The Era of Flush State Budgets Is Over

As part of the deal to extend the debt limit, President Joe Biden and Congress agreed to rescind about $30 billion that had originally been allocated in 2021’s American Rescue Plan, some of which was going to be sent to state and local governments for a variety of projects. The amount isn’t that large, at least by federal-budget standards, but it is indicative of a huge change in policy. The federal response to COVID-19 included enormous amounts of mostly unconditional fiscal aid to states, cities, and other local governments. But this era of huge federal aid, and the flush state and local budgets it helped create, is over.

In its place will be a period of state fiscal retrenchment. Between the huge buckets of federal aid and the strong economy of the past few years, state budgets have never been healthier. Some states and cities have used this time to address long-standing fiscal problems and to , which will ease the coming crunch. But