(Bloomberg) — Spending by US states in the most recent fiscal year grew at the fastest pace in at least 35 years as governments deployed an increase in federal relief money.
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Total spending, including stimulus, rose about 16% to an estimated $2.65 trillion in fiscal year 2021, which ended in most states on June 30, according to a report released by the National Friday of state budget officials. In the past two years, states have reported spending $427.9 billion on federal aid for Covid-19, the report said.
The unprecedented spending segment for the past fiscal year highlights the massive amount of pandemic assistance the federal government has provided to states in an effort to cover the costs of responding to Covid-19 and mitigate the damage to the country’s economy. It’s part of the background that has helped municipal debt outperform the rest of the US bond market this year.
“We see countries using this money in an ongoing effort to defeat Covid-19 and invest in the future,” said Brian Segretz, director of state financial studies at NASBO. The amount of aid that states and localities have received is higher than in previous recessions. Of course, this downturn is different.”
Total state and federal spending for states grew fastest in the 35-year history of the NASBO report. With federal funding up 35.7% in fiscal 2021, public money spending grew just 4.1%, below the historical average of 5.3%, according to the report.
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States have taken advantage of the money to pay for programs ranging from public assistance to Medicaid, transportation, and education. The largest increase was in a category that includes Covid-specific expenditures such as public health programs, unemployment insurance and emergency management. States have until the end of the 2024 calendar to allocate money from state and local coronavirus state financial recovery funds.
Sigritz said it is still too early to tell what impact the stimulus funds might have on bond needs. In fiscal year 2021, the bonds financed about 1.7% of state expenditures.
Bank of America Corp., for example, expects an influx of cash to prompt local governments to take on new projects, helping to spur record Money sales next year.
(Adds details of the spending deadline in the sixth paragraph)
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