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State Governments Need Federal Funds, And Soon, Due To Pandemic

May 17, 2020

There is no doubt–none whatsoever–that the federal government must–and will–provide financial assistance to the states which have been so thoroughly undermined during this pandemic.  The economic necessity of such action is not in question, and while the political show will consume some bandwidth in Washington the end result is not in doubt.

One only needs to read the business section of the newspapers from this past week to grasp the enormity of the cash-strapped states.  In the east New York is projecting its biggest dip will come from a nearly $12 billion hit to sales and use taxes. Way up north Alaska is dealing with oil prices which took a massive hit, while out west Arizona has funding issues from lower individual income taxes.  Meanwhile, California projected a dip of more than $41 billion in revenue through the fiscal year 2021 with a budget deficit of about $54.3 billion.

One primary argument for federal funding to the states is to make sure that budget shortfalls do not impair emergency workers, such as firemen and police, who are central to the proper functioning of local governments.  The faith of the citizenry in local government at a time of pandemic is critical.

If the federal government is smart they will invest in the states and work to keep people employed.  Otherwise, citizens will utilize government benefits like food stamps and unemployment.  Deficits are going to increase this year no matter what happens, but with smart moves, the federal government can make the red ink work to the advantage of our national economy.

The larger overall purpose for the federal injection of funds is driven by economics.  If we are to stave off the worst effects of the recession–and it is a major one to be sure–we must spend money.  With states facing a major tax revenue decline, there must be spending which will aid in the updraft to the economy.   Too many fail to grasp the impact that federal dollars play in ‘juicing’ the economy.  With low-interest rates the return on money from Washington, when timed correctly, will provide the very type of impact that everyone from Speaker Pelosi to Donald Trump claims they want.

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