Federal payments from the Coronavirus Relief Fund (CRF) helped buoy states during the COVID-19 pandemic, keeping virus-related expenses from sinking budgets.
Economic shutdowns put in place early in the pandemic to curb the spread of the disease caused revenues to spiral downward. At the same time, mounting public health and economic pressures increased spending demands. The CRF provided $150 billion in direct federal aid to state, local and tribal governments. Funds were awarded to states based on population, with no state receiving less than $1.25 billion. Without this cash infusion, pandemic costs might have been insurmountable for states and the nation collectively. And while the CRF may fade in the shadow of the new stimulus package, its significance should not be discounted.
States are gearing up for another round of federal relief through the American Rescue Plan Act of 2021. Under the new stimulus plan, states will receive $195.3 billion in direct federal aid sometime before May 5. In preparation, policymakers may find it helpful to look back at some of the challenges with the CRF and review how states expended the funds.
Challenges With the CRF
Restrictions on how CRF aid could be spent, a lack of clear guidance on what were considered allowable expenses and the piecemeal release of federal information were the biggest challenges for state and local governments in allocating funds, according to the Government Finance Officers Association.
Relief funds could be spent only on COVID-19-related expenses. Funds could not be used to backfill lost revenues, which was clearly the biggest need for most states early in the pandemic. Although revenues recovered later in 2020, the first months of the pandemic had states reeling from sharp, unexpected revenue declines. The ineligibility of CRF for revenue replacement left states grasping for solutions to immediate budget woes.
The U.S. Treasury Department’s CRF guidance was murky, leaving room for interpretation on the definition of COVID-19 expenses. Complicating matters, the information was published in piecemeal fashion. During the eight months between the April disbursement of CRF aid through the end of 2020, the guidance was updated 12 separate times—mostly as new frequently asked questions. Fragmented information also caused states to delay allocation or, in some cases, to spend funds on expenses that turned out to be unacceptable under later guidance. The ambiguity left policymakers frustrated and uncertain about how to spend substantial sums of money at the same time they were struggling to respond to the pandemic and balance state budgets.
The CRF spending time frame was short and the deadline extension came too late. CRF allocations had to be spent by the end of 2020 or they were subject to recapture from the federal government. States received money in late April, which gave them just eight months to devise an acceptable spending plan and allocate the funds. The deadline was extended in December (the month the money was supposed to be spent) for another year, giving states until December 2021 to spend their allocations. However, the extension was too late. Most costs were already incurred before the extension to avoid recapture. Advance notice of a deadline extension might have led to longer-term and more strategic spending decisions as the pandemic continued into 2021.
Yet, despite these obstacles, states successfully dispersed the funds in an expedient manner.
How States Spent Relief Funds
NCSL tracked CRF allocations and found that dollars were distributed in myriad ways based on the virus’ impact and response efforts in each state. Allocations generally fell into these broad spending categories:
Most states directed CRF relief to local governments that did not receive a direct disbursement. Local government dollars largely were seen as reimbursements, targeted grants or stipends. Local governments used the funds much as the states did—to bolster public health efforts, help small businesses and cover other pandemic-related expenditures.
States spent large portions of their CRF allocations on testing, PPE, health facilities and various other public health care needs. Iowa directed $30 million toward health care providers, including home- and community-based providers, substance use providers and mental health providers. Oregon passed legislation that directed nearly $45 million to the state Health Authority for contact tracing, virus testing, education and outreach, case management and supportive services.
Nearly every state allocated CRF relief for small-business assistance, with many distributing funds in the form of grants. Louisiana allocated $300 million in grants up to $15,000 for businesses that had to stop operating or otherwise incurred costs because of the pandemic. Colorado awarded $20 million to businesses with fewer than 25 employees and gave preference to those that did not qualify for or receive a paycheck protection program loan.
Higher Education and K-12 Education
Education remained a priority for states when allocating CRF aid. For states with schools hosting in-person classes it was important to fund safety measures and PPE. On the other hand, many school and university systems received funds to extend technology and internet access for online learning. Idaho allocated $34 million to the State Board of Education, with $4 million designated for digital learning and $30 million to provide mini grants to school districts and charter schools to help close the digital divide for the start of the 2020-21 school year. Connecticut apportioned $164.5 million to facilitate the safe reopening of schools and to support the academic success of all students, with the goal of implementing public health best practices to keep students and staff safe.
Many states used the federal relief to help keep families in their homes as pandemic-induced layoffs impacted people’s ability to make rent and pay mortgages. Texas distributed $171 million for targeted rental assistance for people at risk of becoming homeless due to eviction. Washington awarded $163 million to the Department of Commerce to support more than 11,000 households with foreclosure, credit counseling and legal assistance. The funds also provided emergency operations grants to nonprofits across the state that were helping to address inequity and disparities exacerbated by the health crisis, and to assist low-income renters who experienced hardship related to COVID-19 for up to three months.
Nearly half the states used CRF aid to bolster unemployment trust funds, as unemployment numbers skyrocketed nationwide in response to shutdowns. Additionally, states used funds to focus assistance on vulnerable workers. Maine announced it would use over $25 million to provide a one-time payment of $600 to residents facing long-term unemployment due to the pandemic. New Mexico devoted $194 million to boosting unemployment benefits through a one-time $1,200 payment for eligible unemployed workers.
These examples provide just a peek at the comprehensive uses of state CRF dollars. States also allocated funds for community assistance, technology and broadband expansion, emergency services, and agency expenses related to the pandemic.
The Treasury Department’s Office of Inspector General is responsible for monitoring and overseeing the receipt, disbursement and uses of CRF payments. Reported costs incurred as of Dec. 31, 2020, show exactly how state and local governments prioritized spending.
While economic activity has not yet returned to normal, the ongoing vaccine rollout and federal assistance bring the country closer to that point each day. Federal CRF payments brought relief to states and municipalities when they needed it most, providing funds to help businesses, bolster public health, expand internet access for learning and work, and get money into the pockets of unemployed Americans. Understanding trends in the use of funds and the challenges concerning their allocation is significant for future state action on federal relief. The CRF will continue to be a useful resource for state policymakers as they work to expend the remaining dollars through the new federal deadline.
Emily Maher and McKenzie Cantlon track fiscal issues for NCSL.