The NCSL Blog

05

By NCSL Staff

Flexibility and funding.

Mick and Senator Denis screengrabThose were the key issues raised during this week’s NCSL tripleheader “Relief and Revenues” Facebook video series dealing with the calamitous effects of the COVID-19 pandemic on state finances and the need for additional, flexible, federal support.

Congress allocated $150 billion to states, territories, local governments and tribes with the passage of the CARES Act but restrictions on the money has hamstrung some state efforts. Negotiations on the next round of stimulus are underway in Washington and both direct aid to states and greater flexibility in how states can spend the aid are key and contentious issues.

“One thing the Treasury made clear is those funds could not be used to backfill lost revenue. That presented a major challenge because for many states that’s the greatest need they’re facing right now,” said Shelby Kerns, executive director of the National Association of State Budget Officers (NASBO). “It’s been a moving target for states (about what is an allowable expense). Some states developed plans that had to be revised.”

Then came a U.S. Treasury Department report claiming states had spent only 25% of their allotted funds. However, a NASBO survey of states reported that fully 75% of the funds had been allocated.

“The difference may be deceiving,” she said, pointing out that money earmarked for schools wouldn’t be spent until closer to when schools are starting, noting that spending for broadband to schools that aren’t opened takes time.

“That’s happening everywhere," she added, noting that some of the allocated funds are reimbursable, which slows down the rate of expenditure. 

NCSL Fiscal Affairs Director Mandy Rafool enumerated how state revenues were blindsided by the pandemic. “That’s the real story,” she said, noting that in January most states were in excellent fiscal conditions but since then states have had to revise all their rosy projections because of the rapid revenue reduction.

All states, she said, suffered revenue loss but the effect has varied significantly. While 11 states said they expect more than a 15% decline (“That’s a substantial hit.”) states dependent on tourism and energy production were especially hard hit–Wyoming, for instance, is looking at a 38% decline.

A trio of state legislators provided a “boots on the ground” perspective.

Before the pandemic, Georgia was preparing to raise pay for teachers and also state employees who make less than $40,000 to $50,000, said Republican Senator Blake Tillery, chair of the Georgia Senate Appropriations Committee.

“All that went out the window,” he said. “Georgia is one of the states who opened early and that helped us.”

His colleague, Representative Terry England (R), chair of the Georgia House Appropriations Committee, said you can see part of the fiscal effects by looking at traffic.

“Vehicles were disappearing from the road,” he said, which affected the motor fuel tax. Vehicle counts on Georgia’s roadways were down 10% from pre-COVID-19 levels and miles traveled dropped to 30% from pre-virus levels, meaning less gasoline being bought and fewer roads and bridges being repaired.

Both lawmakers said flexibility in how states can spend money allocated by Congress is crucial to recovery.

“Guidance from Treasury is a little bit blurry,” said England. “If we can get a little more black and white in what they going to accept (as COVID-related spending) would give us a little more breathing room.” He said states need revenue replacement, not for bailing out pension systems but for things that are truly related to revenue loss post-COVID-19.

Tiller added that the “key word is flexibility. We understand we’re going to have to make some tough decisions and we would appreciate the flexibility.”

Nevada had to cut $600 million from its fiscal year 2020 budget and about twice as much in FY 2021, said Mo Denis (D), president pro tem of the Nevada Senate.

Nevada saved $400 million in rainy day funds in better times, but the pandemic slowdown resulted in a $160 million cut from K-12 education programs that supported a “Ready by Grade 3” program and provides additional money to students in the bottom 25% percentile, plus $170 million from health and human services.

Some Medicaid cuts covered “real basic stuff, dentures, glasses, hearing aids,” he said. “With the CARES Act fund, we were able to put some of that back.”

Denis urged lawmakers to make sure they are talking to their federal delegation.

“Federal dollars have made a huge difference,” he said.

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About the NCSL Blog

This blog offers updates on the National Conference of State Legislatures' research and training, the latest on federalism and the state legislative institution, and posts about state legislators and legislative staff. The blog is edited by NCSL staff and written primarily by NCSL's experts on public policy and the state legislative institution.