The Covid-19 pandemic has caused significant fiscal constraints on states and localities. As economic activities slow down, sales tax and business tax are generating fewer revenues. The state-at-home orders have also restricted other revenue sources. Congress has disagreed on the need to include direct and immediate financial assistance to these regional governments. However, detailed analysis has pointed to states and local aids as an effective stimulus measure. [1] These aids can balance the budget, protect employment, and make the stimulus more efficient. For these reasons, the U.S. federal government should include state and local aids in the Covid-19 stimulus plan. Regional governments urgently need financial assistance to ensure fiscal balance. Unlike the federal government, these authorities cannot legally borrow money and run deficits. However, the pandemic has led to decreased revenues and increased expenditure needs. State revenues decreased by at least 7.8% in 2020. Consequently, states, localities, and tribal nations are expecting shortfalls of $300 billion through 2022. On the other hand, the Covid-19 pandemic has led to various needs for additional funding. Regional governments face increased unemployment insurance applications and a series of public health expenditures. This growing fiscal gap could force regional governments to adopt different austerity measures during a severe economic crisis. [1] Thus, states and localities need federal assistance to balance their budget. State and local aids are crucial for employment. Faced with the fiscal crisis, authorities at various levels have begun cutting public sector workers. The current job loss due to the economic crisis has already surpassed that during the Great Recession. The impact of the public sector job cut will likely prove long-lasting. Studies of the Great Recession shows that states with more public sector job cuts recovered more slowly than those with less. Furthermore, the loss of public sector jobs will spill over into the private sector. In the aftermath of the 2008 crisis, job loss in private and public sectors proved correlated. Furthermore, states with more public sector job loss faced significantly higher unemployment in the years after the crisis. [3] Thus, state and local aids will play a decisive role in helping the labor market during the crisis. State and local aids represent an ideal means of resource allocation. Some critics have viewed state and local aids as a federal bail-out. That view, however, ignores the advantages of states and localities in orchestrating the recovery. These regional governments can better tailor the resource allocations to the specific needs in their jurisdictions. This hands-off approach can also promote fairness. Some regions will likely face a more significant crisis due to factors, such as a fragile economy or an older population. By funding the specific authorities in these most affected areas, the federal government can target those most in need. [4] Taken together, state and local aids entrust federal resources to the more qualified regional authorities. This approach can improve the efficiency and fairness of the Covid-19 stimulus. Thus, state and local aids could magnify the effects of the Covid-19 stimulus plan. For these reasons, the U.S. federal government should include state and local aid in the Covid-19 stimulus. [1]. Elis, Niv. 2020. "Economists Warn Against Excluding State Aid From COVID-19 Relief". The Hill, , 2020. https://thehill.com/policy/finance/529557-economists-warn-against-excluding-state-aid-from-covid-19-relief?rl=1. [2]. Leachman, Michael. 2021. "States, Localities, Tribal Nations, Territories Need More Federal Aid". Center on Budget and Policy Priorities. https://www.cbpp.org/sites/default/files/atoms/files/1-22-21sfp.pdf. [3]. Cooper, David. 2020. "Without Federal Aid, Many State And Local Governments Could Make The Same Budget Cuts That Hampered The Last Economic Recovery". Blog. Economic Policy Institute. https://www.epi.org/blog/without-federal-aid-many-state-and-local-governments-could-make-the-same-budget-cuts-that-hampered-the-last-economic-recovery/. [4]. Gordon, Tracy. 2020. "Why Federal Investments Matter: Stability From Congress To State Capitals". Tax Policy Center. https://www.taxpolicycenter.org/sites/default/files/publication/158294/strengthening_the_federal-state-local_partnership_in_recession_and_recovery_1.pdf.