Ohio is forecasting a balanced budget over the next two years, but state and local officials will gladly accept $11.2 billion in federal pandemic aid that’s coming their way from the $1.9 trillion American Rescue Plan signed by President Biden last week.
The state doesn’t need the money to close a budget gap because there is no shortfall. An anticipated budget hole of $2.4 billion in Columbus last summer turned into a surplus even before Mr. Biden signed the bill, thanks to prudent fiscal management, several jolts of federal aid last year and surging state sales tax receipts.
The budget outlook in Ohio is so positive that the state didn’t need to raid its rainy day fund, which stands at about $2.7 billion.
“We were able to get through the worst of the pandemic without accessing our rainy day fund,” said Ohio budget director Kimberly Murnieks. “Ohio is a conservative state. We looked to restrain our spending.”
Despite warnings from Washington Democrats of an unfolding nationwide crisis in state and municipal budgets, most states had healthy rainy day funds and robust tax revenue before the relief package delivered tens of billions of dollars more this month.
In California, which has a rainy day fund of about $21 billion, officials felt comfortable enough about state finances in February to approve $600 stimulus checks for 5.7 million low-income residents, including undocumented immigrants, as part of a $9.6 billion state relief package.
Officials in Sacramento were predicting a budget deficit of $54 billion last May, but they are now predicting a surplus of $26 billion for the 2020-2021 fiscal year.
Nevertheless, Democrats in Congress voted to give California $42.6 billion in COVID-19 relief.
The federal government’s $525 billion pot of state, local and school aid will create or add to budget surpluses in many other states. States and municipalities nationwide will have roughly $700 billion in aggregate surplus funds “above and beyond what they already budgeted” for the current fiscal year, said Stan Veuger, a specialist in economics at the American Enterprise Institute.
“The economy obviously has held up a lot better than people expected last March,” Mr. Veuger said. “Tax revenue has held up OK, some sectors better than others. And there was already quite a lot of money directed to state and local governments in the previous [relief] bills.”
Not all states’ coffers are flush with cash. Scandal-embroiled New York Gov. Andrew Cuomo said his state needed $15 billion in direct aid from Washington to plug its budget hole this spring. It got $12.5 billion.
But New York is receiving an overall infusion of $23.8 billion in the bill, and Senate Majority Leader Charles E. Schumer, New York Democrat, pegs the true value at roughly $100 billion. That includes $22 billion in stimulus checks to New York residents, $21.7 billion in enhanced unemployment benefits, $10.8 billion for counties and municipalities, $9 billion for K-12 schools, $7 billion for New York City transit systems, $4 billion for expanded COVID-19 vaccinations, $2.6 billion for colleges and universities and $1 billion in extra Medicaid funding.
Several states, such as Nevada, imposed deep budget cuts and layoffs last year as tax revenue shrank during government-ordered shutdowns. Moody’s Analytics estimated late last year that budgets in the worst-hit states and cities were facing collective deficits of nearly $500 billion over three years. Moody’s later lowered that projection to $330 billion.
Still, state budgets increased an average of 2.8% in fiscal 2021, according to the National Association of State Budget Officers. Only six states reduced general fund spending in the current fiscal year: Wyoming (-8.5%), West Virginia (-5.1%), Texas (-4.6%), Alaska (-1.1%), New Mexico (-1.1%) and Montana (-0.8%).
The president will visit Columbus, Ohio, on Tuesday as he promotes benefits of the American Rescue Plan. White House press secretary Jen Psaki said Mr. Biden wants to highlight how the plan will lower health care costs and “ensure the American people understand how they can benefit.”
Housing and Urban Development Secretary Marcia Fudge said homelessness has increased significantly during the past year, and the relief package includes $5 billion to reduce homelessness.
“The American Rescue Plan keeps people housed and brings people home,” she said. “Over the next probably 12 to 18 months, we know for a fact that we can get as many as 130,000 people off the streets.”
The surpluses in other states are sparking debate over how they should spend the extra money from Washington. Ohio Attorney General Dave Yost, a Republican, asked a federal judge Wednesday to block a provision in the relief package that restricts states’ ability to use the federal aid to cut taxes.
“The federal government should be encouraging states to innovate and grow business, not holding vital relief funding hostage to its preferred pro-tax policies,” Mr. Yost said.
In response to 21 other Republican state attorneys general seeking clarification of the law, the Treasury Department said states are free to cut taxes but can’t use funding from the American Rescue Plan to pay for tax relief.
Sen. Rick Scott of Florida, chair of the National Republican Senatorial Committee, is urging states to reject a portion of the federal aid. He called the $1.9 trillion package “massive, wasteful and non-targeted.”
“Each state and local government should commit to reject and return any federal funding in excess of your reimbursable COVID-19 related expenses,” he wrote to state and local officials. “This commitment will serve the best interests of hard working American taxpayers and will send a clear message to Washington: politicians in Congress should quit recklessly spending other people’s money.”
That request hasn’t gone over well in states. Florida Gov. Ron DeSantis, a Republican, said Mr. Scott’s suggestion “doesn’t make sense.”
New Hampshire Gov. John Sununu, a Republican who is one of Mr. Scott’s top recruiting targets for a Senate bid, also dismissed the advice.
“While the governor had serious concerns that more than half of the spending in the relief package wasn’t targeted to COVID, he considers the call to refuse the stimulus money to be foolish,” Sununu spokesperson Ben Vihstadt told WMUR. “Rejecting these funds would only ensure that California, New York and New Jersey would make out with even more of New Hampshire taxpayer dollars. The governor will always find innovative, financially sound ways to put federal funds to use.”
Mr. Sununu met with first lady Jill Biden during her visit to New Hampshire on Wednesday and thanked her for the aid. But the governor’s office said Mr. Sununu “also made it very clear that many states will have challenges spending these one-time investments on one-time expenses wisely.”
Former New Jersey Gov. Chris Christie, a Republican, predicted Thursday that Gov. Phil Murphy, a Democrat, will “waste” New Jersey’s federal allotment of $6 billion. He said Mr. Murphy has increased spending 29% in the four years since he left office.
“The spending is like drunken sailors in New Jersey, and [Mr. Murphy] borrowed $4.5 billion for current expenses during the COVID crisis,” Mr. Christie said on the Hugh Hewitt radio show. “It turns out that revenues didn’t go down at all in terms of tax revenues, despite him saying it would. … I am confident he will waste it. I’m confident that he or his administration has no competence to spend it in the correct way. What they should do is give the money back that they borrowed, that the taxpayers are going to have to pay for over the course of the next 20 years, and they should reduce taxes in New Jersey, which is one of the highest taxed states in the country.”
Ms. Murnieks, Ohio’s budget director, said many states are facing the challenge of spending the federal aid on one-time programs and ensuring that it doesn’t generate ongoing cost burdens on state taxpayers. She said one solution under Gov. Mike DeWine’s budget is large investments in workforce development and aid to small businesses.
“We know that our small businesses continue to struggle. … Revenues were still down about 30% in comparison to pre-pandemic levels,” she said. “When we look at the additional federal dollars, we will engage in a process to make sure that we use those dollars on one-time investments, in one-time projects that can fuel Ohio’s future and put us in a position to lead in the recovery.”
Copyright © 2021 The Washington Times, LLC.