WASHINGTON – State, city and county governments this week will receive their first infusion of direct aid from $350 billion in emergency funds approved in the American Rescue Plan, two months after President Joe Biden signed the COVID-19 relief package into law.
The Biden administration launched an online portal Monday that will allow local and state governments to access their share of funds from the Treasury Department. The amount allocated for each state and municipality was determined by unemployment data.
Most will receive money in two tranches – one this year, the second in 12 months – but states that have seen their unemployment rates increase by 2% or more since February will receive funds in a single payment. Payments will begin within days. Money must be spent by the end of 2024.
The $1.9 trillion COVID-19 relief package included $350 billion in direct aid to states and cities designed to replenish governments that experienced tax revenue shortfalls as businesses locked down during the coronavirus pandemic. Many state and local governments were forced to make cuts or halt capital spending. The law mandated the Treasury Department deliver the aid within 60 days of Biden's signature on March 11, which is Tuesday.
Around 1.3 million jobs in state and local government have been cut since the start of the pandemic more than one year ago, according to the Treasury Department.
"The money we're going to be distributing now is going to make it possible for an awful lot of educators, first-responders and sanitation workers to go back to work," Biden said in a White House speech Monday on the state of the economy.
How can states, cities use the stimulus money?
The Treasury Department also provided long-awaited guidelines on how funds can be used. State governments and territories are prohibited from using funds to offset tax cuts that were enacted after March 3, limitations that have already prompted the Republican attorney general from Ohio to sue the Biden administration. In addition, recipients cannot use funds to make a deposit to a pension fund or pad reserves.
Eligible uses include: public health expenditures such as coronavirus mitigation efforts and medical expenses; addressing negative economic impacts, including a reduction of public sector workers or small businesses hurt by the pandemic; replacing lost tax revenue; and offering additional pay for essential workers.
Local and state governments are also authorized to use the money to invest in water and sewer or broadband infrastructure. But roads, bridges and other general infrastructure are not among the acceptable uses despite some mayors lobbying for the extra flexibility.
Including direct aid to states and cities in the rescue plan was "responding to lessons of the past," according to senior Biden administration officials who discussed the funds on a condition of anonymity. Officials said the economic recovery out of the Great Recession was slowed because states and cities were not adequately addressed in President Barack Obama's stimulus plan in 2009.
The funding comes at a critical time for many states and cities, which are finalizing budgets before their next fiscal years begin July 1.
States and the District of Columbia will receive $195.3 billion collectively; county governments, $65.1 billion; metropolitan cities, $45.6 billion; tribal governments, $20 billion; U.S. territories, $4.5 billion; and other non-entitlement units of local government, $19.5 billion.
'Very anxious to get this money out where it's needed'
Mayors and governors have been bracing for the federal guidance on the use of funds.
In an April conference call between White House officials and hundreds of mayors, some city leaders said they hoped to use the funds for infrastructure such as roadway repairs. Although street paving is not explicitly mentioned as a permitted use, cities can use funds awarded to replace lost revenue on road projects.
"Mayors are very anxious to get this money out where it's needed," said Nan Whaley, mayor of Dayton, Ohio, which is line to receive $138 million over two years. "We want flexibility and accountability. Managing that is the magic that the Treasury Department is going to have to do."
Dayton saw a nearly 10% decline in tax revenue during the pandemic. Whaley, a Democrat and vice president of the U.S. Conference of Mayors, said the city plans on using its chunk of money on six areas that include police and firefighters and addressing neighborhoods and community work.
"This is a huge deal for us," Whaley said. "It's transformative for cities."
But Bryan Barnett, Republican mayor of Rochester Hills, Michigan, a suburb of Detroit, expressed concerns about the limitations of the funds. He hoped to use about half of his city’s $6.2 million in relief on road repairs.
“The irony is the federal government is now talking about a big infrastructure package,” Barnett said, “but this last amount of money, we can’t use it for traditional infrastructure.
"For some of the communities, this is exactly what they need – they need it for water and sewer. But most communities I think would also like to have it for other traditional infrastructure needs. It’s extremely prescriptive right now.”
Relief for state and local governments was among the most debated pieces of the American Rescue Plan before Democrats in Congress passed the law on a party-line vote.
Republicans opposed the funds, calling it an unneeded bailout for liberal-controlled cities and states that mismanaged finances. A $900 billion COVID-19 relief package approved in December, when Republicans controlled the Senate and occupied the White House, contained no financial aid for state and local governments.
The federal CARES Act, passed in March 2020 under President Donald Trump, provided $150 billion through the Coronavirus Relief Fund across all states, tribal governments, territories and the 38 cities with more than 500,000 people. Funds were limited to expenses "directly related" to the coronavirus, not replacing lost revenue like the most recent legislation.
Also unlike the American Rescue Plan, the CARES Act divvied up the money based on population, not unemployment. Most of the direct aid in the American Rescue Plan, $300 billion, will be allocated proportionately to states' unemployment as determined by the number of unemployed individuals over a recent three-month period.
Republican lawmakers have slammed the new funding formula, arguing it "penalizes" states that did not implement harsh coronavirus lockdown measures.
The Biden administration has been making a concerted effort in recent weeks to highlight measures passed in the American Rescue Plan. Biden last week visited a Washington, D.C., Mexican restaurant to draw attention to a new $28.6 billion government program that offers grants to eateries slammed by the coronavirus pandemic.
Read Joey Garrison on Twitter @joeygarrison.
This article originally appeared on USA TODAY: Local governments to receive billions from COVID stimulus plan May 11