June 22, 2022

What Happens To State Governments When Federal Funds Run Out?

The legislative response to COVID-19 has been an essential part of supporting Americans and the economy through the crisis. However, states are now navigating how to avoid a budget shortfall (sometimes referred to as a “fiscal cliff”) once federal aid wanes. In its latest issue paper, “The $195 Billion Challenge,” the Volcker Alliance examines how states are using funds provided by the American Rescue Plan (which could last until 2026) and the “fiscal cliff” some states will encounter. For example, some states are directing federal relief funds toward recurring needs (i.e., infrastructure maintenance, new programs, and revenue replacement), seemingly without plans for when funds run out.

Read the Paper

Understanding approaches at the state level can surface important insights on the successes and risks of different budget strategies, as well as highlight the fiscal relationship between federal and state governments. Visit the Volcker Alliance website to learn more about state budgeting.

Note: This report was funded by the Peter G. Peterson Foundation as part of our work to support projects, through grants and partnerships, that educate and engage Americans from a variety of perspectives. Learn more about our grantmaking.

Related: How Much Coronavirus Funding Has Gone to Your State?

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