The economic shutdown to curb the spread of COVID-19 has wreaked havoc on state budgets. In the two months following the shutdown in March, more than 20 million Americans had abruptly lost their jobs, and state revenue projections across the country were nosediving.
Enter the federal government. To ease the financial strain of state spending on COVID-19 mitigation and response measures, Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act, which included $150 billion in direct assistance for state, territorial and tribal governments. The aid is known collectively as the Coronavirus Relief Fund, with each state receiving a minimum allocation of $1.25 billion. Local governments with a population of at least 500,000 also were eligible for direct payments.
At this point, the CARES Act is a familiar name in state capitols. But the hard work for legislatures and governors has been allocating the funds. Deciding how to and who can spend the funds is no walk (socially distanced, of course) in the park.
Newly named Pennsylvania House Speaker Bryan Cutler (R) knows this all too well. Throughout the pandemic, to help in decision-making, he said the House focused on empowering “business owners, employers and workers to return to their careers as safely as possible, utilizing relief funds to assist those who could not.”
The federal relief funds are restricted and can be used only on expenses that:
- Directly relate to COVID-19.
- Are not already accounted for in the budget approved before March 27.
- Were incurred this year. On Dec. 30, 2020, unused funds will revert to the federal government.
The U.S. Treasury Department has issued guidance on eligible expenses. To the dismay of many of those with budgeting responsibilities, the funds may not be used for most states’ greatest need: to backfill lost revenues.
There still are questions about how to interpret the guidance and concern that a mistake could lead states to have to repay the money. The uncertainty about what are deemed eligible expenses has led some legislatures to delay spending the funds. There are many who hope the fourth stimulus package, which is currently making its way through Congress, offers more spending flexibility than the previous versions.
Who Has Spending Authority?
Emergency declarations by governors coupled with the unique nature of the federal relief funds contributed to the confusion over who had the authority to spend them. In New Hampshire, for example, House Democrats challenged the power of Governor Chris Sununu (R) to spend the funds without legislative review or approval. A judge later dismissed the challenge, and the governor has largely controlled allocations.
In most states, however, the executive and legislative branches are working in tandem. In fact, despite some contentious moments, almost all 50 states and territories have created or proposed oversight measures to monitor the CARES Act funds.
Where Are States Targeting the Funds?
Many states have successfully allocated their relief funds; others are still meeting in special session to decide how and where to spend them. The spending strategies vary, but no matter the path states take, they are making informed decisions so the funds can provide maximum benefit to their constituents. NCSL is tracking state actions and has identified the following trends.
Under the Treasury’s guidance, state governments are not required to share the federal funding with local governments. However, many states have allocated relief to cities, towns and counties that were not included in the initial round of direct payments.
Arizona lawmakers established a new state program called the AZCares Fund, which will include $411 million in flexible spending to local governments for virus-related expenses. Localities can decide which services to focus on, whether it be police and fire budgets or financial assistance to families.
Connecticut created a reimbursement program based on information from the state’s 169 municipalities on their actual and projected expenses related to the crisis. The administration set aside $75 million to aid municipalities, with nearly $40 million in direct costs reported to date.
States are responding to rising health care costs with strategic relief spending. Ohio devoted more than $260 million to support temporary medical facilities, purchase personal protective equipment and strengthen local epidemiological support staff to conduct investigations and combat surges. Oregon is awarding $50 million in stabilization grants to 33 rural hospitals.
Relief funds also are being used to cover hazard pay for front-line workers and unforeseen public health and safety expenses. In addition, the Treasury clarified that funds may be used for the Federal Emergency Management Agency’s cost-sharing requirements under the Stafford Act. So far, Arizona, Maine, Montana and Nevada are taking advantage of the FEMA-match eligibility.
States have used the federal funds to prop up small businesses and keep their economies afloat. Many relief efforts are in the form of grants to businesses with fewer than 50 employees, to specific industries or to targeted groups. Iowa, for example, has dedicated $100 million to farmers, Indiana has targeted manufacturers, and Vermont has allocated funds to the forest economy. Louisiana guaranteed $40 million in aid to businesses owned by minorities, women and veterans.
Although using relief funds to make loans creates a risk that the funds might not be spent by the deadline, some states are leveraging relationships with financial institutions to provide aid to businesses. The Montana Legislature created various small-business relief programs, including a $125 million loan deferment program by partnering with Montana banks, credit unions and lending institutions. The program will direct $25 million to hotels and restaurants. The federal relief funds will be used to provide payments to participating lenders.
Despite a federal push to reopen public schools and college campuses this fall, it is unclear whether states and counties will do so. Regardless, adapting to a new learning environment is inevitable.
Washington is preparing universities for testing expenditures, cleaning services and training for epidemiology students to support local virus-control efforts. Pennsylvania lawmakers created a student-loan forbearance fund to relieve borrowers from interest payments for non-defaulted private loans.
South Carolina used relief funds to begin holding Academic Recovery Camps, small-scale, five-day, in-person gatherings focused on reading and math and food services for at-risk learners. And, in Tennessee, federal funds went toward reopening grants to local education agencies and paying for technology support.
Technology and Broadband
Americans continue to be cautious about leaving their homes, so the need for easy access to distance learning and telehealth services is greater than ever. As a result, states are investing in technology and broadband expansion. Missouri is using nearly $40 million in federal money to expand technology, including $2.5 million to improve libraries’ access to hotspots and Wi-Fi and $20 million to reimburse broadband providers for construction costs in underserved areas of the state.
Unemployment and Workforce Development
Oregon’s Emergency Board used $35 million in federal funds for $500 relief checks to individuals. House Speaker Tina Kotek (D) says, “Too many Oregonians are still waiting for the financial lifeline of unemployment benefits, which is why Senate President Peter Courtney (D) and I [chose to assist] individuals who have experienced financial distress because of losing their jobs and income.” And with more than 11% of workers still without a job, states including Hawaii, Idaho, Mississippi, Nebraska, North Dakota, Utah and West Virginia have allocated funds to unemployment benefits and workforce development.
Florida is targeting funds for rental and mortgage assistance relief. Short-term rental assistance will help subsidize tenants’ eligible household rent. A separate program will send $120 million to counties based on their reemployment assistance rate for rental and homeowner assistance programs like construction, mortgage buydowns and closing costs.
Colorado is using $10 million in federal funding to assist renters and homeowners at risk of eviction or foreclosure. The funds will also be available to undocumented households.
Under the Treasury guidelines, some states are using their funds in creative ways. The recipients of some of the measures are listed below.
- Those who need a close tracking of the virus or a COVID-19 emergency response application.
- Local governments for special-purpose taxing districts.
- The unemployed who need help figuring out how to get hired—short-term education and training opportunities, career coaching, etc.
- Grocery store employees, nurses, bus drivers and other workers with a one-time tax rebate for hazardous work.
- Survivors of domestic violence.
- The National Guard.
- Media organizations for COVID-19 costs and coverage.
- Adult day care services.
This report on state trends is by no means exhaustive. It is meant to provide some insight into how legislatures are allocating their federal relief funds. When considering spending options, keep in mind that allocations differ based on state population and that the impact of this unpredictable virus varies by region. As a result, relief fund spending looks different across the board.
Emily Maher is a policy associate in NCSL’s Fiscal Affairs Program.
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