"Does this mean that additional federal aid—like the $125 billion in the recent fiscal package—won’t increase state and local spending?
No. First, much of the aid is targeted to the entities that are most under stress—K-12 schools, health, transportation, and higher education. Second, even if the declines in employment outside of local education aren’t well explained by revenue shortfalls, that doesn’t mean that they are solely due to social distancing. It is quite likely that state and local governments—remembering the long, slow recovery from the Great Recession and the years of budget cutting—have been cautious in their spending even as their revenues come in stronger than expected. "