What Rainy Day Fund?

As we’ve been reporting, US states are under significant financial stress that will likely get much worse before it gets better. Debate continues as to what the Federal government might be willing to do to help states bridge their cash flow needs as a result of plummeting tax revenues/receipts. As the following chart indicates, not all state budgets are created equally.

For once, New Jersey is not the worst state, but their rainy day fund might help them get through about two weeks of projected cash flow needs, where as Illinois has the financial wherewithal to make it until 10 am this morning.

It is estimated that US states will incur a roughly $500 billion projected loss in tax revenues from shutting down local economies that needs to be made up somehow. Without a federal bailout, drastic cuts in education and other social safety net requirements will be necessary to close this gap. Unfortunately, these cuts will further derail economic activity creating a further burden on state budgets. The $150 billion that has been earmarked for US states is specifically designated for Covid-19 related expenditures and can’t be used to offset the economic hit that many states are facing. Something needs to be done today. McConnell’s threat of pushing states to use the bankruptcy courts is not helpful or currently legal.

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