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Cato expert questions narrative about lost school revenue

Chris Edwards of the Cato Institute responds to a popular narrative about federal aid.

As Congress debates another federal aid package, media stories are portraying state-local governments as facing financial Armageddon.

New second quarter data from the BEA shows that is a false narrative.

Total state-local tax revenues fell just $13 billion from first to second quarters in 2020, while federal aid to the states soared $192 billion.

Some particular jurisdictions (NYC) are in trouble because of their own mistakes, but state-local governments in general are not short of cash.

Edwards offers more details here.

The Wall Street Journal published a news story last week suggesting that public schools face ruin without more federal aid. …

… The WSJ article was essentially an advocacy piece for greater federal intrusion on an activity that is the responsibility of the states.

… From the first to the second quarter, sales and excise tax revenues fell 6 percent, property tax revenues rose 1 percent, and income tax revenues fell 2 percent. Overall state??local tax revenues fell 3 percent. State??local governments face challenges, and it is unknown how long the economy will take to recover, but a 3 percent tax revenue decline thus far is not a crisis.

While tax revenues have dipped slightly, federal aid to state??local governments has soared. Total tax revenues fell $13 billion from the first to the second quarter. But federal aid rose $192 billion as cash from federal relief bills filled state??local coffers. Total state??local revenues (from federal aid, taxes, and other sources) rose from $716 billion in the first quarter to $893 billion in the second quarter.

State??local governments are not short of money in general, although some particular jurisdictions may be hard hit. Federal aid has risen far more than tax revenues have fallen. State??local budgeting will be tougher in coming months than during the boom years, but the narrative that state??local services such as schools will collapse without more bailouts is false.

Mitch Kokai / Senior Political Analyst

Mitch Kokai is senior political analyst for the John Locke Foundation. He joined JLF in December 2005 as director of communications. That followed more than four years as chie...

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