The sudden decline in economic output following the Coronavirus disease 2019 (COVID-19) outbreak has significantly altered the fiscal outlook for state and local governments. A sizable share of economic output derives from state and local government activity. These governments are generally required to balance their operating budgets every one or two years. Early evidence suggests that the COVID-19 economic shock will have a notable impact on state and local budgets.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act; P.L. 116-136), signed into law on March 27, 2020, created the Coronavirus Relief Fund, which provides $150 billion in direct assistance for domestic governments. The CARES Act stipulates that the $150 billion provided to the Coronavirus Relief Fund is allocated to governments in states, territories, and tribal areas as follows: (1) $139 billion is allocated to state governments in the 50 states, with allocations based on their populations and with no state receiving less than $1.25 billion; (2) $8 billion is set aside for governments in tribal areas; and (3) $3 billion is allotted to governments in territories, including the District of Columbia and Puerto Rico.
Coronavirus Relief Fund assistance is provided to state governments. Local governments serving a population of at least 500,000, as measured in the most recent census data, may elect to receive assistance directly from Treasury. Such direct local assistance allocations reduce the allocation that is made to the state government (keeping the state allocation constant), and are equal to the product of (1) the state or territory allocation amount, (2) the share of the state or territory population served by the local government, and (3) 45%.
“The Coronavirus Relief Fund (CARES Act, Title V): Background and State and Local Allocations,” CRS Report R46298, April 14, 2020 (14-page PDF)
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