• Biden’s stimulus includes $350 billion in state and local aid, but tax revenues are only slightly down.
• Democrats argue that more state aid is needed to ensure long-term economic recovery.
• Critics say aid should be further targeted. States surprisingly haven’t lost much tax revenue — yet.
• Visit the Business section of Insider for more stories.

President Joe Biden wants to pump billions of federal stimulus into state and local governments as part of his $1.9 trillion package. But state tax revenues for 2020 were surprisingly healthy.

A JP Morgan survey called 2020 “virtually flat” with 2019 with regard to tax revenues for 47 states that reported their earnings, with revenues only falling by 0.12% on average. And while states expected to be hit hard financially when the pandemic began, the previous stimulus, including $600 weekly unemployment benefits, on top of the already allocated state benefits, allowed Americans to continue spending.

The results of the survey seem to support the conservative argument that states don’t need some or all of the funding in Biden’s relief package given that their revenues look fairly unscathed by the pandemic. 

The White House has pushed back on such criticism, saying it’s not in line with reality.

“I think our objective is to focus on not JP Morgan reports, but what state, local governments and others are telling us they need to ensure that the people in their districts, the resources in their districts, the people who are making government function in their districts have the funding and resources they need,” White House Press Secretary Jen Psaki said during a February 1 press conference. 

But while states haven’t yet appeared to take significant hits in tax revenue, experts suggest that the worst is yet to come.

The argument for state aid

Biden’s $1.9 trillion stimulus plan includes $350 billion in emergency funding for state, local, and territorial governments “to ensure that they are in a position to keep front line public workers on the job and paid, while also effectively distributing the vaccine, scaling testing, reopening schools, and maintaining other vital services,” according to a White House fact sheet. 

This would be in addition to $150 billion of similar aid from last March’s CARES Act, Democratic state treasurers said in a letter that more aid is needed for long-term economic recovery.

“Congress has the power – and the responsibility – to step in and fill the gap during this emergency,” the treasurers wrote.

Some states badly need the aid already. According to the Urban-Brookings Tax Policy Center, states such as Alaska, Hawaii, and Nevada suffered the greatest revenue losses at 42.5%, 17%, and 11.8%, respectively, because of the lack of tourism during the pandemic. But some other states saw a gain in revenue, like Idaho, up 10.4%, and Utah, up 8%. 

And growing evidence suggests a big hit to tax revenues is coming, because of the ripple effect that mass working from home has had on commercial real estate.

Unnamed government finance officials told The New York Times that cities heavily reliant on property taxes could face revenue losses of as much as 10% in 2021 due to empty facilities during COVID-19. The Urban Institute found in 2017 that although property taxes account for roughly 1% of state tax revenues, they can add up to 30% or more of the taxes that cities take in to fund local services, so further aid through Biden’s plan will be necessary to prevent mass municipal layoffs.

The argument against state aid

Since Biden introduced his stimulus package, Republican lawmakers have taken issue with its costly price tag, and 10 Republican Senators even came up with their own $618 billion stimulus plan. That proposal was notable for completely cutting out aid to state and local governments. 

“I think the biggest gap between the president’s proposal and the Republican proposal relates to [$350 billion] or so going to states and localities,” Sen. Mitt Romney of Utah told reporters. “That kind of number just makes no sense at all.”

“Unfortunately, the White House seems wedded to a figure that really can’t be justified …” Sen. Susan Collins of Maine, who led the GOP stimulus plan, told reporters on February 23. “So what we’re looking at now is whether there are changes that we could make.”

As Insider’s Joseph Zeballos-Roig reported, moderate senators on the Democratic side think some of the state aid in Biden’s plan could be used for needs other than pandemic relief, such as broadband and healthcare.

Biden’s stimulus plan is set to be reviewed in the Senate over the next few days, and changes are already being made to the bill ahead of its expected passage in mid-March.