The Blue- and Small-State Bailout

Policy

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To date, Congress has passed four COVID-relief bills: the CARES Act, the Families First Coronavirus Response Act, the Response and Relief Act, and the American Rescue Plan. President Trump signed the first three, President Biden the last.

Combined, these bills sent about $900 billion to lower-level governments, primarily states and localities. A new study from Jeffrey Clemens and Stan Veuger looks into where this money went and finds two major patterns.

First, small states made out quite nicely, probably thanks to their overrepresentation in Congress relative to their population. Some of the formulas used to provide these funds even had “floors” — meaning every state was guaranteed a certain minimum amount of money that did not depend on its size. In general, if a state has one extra congressperson per million residents, including senators, it got an extra $670 to $780 per capita. (As the authors note, this is the difference between Montana and Arkansas: The former has three congresspeople to represent 1 million people, or three per million, while the latter has six congresspeople for 3 million residents, or two per million.)

Second, Biden’s bill, but not the three passed through a divided Congress last year, show a big partisan skew, worth about $300 per capita for a state with an entirely Democratic congressional delegation (relative to a state with a fully Republican delegation). This comes from a skew in the funding formulas coupled with the huge size of the bailout given — which was not necessary, given the better-than-expected fiscal condition of states this year. The authors explain:

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Relative to the CARES Act’s population-driven formula for allocating general fiscal relief, the ARPA’s unemployment-driven formula skews dollars towards states with either large pandemic-driven increases in unemployment or with high baseline rates of structural unemployment. These states lean disproportionately Democratic. In addition, while we find that the Democratic party’s trifecta predicts a substantial shift in transportation funds towards states with heavily Democratic delegations, we find no such shift in education funds, where aid formulas tend to be linked to pupil counts.

To the extent this is compensating states hit harder by COVID, it’s at least arguably defensible. But it’s also rewarding states based on their preexisting, structural employment problems, as well as their decisions to lock down harder.

Read the whole study here.

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