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Was the State Aid Bill a Bailout?

More than 30 governors -- Republicans and Democrats alike -- supported the state aid bill, granting $26.1 billion in fiscal relief to local governments facing

Jul 31, 2020
More than 30 governors — Republicans and Democrats alike— supported the state aid bill, granting $26.1 billion in fiscal relief to local governments facing yawning budget gaps and signed into law yesterday. Yet only four Republicans — Sens. Susan Collins and Olympia Snowe of Maine, and Reps. Anh “Joseph” Cao (La.) and Mike Castle (Del.) — ended upvotingfor the deficit-neutral bill.
Rather, many Republicans, including governors of states in dire need of funds, are bashing the state-aid bill as a “bailout.” (See hereand here.) But in doing so, they are perpetuating a few myths.
One couldcharacterize the bill as a “bailout” for states: It is a transfer of funds from the federal government to state governments. But the bill contains no new spending. It raises one tax — closing a loophole that encouraged big companies to hire overseas workers — and otherwise rescinds funds from federal programs, includingthe Supplemental Nutrition Assistance Program, or food stamps.
But it is not really a bailout, a la Ford or Bear Stearns: The government is not rewarding states that have been fiscally irresponsible. Before the recession, states held record rainy-day funds to use in the event of a dip in revenues. (All states except for Vermont are required to run balanced budgets every year.) When the recession hit, states ran through their savings — but still had to increase taxes and fees, cut back services and layoff workers. The issue is not that states did not save enough, but that the Great Recession has created the worst employment crisis since the 1930s.
Other Republican talking points are just obviously false. Gov. Tim Pawlenty (R-Minn.) — in line to receive $167 million to save the jobs of 2,800 teachers in his state — slammedthe bill: “The federal government should not deficit spend to bail out states and special interest groups. Minnesota balanced its budget without raising taxes and without relying on more federal money. The federal government’s reckless spending spree must come to an end.”
This is inaccurate. There is no deficit spending in the bill — not one penny of it. The “reckless spending spree” amounts to less than half of what many Republican governors *asked *Congress for. The tax increase is minor, and stops encouraging big companies to ship jobs overseas. And states are hardly “relying” on Congressional money. This will close about a fifthof their budget gaps this year, meaning the bill will staunch the bleeding but won’t come close to healing the wound.
Camilo Wood

Camilo Wood

Camilo Wood has over two decades of experience as a writer and journalist, specializing in finance and economics. With a degree in Economics and a background in financial research and analysis, Camilo brings a wealth of knowledge and expertise to his writing. Throughout his career, Camilo has contributed to numerous publications, covering a wide range of topics such as global economic trends, investment strategies, and market analysis. His articles are recognized for their insightful analysis and clear explanations, making complex financial concepts accessible to readers. Camilo's experience includes working in roles related to financial reporting, analysis, and commentary, allowing him to provide readers with accurate and trustworthy information. His dedication to journalistic integrity and commitment to delivering high-quality content make him a trusted voice in the fields of finance and journalism.
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