- The recently passed $1.9 trillion stimulus plan contains $350 billion in state and local aid.
- That includes $5.6 billion for New York City, which has been seeking federal aid.
- Many local governments have warned of drastic budget cuts absent funding from the federal government.
- See more stories on Insider’s business page.
An ominous question lingered over much of 2020 and early 2021: What will happen to all the cities and states facing huge revenue shortfalls from the coronavirus recession?
Most famously, some commentators have gone so far as to say 2020 killed New York City, a metropolis in which interpersonal contact is a fact and a way of life. Some Wall Street executives voted with their feet late in the year, moving to Florida along with some of their operations.
The recently signed $1.9 trillion stimulus may have just solved the issue, pumping billions of dollars into not just New York but state and local governments across the country; it spends $350 billion on state and local governments, to be exact.
The package targets areas that saw higher levels of unemployment over the last three months of 2020. According to a Fitch report, it will significantly boost near-term revenues for states, local governments, transit systems and education providers.
According to Fitch, $195.3 billion will be allocated to the states and the District of Columbia; $25.5 billion of that is divided up evenly, and the rest is allocated based on unemployment numbers. That means the states of New York, California, Texas, and Florida are all set to receive more than $10 billion each. In addition, local governments are set to receive $130.2 billion, with $45.6 billion allocated for cities.
A Bank of America Research note said New York state will receive $12.7 billion, its local governments will get $10.6 billion, and New York City will get $5.6 billion.
Tribal governments are set to get $20 billion in direct aid, as well as $11 billion more for other programs including healthcare, housing, and education. It’s the government’s largest-ever investment in Native communities, according to the Senate Committee on Indian Affairs.
Relief for a financially ailing New York
Last year, New York Gov. Andrew Cuomo demanded $15 billion in federal aid. As the Associated Press reports, Cuomo said he would pursue some form of legal action if the aid wasn’t sent, while warning that that New York’s highest earners would face the country’s highest income tax if the White House didn’t step in with aid.
In his preliminary budget for fiscal year 2022, Mayor Bill de Blasio said the city had seen a $1.5 billion decline in revenue and property tax revenue fall by $2.5 billion – the largest drop since 1996.
Per BofA, sales tax collections in New York City were down 6% year-over-year in January, but there’s been an almost 22% overall year-over-year drop in collections since March, a sharp contrast with other areas of the state seeing an increase in collections.
Beyond these declining revenues, de Blasio said the city had spent $5.9 billion on “COVID-19 related expenses,” with $1.3 billion not covered by federal reimbursement at the time. He added that the state’s proposed budget cuts of $8 billion could mean $4 billion in cuts for the city.
“With direct local aid, New York City can be made whole again,” de Blasio said.
Economists have previously warned about the dangers of not including state and local aid in the stimulus packages of 2020 and 2021. As Insider’s Ben Winck and Joseph Zeballos-Roig reported, a lack of state and local aid after the Great Recession slowed growth for years afterward – plaguing Barack Obama’s presidency and economic recovery with state cutbacks. Economists feared it could happen again this decade if that aid wasn’t included in future packages.
In February, every elected Democratic state treasurer called on the federal government to include the $350 billion in state and local aid in the stimulus.
“We are cutting costs, whether it’s at the state or local level,” Wisconsin state treasurer Sarah Godlewski previously told Insider. “We are being scrappy, and figuring out how we can reallocate resources in ways that we’ve never imagined before.”