The editors of the Wall Street Journal helpfully quantify some of the costs and benefits of COVID-19 and especially the federal COVID-19 relief package to state and local governments:
States are also doing very well in this latest Covid bill. Start with the $26 billion for transit agencies, airports and shovel-ready public works. This will help New York’s transit and port authorities reduce their financial holes.
There’s also $22 billion for the states for Covid testing and contact tracing, though insurers and the feds cover the cost of tests. States will use it for more budget backfill. The Los Angeles Times reported last month that 25 LA County firefighters had made more than $100,000 on average in overtime by ferrying test supplies, most of which was reimbursed by federal Cares Act funds.
Education will get a whopping $82 billion, about $54 billion of which will go to K-12 schools though many are closed and employ fewer staff. That’s about as much as the federal government spends on K-12 in a normal year. The bill also provides $3.2 billion for broadband for low-income families, so public schools don’t have to pay for that.
States will also benefit from the federal enhanced $300 weekly unemployment benefits, which are taxable income in most states. The jobless benefit sweetener will especially help states with higher unemployment such as New Jersey (10.2%), Hawaii (10.1%), New York (8.4%), Connecticut (8.2%) and California (8.2%).
New Bureau of Economic Analysis data show how blue states that shut down more businesses have reaped larger federal payments. Transfer receipts grew significantly more for New Jersey (67.6%), California (54.6%), Illinois (51.7%), and New York (44.7%) than for Arizona (35.4%), Florida (26.5%), Wisconsin (22.5%) and South Dakota (20.9%) from the third quarter of 2019 to the third quarter of 2020.
I did want to annotate part of the above. At least in Chicago it is not true that schools “employ fewer staff” during the school shutdowns. To the best of my knowledge no one has been furloughed, terminated, or laid off during the school shutdowns. They’re being paid for working less or, possibly, not at all.
What’s wrong with this claim by the editors?
At the same time, wages and salaries increased significantly more in states that allowed more businesses to reopen such as Arizona (4.7%), South Dakota (5.5%), Florida (1.7%) and Wisconsin (2.9%) than in states that maintained stricter lockdowns like New York (-1.6%), New Jersey (-1%), Illinois (0.2%) and California (2.3%). See the nearby charts.
1.7% (Florida) is a more significant increase than 2.3% (California)? I don’t think so. What that list documents is a point I have been making: policy matters less than other confounding factors in the outcomes. It would be interesting to break those results into results by income quintile. At least it would be nice to know the standard deviation.
I found this statistic pretty eye-catching:
The Golden State is also rolling in tax revenue amid the stock market’s boom and tech initial public offerings. Its November revenues were 16.4% higher year-over-year and so far this fiscal year are 20.4% above the state’s spring estimate.
If that’s total revenues it’s astonishing. If it’s revenues from that source, it’s misleading.
This supports the former conjecture:
The Census Bureau reported last week that total state and local government tax revenues for the 12 months ending in September were up $46.4 billion (3%) year-over-year. Personal income tax revenue has increased 3.3% and property tax revenues 4.7% while sales taxes have dipped a mere 0.4%.
The Federal Reserve’s interventions have lifted housing prices and stock-market capital gains. Increased asset values have also produced a “wealth effect,†which in addition to government transfer payments has boosted spending. The bottom 20% of households account for 9% of consumer spending compared to 39% by the top 20%.
The one thing we should not be doing is monetizing state and local spending but that does, indeed, seem to be what we’re doing.
The swamp has no drain.