The check isn’t in the mail just yet – the bureaucratic maze for state and local funding in the COVID Rescue Plan

While Republicans busied themselves with such major matters as Green Eggs and Ham, Democrats in Congress and President Joe Biden had other things to do.  Needed funding for families, businesses, schools and colleges, and state and local governments is on its way to help get COVID-19 under control and revive the nation’s economy. 

Polling shows that the Biden American Rescue Plan is overwhelming popular, even among Republicans, about 60 percent of whom support it.  The Republican/Trump Party has abandoned policy debates to focus attention on their idol, the fatted golden calf, and on matters that promote social division.  With hardly a whimper from congressional Republicans, Democrats offered substantial financial relief and family-oriented policy in a bill which will set the tone for the role of the federal government for many years.

Among the items included in the American Rescue Plan is the authorization of $350 billion for state and local governments to provide relief from revenues lost and expenses increased as a result of the pandemic.  But like anything coming from Congress, there are a whole lot of technicalities and bureaucracy that stand between the massive authorization and the receipt of the money by state and local governments.

Governments such as the State of New York and the City of Buffalo have for nearly a year sought this funding.  Many counties and towns, however, have dealt directly with the funding holes that the pandemic left and prepared themselves to move on.  The new legislation, however, will allow them to cover debts that were incurred as the pandemic spread fiscal pain or to restore jobs that have been cut.

A quick summary of the Plan’s state and local funding availability breaks down as follows:

State Fiscal Recovery Fund

Territories                                                        $4.5 billion

Tribal Governments                                       $20 billion

States & DC                                                      $169.8 billion

States & DC ($1.25 billion each)                  $25.5 billion

Local Fiscal Recovery Fund

Metropolitan cities                                        $45.57 billion

Nonentitlement units of local govt.           $19.53 billion

Counties                                                           $65.1 billion

The numbers are the easy part.  Accessing the available resources is another matter.  Take, for example, some very important language in the bill that explains what the money can be used for by local governments:

“(1) USE OF FUNDS.—… a metropolitan city, nonentitlement unit of local government, or county receiving a payment from funds made available under this section shall only use such amounts to—

“(A) respond to or mitigate the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts;

“(B) cover costs incurred as a result of such emergency;

“(C) replace revenue that was lost, delayed, or decreased (as determined based on revenue projections for the metropolitan city, nonentitlement unit of local government, or county as of January 27, 2020) as a result of such emergency; or

“(D) address the negative economic impacts of such emergency.

That language is limiting.  While it is possible, for example, for any local government to “respond to or mitigate the public health emergency,” in New York State most public health responsibilities rest with county governments.

Most local governments will have “costs incurred as a result of such emergency,” but in most cases those expenses have generally not been in the millions of dollars.

All governments have lost revenues as a result of the emergency and suffered some negative economic impacts.  In most cases the largest part of such lost revenues was in sales taxes.  The governments will need to show what revenues had been projected in January 2020 as a baseline for calculating such revenue losses.  Since the collection of sales taxes on internet sales by state and local governments went into effect in 2020, some of the losses of state and local governments due to the closing of businesses were offset by new revenues from internet sales, which were considerable last year.

For state governments funding will be allocated among them based on unemployment statistics, using the last three months of 2020 to make the calculations.

For metropolitan cities the money will apportioned among major cities in the country based on long established criteria used for the distribution of community development funds. 

For “nonentitlement units of local government,” which federal law defines as “an area which is not a metropolitan city or part of an urban county and does not include Indian tribes,” the rules are more complicated.  Their money will be routed through the state government, which will be expected to distribute the funds based on population. 

Counties will receive the federal funds directly.  Funds are distributed to counties on a population basis.

The legislation, it would appear, is not exactly what some governments were looking for, which was primarily direct funding with few strings attached.

In the case of the State of New York, the Legislature is now in the final stages of approving a 2021-2022 budget.  That budget will need to be completed by April 1, but sorting out the complexities of the Rescue Plan cannot be managed in any meaningful way by then.  Legislators and Governor Andrew Cuomo will have to fly blind on some of this and Captain Cuomo’s attention to the flight deck seems to be, how should we say, somewhat diverted at the moment.

Part of the problem is that Cuomo for many months has talked about a deficit for this year and next in the neighborhood of $15 billion.  The amount of federal dollars that has been announced for the state is $12.5 billion – but see the potential legal obstacles noted above concerning use of the money, which also apply to the state.  E.J. McMahon of the Empire Center for Public Policy sees the actual state deficit at about $8 billion.  The state budget must be completed in about two weeks, so we may soon see what the real numbers are.  Or not.  Sometimes budget transparency is only a talking point in Albany.

The City of Buffalo has been using creative inappropriate revenue budgeting for several years now, and they have been looking forward to the federal largess bailing them out.  All reserves have been expended.  News accounts have reported that the City will receive $350 million from the relief plan, but the complications noted above would seem to make that number somewhat of an illusion.

The city has had pandemic-related expenses related to police services and other activities, but the order of magnitude does not get into the tens of millions of dollars.  The city lost revenues in the previous and current fiscal year, mostly in sales taxes and some fines and fees, but since they will have to present information about where projections stood in January 2020, that might reduce the opportunity for revenue recovery from the federal government.  The 2019-2020 budget ended $25 million in the hole.  The current budget has a hole of at least $76 million.  Some of those amounts were due to pandemic-related drops in revenue, but other portions of the deficits came from speculative revenue sources included in the budgets.

The Recovery Plan criteria set out for the use of the $350 billion in state and local rescue funding are legitimate.  State and local governments should not be able to use the pandemic to cover up bad budget practices. 

Some local officials are already aware of what the limits of the federal appropriations might be.  Buffalo University District Councilmember Rasheed Wyatt, who chairs the Common Council’s Finance Committee, recently told the Buffalo News “I really want to see the details of how this can be used, and then look at how do we realign our finances, so that … we have a better control or handle of future emergencies.”  Town of Tonawanda Supervisor Joe Emminger, in the same News story by Jerry Zremski, said that “[w]e’re going to have a hard time spending $42 million (the amount that the Town is projected to receive) with those restrictions.”

Even though the law provides that the funds for state and local governments will “remain available until expended,” as a practical matter the rationale for funding to states and local governments related to the pandemic will probably diminish considerably over the next year as the country works its way through management of the pandemic and the resulting economic recovery.  A strict reading of the law will probably result in something less than a federal expenditure of the entire $350 billion authorized for states and local governments.

Time will tell how this all works out.