States Push For Bailouts While CARES Act Funds Go Unspent, IG Report Finds

[Geee]

Issues & Insights

While the forceful lobbying campaign continues to pressure Congress to pass another massive spending package to “bail out” state and local governments to the tune of hundreds of billions of dollars, the U.S. Department of Treasury’s Office of Inspector General (OIG) recently released a report detailing how much of the CARES Act’s Coronavirus Relief Fund (CRF) allocations have been spent by states as of June 30th.  

While some state reportedly have allocated additional portions of the CRF support but have not yet incurred those costs, shockingly, the OIG report highlights that states have, on average, spent less one quarter of their federal CRF funds as of June 30. In our precarious situation with nearly $27 trillion in national debt, why would Congress send more aid to states when such a large amount of current aid has not even been spent?

 

Unsurprisingly, the states asking for even more bailout money are many of the same states that have used a larger portion of the CRF support. For instance, California has already spent roughly 75% of its CRF dollars. Conversely, states that did the hard work and reduced spending growth during the longstanding pre-COVID economic expansion, created rainy day funds, and reduced liabilities, clearly do not need (or want) as much federal aid. States like Texas and Florida have only spent around 12% of their respective CRF aid allotments, according to the OIG report.

However, it is interesting to note that relying on extra federal money like this has not dampened the desire of California’s big government policymakers to continue to raise their already high taxes. In fact, one recent proposal would hike economically-damaging income taxes by $8 billion and send the Golden State’s top personal income tax rate to a crushing 16.8%. Another radical proposal in Sacramento would create a “wealth tax” on those with more than $30 million in assets – and supporters claim they will continue to tax individuals even after they leave California. Stay tuned for legal challenges if that passes.