The argument that states and local governments don't need the $350 billion aid proposed in the $1.9 stimulus bill soon to get a vote in the Senate is misguided.
That's the opinion of Amanda Kass, associate director of the Government Finance Research Center, and Philip Rocco, an assistant professor of political science at Marquette Univerity, writing in Governing magazine.
"Critics of President Biden's plan to allocate $350 billion in federal aid to state and local governments have argued that this money is largely unnecessary due to the recovering economy as well as unspent millions under the couch cushions," they write.
"Yet the notion that subnational governments don't need additional support is a myth, premised on a highly selective interpretation of the data and a refusal to acknowledge the hollowing out of state and local government capacity over the last few decades, particularly in the areas of public health and education."
The myth, they write, "relies on narrow assumptions about the appropriate indicators of fiscal need. While on average state and local revenues have fared better than initial expectations due to the combination of an economic rebound and extensive federal stimulus, revenues are only half of the equation. What's missing is a focus on the spending needs created and exacerbated by the pandemic that cannot be addressed even if revenues return to their pre-pandemic baseline."
Federal policymakers, they write, "should provide federal policymakers with a powerful lesson: Limited support for state and local governments slows economic recovery. But political pressure for fiscal austerity often re-emerges before the economy is out of the woods and before adequate stock is taken of state and local needs."