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The Tax Foundation is the nation’s
leading independent tax policy
research organization. Since 1937,
our research, analysis, and experts
have informed smarter tax policy
at the federal, state, and global
levels. We are a 501(c)(3) nonprofit
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Creative Commons CC-BY-NC 4.0
Editor, Rachel Shuster
Designer, Dan Carvajal
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Washington, DC 20005
Designing a State and Local
Government Relief Package
• The COVID-19 pandemic and the attendant economic contraction will wreak
havoc on state and local tax revenues, with projections of a 15-20 percent
decline in state revenues.
• Lawmakers and governmental associations have called for between $300
billion and $1 trillion in state and local aid.
• As much as $535 billion of the nearly $3 trillion the federal government has
already appropriated flows through to states and localities, though only a
portion is flexible funding.
In designing a state and local government relief package, federal lawmakers
must determine (1) how to allocate the funding, (2) how much to appropriate,
(3) how much flexibility to grant state and local governments in spending it,
(4) whether to provide all funding immediately or spread it out over months or
years, and (5) whether to repurpose existing appropriations.
• Allocation could be by population, economic or budgetary conditions, or
coronavirus cases. Population-based measures, while imperfect, avoid
distorting state incentive structures and the substantial lag associated with
• All levels of government should participate in the fiscal response, with states
expected to revise budgets in light of the crisis.
If state aid is intended to provide several years of assistance, staggered
disbursements can help ensure that states do not postpone difficult but
• Lawmakers could provide additional flexibility in drawing down the $150