. * In designing a state and local government relief package, federal lawmakers must determine (1) how to allocate the funding, (2) how much to appropriate, (3) how much flexibility to grant state and local governments in spending it, (4) whether to provide all funding immediately or spread it out over months or years, and (5) whether to repurpose existing appropriations. * Allocation could be by population, economic or budgetary conditions, or coronavirus cases. Population-based measures, while imperfect, avoid distorting state incentive structures and the substantial lag associated with economic data. * All levels of government should participate in the fiscal response, with states expected to revise budgets in light of the crisis. * If state aid is intended to provide several years of assistance, staggered disbursements can help ensure that states do not postpone difficult but necessary decisions. * Lawmakers could provide additional flexibility in drawing down the $150 billion Coronavirus Relief Fund. * If lawmakers wish to craft a state relief package, they should act expeditiously but not hastily, as their decisions will cast a long shadow on state financial systems.

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