The stimulus checks from the federal administration dried up at the end of 2021 and have thrown into disarray the support system that has sustained millions of households for close to two years. The payments stopped at a time the economy was away from a full recovery and the inflation rate had already started biting the budget of the law and moderate-income groups.
But most of the stimulus checks being given out by around 21 states are using funds from the American Rescue Plan Act money. The act was signed by President Biden in March 2021 and included the third stimulus check or the economic impact payment.
But the direct stimulus check was only a part of the comprehensive plan that covered a lot more and set aside funds for businesses, organizations like hospitals, educational institutions, and local, tribal, and state governments.
States Rely On Federal Funds To Send Stimulus Checks To Residents
The COVID-19 pandemic led to an unprecedented impact on state fiscal conditions. The federal government responded by increasing spending on public health and a moribund economic situation. Revenues were down and businesses were shutting down in hundreds, and along with it, the unemployment rate was going up as thousand lost their jobs every day following the pandemic.
The federal government stepped in promptly and passed several stimulus packages. And two of the packages provided direct funding to states.
The CARES Act that was enacted immediately after the pandemic hit America in march 2020 included a $150 billion direct and flexible fund to states, tribal and local governments. It was known as the Coronavirus Relief Fund (CRF). The support came with an expiry tax as the deadline to expend it was set on the last day of 2021.
The American Rescue Plan Act came in exactly a year later in March 2021 and led to the creation of a $350 billion Coronaviurs State and Local Fiscal Recovery Fund to support counties, cities, and tribal and state governments. The state portion was named State Fiscal Recovery Fund (SFRF) and provided states with $195.3 billion. The states have been obligated to commit the funds by the end of 2024 and spend it by 2026.
The federal stimulus check support was instrumental in the pandemic response of the states. Both the SFRF and the CRF emergency fund packages infused the state governments with the necessary financial muscle to respond immediately to the pandemic in a robust manner to help them recover from the debilitating effects of the pandemic and its economic downturn.
With these federal support measures, the economic fallout of the pandemic and the economic downturn that followed may have left states floundering with depleted reserves and massive cuts in their budgets.
State Support Will Mena A Lot To Communities Severely Affected By The Abrupt Price Rise
The federal funds greatly aided the state and local governments. The $50 billion for the local governments, including state funds, helped states who were stretched to the limit by the pandemic. at the beginning of the pandemic, things were grim for the state and local governments. It was estimated that the total shortfall in the state budgets for fiscal 2020-2022 would climb to $434 billion. It would have amounted to the worst ever cash crisis in recent decades, the worst after the Great Depression.
To deal with the situation, the state and local governments were forced to cut services, lay off or furlough 1.4 million employees, and also defer capital improvement projects as well as some stimulus check packages. However, the impact of the pandemic on local financial conditions proved to vary wildly across the nation. It depended on the structure and condition of the local economy. Some states fared way better than others thanks to their business mix. For around 28 states, especially those relying heavily on tourism, oil, and gas, and sales tax, revenue saw a sharp drop in demand between April and December 2020 compared with the corresponding period in 2019.
But the economic situation was less dire than anticipated in other states. Even as the pandemic hurt low-income workers, high earners continued to remain employed thanks to the ability to work remotely and continued to pay their taxes.
The rally in the stock market boosted income and capital gains for a section of the population. California is among the handful of states that boasted a handsome budget surplus. For 2020-21 it reported a budget surplus of $26 billion as estimated by the Legislative Analyst’s Office of California.
States were beneficiaries of the $150 billion federal assistance that came in through the CARES Act, which was the first stimulus check declared by the administration of the year. The final shortfall that states are facing for the budget years 2020-22 has been freshly estimated to be to the tune of $148 billion.
The crisis had led to massive at the local levels, including at the state level. cities and counties were at the receiving end of a spike in public health expenses. Simultaneously they relied on their source of resources including user fees, parking fees, conventions, restaurant taxes, airports, and other forms of income.
Local governments had to dig into their reserves to support vulnerable residents while simultaneously grappling with the loss faced by small businesses, school closures, and other problems.
Cities responded by cutting their services and workforce, and also by borrowing. The introduction of ultra-low interest e rates to municipalities allowed them to borrow large sums on attractive terms. It was for this reason that some communities took on extra debts to ride out the early stages of the cash crisis.
The COVID-19 stimulus check package provided critical funds to states when they needed the most. But unemployment continued to remain well above the pre-pandemic figures and many local and state governments continue to seek help to see them through the backlog of operation issues and fiscal problems.
The rescue package led to the provision of $195 billion for states and other local government bodies. Another $130 billion went to counties and cities of which $10 billion was set aside for the development of the infrastructure.