Bracing for Stimulus Overkill

Logan Kolas Feb 22, 2021

As part of Washington, D.C.’s spending bonanza, House Democrats outlined a proposal to send state and local governments in Ohio more than $11 billion—more than half of which would go into state coffers. This aid is on top of the roughly $400 billion in pandemic relief, which included aid for schools, that the federal government sent state and local governments in 2020, and as we recently learned, this taxpayer-funded windfall is not necessary. 

Earlier this month, Governor Mike DeWine released a budget proposal to increase one-time state-level spending by $1 billion citing a prudent fiscal response to the pandemic and an influx of federal dollars. Clearly Ohio is not strapped for cash. With tax revenues in Ohio holding up better than expected, around $2.7 billion in the state’s rainy day fund, and enough federal assistance (for programs like Medicaid) to spark increased spending, any COVID relief package that would send such a huge a cash windfall to Ohio—or other states in a similar position—needs immediate re-evaluation. 

Ohio’s fiscal success is mirrored in many states across the country, indicating that the bailout package is both poorly timed and much too large. State tax revenue across the country is down less than one percent compared to the previous year and local tax revenue has proven resilient under the circumstances. But the new proposal would send boatloads of cash to states whose revenues have performed well during the pandemic. California, for example, was already deliberating ways to spend their $15 billion surplus before the outlined plan decided to send another $41 billion in state and local aid their way—that’s roughly 12 percent of the entire state and local bailout package and it is a reckless and needless way to spend taxpayer dollars. Even tourism states like Florida, whose economy has been hit harder by the pandemic, have proposed billions of dollars in spending increases.

Even though these funds are not needed, it is crucial that Ohio is transparent about how any extra federal taxpayer dollars are spent. Creating new or continuing programs with federal taxpayer money would be dangerous for future budgeting and would leave Ohio taxpayers on the hook when the federal money runs out. As The Buckeye Institute will explore further in the coming months, any increases in government spending with federal taxpayer dollars should be limited to one-time purchases, shifted toward education savings accounts, or returned to taxpayers.

As I outlined last year, a more prudent and fiscally responsible approach to determine if states need taxpayer-funded aid—and, if so, how much aid—would require states to show how much their revenues fell due to the pandemic. As Upwork chief economist Adam Ozimek noted, proof of need is something we required of businesses before they received pandemic-related aid, so why wouldn’t we ask for the same level of accountability from state governments? 

D.C.’s state and local bailout package sends too much money into state coffers and fails to appropriately tailor the aid to actual need. Washington should eliminate this cash windfall entirely, or failing that, should distribute taxpayer-funded assistance to states that can show they are in true need of the aid. 

A policymaker’s toolkit includes both sledgehammers and scalpels, and it’s a shame to see Washington once again reaching for the sledgehammer when the scalpel would cause less harm and save taxpayer dollars. 

Logan Kolas is an economic policy analyst with The Buckeye Institute’s Economic Research Center.