Details and Analysis of State and Local Aid Under the Bipartisan State and Local Support and Small Business Protection Act of 2020

December 14, 2020

Note: This post was substantially updated on Tuesday, December 15 with the release of the full bill text. A further update of the estimates in Table 2 is forthcoming on Thursday, when additional state revenue data will be available.

On Monday, members of the bipartisan Gang of Eight negotiating an end-of-year pandemic relief package announced that they had settled on language and had divided the package into two bills: a pandemic aid package and a $160 billion state and local support package. Some of the data on which allocations would be made will not be forthcoming for some time, but it may be helpful to provide a summary of what we do and don’t know, and to offer a preliminary sense of what it will mean for states.

Under the bill, $91.2 billion would flow to states and $60.8 billion to local governments and territories ($152 billion total), plus $8 billion to tribal governments. The $152 billion for state and local governments would be distributed in three tranches, beginning with $90 billion intended to go out the door within 30 days of enactment, and the subsequent tranches (anticipated to be $52 billion and $10 billion, respectively) likely arriving in the summer and fall of 2021, judging by the data on which they would be based. States would actually receive all $152 billion but would be obligated to share 40 percent ($60.8 billion) of it with localities, based on (1) population, (2) revenue losses, or (3) some combination of both.

One-third of the $152 billion would be distributed proportionally based on population; this amount ($50.66 billion) would all go out in the original tranche. The remaining two-thirds is to be allocated according to revenue losses, in three tranches of $39.4 billion, $52 billion, and $10 billion, respectively. The first $39.4 billion, which would be distributed in Tranche 1 concurrently with the population-based assistance, would be allocated proportionally on the basis of each state’s share of the total decline in tax revenue from April 1 to September 30, 2020, compared to the same six months (calendar quarters two and three) in 2019. Tranche 2 would be based on losses from October 1, 2020 to March 31, 2021, relative to the same period in 2019 through the first quarter of 2020, and the final small tranche would be another needs-based allocation based on losses from April 1 to June 30, 2021, relative to the same period in 2019.

Each state would be guaranteed a minimum of $500 million in the first tranche, which features both a population-based payment and the first of three needs-based assessments (allocated according to revenue losses). The final $62 billion across the subsequent two tranches would not feature minimum allocations, but states which were grossed up to $500 million in the first tranche—$250 million each as a minimum for the population and needs-based assessments—would be eligible for additional relief in those tranches, like any other state. Nearly all states, therefore, would be expected to claim more than $500 million. The only exception would be any states which experienced no losses in the relevant measurement periods for those tranches.

The following table summarizes this allocation, along with disbursement dates. The legislation instructs the U.S. Census Bureau to accelerate reporting of quarterly estimated tax payments for the first two quarters of 2021 to facilitate disbursements by the end of June and September, respectively, based on that data.

Table 1. Assumed Revenue Distribution Summary
Tranche Estimated Date Amount Allocation
1 January $90 billion $50.66B by pop, $39.34B by Apr.-Sept. 2020 losses
2 June $52 billion Oct. 2020-Mar. 2021 losses
3 September $10 billion Apr.-June 2021 losses

Sources: Tax Foundation calculations and assumptions based on available details of the Gang of Eight Deal as of December 15.

The amounts each state would receive in the second and third tranches will not be known for some time, but a reliable calculation of the first tranche’s distributions will be possible by Thursday, December 17th, when the U.S. Census Bureau releases quarterly state revenue data for the third quarter of calendar year 2020. In the absence of that data, it may be interesting to consider what the first tranche’s distribution would look like based exclusively on population and revenue declines in the second quarter (March through June). The table at the end of this analysis shows these calculations, which will necessarily be biased in favor of states which suffered revenue losses earlier in the pandemic over those in which losses accrued later. For that reason, these estimated allocations are only mildly instructive, and will be revised once July through September revenue data are released Thursday.

As we have noted previously, $160 billion in aid, while well short of the amounts contemplated in the HEROES Act introduced by congressional Democrats in the spring, would be nearly enough to cover likely revenue declines for state and local governments in aggregate across FYs 2020 and 2021 (an estimated $178 billion in losses compared to FY 2019 collections), though aggregate figures can disguise steep losses experienced in a handful of states. While some states are running modest surpluses, several—particularly California and New York—have experienced dramatic revenue losses, or project doing so. Distributing relief based on revenue losses is designed to target some of these needs, though overall levels sufficient for many states may seem inadequate in a few, however allocated.

The Gang of Eight has smartly chosen to use a calendar year 2019 baseline for revenue losses and actual revenues in the relevant periods as the measurement, avoiding the disparities that would be created if states’ revenue projections were used as the baseline instead, as this approach would reward states that made overly optimistic projections while penalizing those that project revenues more conservatively, regardless of their actual economic performance. However, allocating relief on the basis of revenue losses still has its complexities and disadvantages.

For one thing, it doesn’t take non-pandemic revenue changes into account. Furthermore, by focusing on revenue losses rather than a metric like employment levels, it tends to reward states with more volatile revenue streams, which overperform in years of economic growth but swing sharply downward during an economic contraction. States with income taxes concentrated heavily on high earners, for instance, likely had a very strong 2019 but a weak 2020 compared to states which relied more heavily on consumption taxes, which tend to be more stable. The bill does, however, attempt to take actual tax policy changes into account, providing that the Secretary of the Treasury should adjust for tax cuts, credits, or delayed payment deadlines that states could use to lower (in some cases, artificially lower) collections during the measurement period.

Of course, it may be that none of this matters quite yet, as the state and local aid component is far from a done deal. And if it does happen, we will need to wait until Thursday to fully calculate the first tranche allocations. Nevertheless, the following table is offered as a preliminary estimate which, in lieu of data on April through September revenue losses (not yet available), allocates solely on the basis of losses from April through June 2020.

Table 2. Preliminary Estimates of Tranche 1 Distributions (in millions)
State State Share Local Share Total Share
Alabama $588 $392 $979
Alaska $300 $200 $500
Arizona $1,005 $670 $1,675
Arkansas $419 $280 $699
California $9,882 $6,588 $16,470
Colorado $815 $543 $1,358
Connecticut $1,200 $800 $2,000
Delaware $300 $200 $500
Florida $2,577 $1,718 $4,295
Georgia $1,254 $836 $2,091
Hawaii $300 $200 $500
Idaho $310 $206 $516
Illinois $1,598 $1,065 $2,663
Indiana $909 $606 $1,516
Iowa $563 $375 $939
Kansas $448 $299 $747
Kentucky $549 $366 $915
Louisiana $576 $384 $959
Maine $300 $200 $500
Maryland $962 $641 $1,603
Massachusetts $1,378 $919 $2,297
Michigan $1,078 $719 $1,797
Minnesota $961 $641 $1,602
Mississippi $416 $277 $693
Missouri $806 $538 $1,344
Montana $300 $200 $500
Nebraska $323 $215 $538
Nevada $425 $283 $708
New Hampshire $300 $200 $500
New Jersey $1,106 $737 $1,843
New Mexico $337 $225 $562
New York $4,045 $2,697 $6,742
North Carolina $1,323 $882 $2,205
North Dakota $299 $199 $499
Ohio $1,316 $877 $2,193
Oklahoma $512 $341 $853
Oregon $656 $437 $1,093
Pennsylvania $1,923 $1,282 $3,204
Rhode Island $300 $200 $500
South Carolina $615 $410 $1,025
South Dakota $300 $200 $500
Tennessee $807 $538 $1,344
Texas $3,927 $2,618 $6,545
Utah $436 $291 $727
Vermont $300 $200 $500
Virginia $1,185 $790 $1,975
Washington $1,630 $1,086 $2,716
West Virginia $310 $207 $517
Wisconsin $906 $604 $1,510
Wyoming $300 $200 $500
District of Columbia $300 $200 $500
Territories $328 $219 $546
Total $54,000 $36,000 $90,000

Source: Tax Foundation calculations and assumptions based on available details of the Gang of Eight Deal as of December 15; U.S. Census Bureau.

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