Earlier this year, Congress enacted relief packages that appropriated trillions of dollars. But since the spring, Congress has failed to enact additional funding. A new federal aid package may be welcome for many reasons—including for businesses and individuals. State and local governments have asked for more funding as well. But such additional funding for state and local governments has been a major sticking point in congressional negotiations.

There’s still a chance that the federal government will act. The New York Times reports,

Advisers to President-elect Joseph R. Biden Jr. are planning for the increasing likelihood that the United States economy is headed for a “double-dip” recession early next year. They are pushing for Democratic leaders in Congress to reach a quick stimulus deal with Senate Republicans, even if it falls short of the larger package Democrats have been seeking, according to people familiar with the discussions.

On Nov. 19, Gov. Inslee wrote a letter to Congress and the administration asking them to resume negotiations for a new relief package. One of the governor’s requests is additional aid for state and local governments, including “flexibility to enable funding to be used for revenue replacement.” The governor writes, “We are facing a historic decline in revenue due to the economic crisis caused by COVID-19, which has created significant challenges for our state budget.” Given what we know today, this is just not the case.

The most consequential piece of the federal relief bills for state and local governments is the Coronavirus Relief Fund (CRF). The state of Washington has allocated $2.056 billion of its share of the CRF; there is $110.7 million left. In making these allocations, the governor has been proposing uses for funding, sharing those plans with the Legislature, and then formally allocating the funds. (David Schumacher of the Office of Financial Management discussed the process at the Economic and Revenue Forecast Council meeting on Nov. 18.)

The CRF money comes with strings: It must be used for necessary expenditures incurred due to the public health emergency that were not accounted for in the most recent budget, and funding must be used by Dec. 30, 2020. It cannot be used to cover revenue shortfalls. Ever since the CARES Act (which established the CRF) was enacted this spring, there have been calls to increase funding for state and local governments, or at least make the CRF more flexible so that state and local governments could use it to address what everyone (across the country) expected to be severe budget shortfalls. There was reason to hold on to the CRF money as far as possible in the hope that Congress would eventually act to give states this flexibility.

Now, though, it doesn’t look like Washington has a budget shortfall at all. As Schumacher suggested at the ERFC meeting, increased revenues have filled the budget gap rather than potential additional federal funds. Indeed, after the Nov. 18 forecast, I estimated that total reserves (including the rainy day fund) in 2021–23 would be negative by just $12 million (without assuming likely additional savings).

And since then, Gov. Inslee has used $122.2 million from the CRF to replace funds that the Legislature previously appropriated from the rainy day fund (the budget stabilization account, or BSA). The replaced state dollars will likely be transferred back to the BSA at the end of FY 2021. With those dollars replenished, the state will have total reserves of about $110 million–$1.271 billion in 2021–23, depending on how much will actually be saved from various items. (See this post for details.)

The more the BSA is backfilled with CRF dollars, the more flexibility the state will have in the next budget. Schumacher said,

When we get to January if we don’t get more money from the federal government, these difficulties with the businesses and the employees is not going to go away and we will have to have a continued investment in these things as well as passing a budget for the future where our budget stabilization account will likely be used up and we’ll have to figure out what to do going forward.

The state may not be able to use any of the remaining $110.7 million from the CRF to backfill the BSA further, given the restrictions on use of the CRF money and the purposes of the original BSA appropriations. The remaining funds could be used for additional economic support or for public health purposes, for example.

Contrary to what the governor suggested in his letter to Congress, the state does not need additional federal help in order to balance the current budget. A new relief package that includes funding for state and local governments would, however, provide the Legislature with more options as they build the 2021–23 budget.