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. 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.
The $1.9 trillion COVID relief package included $350 billion in direct aid to states and cities 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 spending. The law mandated the Treasury Department deliver the aid within 60 days of Biden’s signature on March 11, which is Tuesday.
More than 1 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.
“With this funding, communities hit hard by COVID-19 will able to return to a semblance of normalcy; they’ll be able to rehire teachers, firefighters and other essential workers – and to help small businesses reopen safely,” Treasury Secretary Janet Yellen said in a statement.
How can states, cities use the stimulus money?
The Treasury Department also provided long-awaited guidelines on how funds can be used. Local and state governments 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.
But local and state governments are authorized to use the money to invest in water and sewer or broadband infrastructure – flexibility that some mayors had sought during talks with the White House since the American Rescue Plan was passed.
Other eligible uses include: public health expenditures such as COVID mitigation efforts and medical expenses; negative economic impacts, including a reduction of workers, as a result of the pandemic; replacing lost public sector tax revenue; and offering premium pay for essential workers.
The inclusion of direct relief to states and cities 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 cities and states 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 fiscal years that 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 and sewer repairs.
“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 $137 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, vice president of the U.S. Conference of Mayors, said the city plan on using its chunk of money on six areas that include adding police and firefighters and addressing neighborhoods and community work.
“This is a huge deal for us,” Whaley said. “It’s transformative for cities.”
The federal CARES Act, passed last March 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 COVID-19, not replacing lost revenue like most recent legislation.
Also unlike the American Rescue Plan, the CARES Act divvied up the money based on population, not unemployment. The CARES Act delivered a baseline of $1.25 billion to all 50 states, boosting the share of funds for small states compared to the American Rescue Plan. The latter has a lower baseline of $500 million for all states.
Most of the direct aid in the American Rescue Plan, $300 billion, will be allocated proportionate to states’ unemployment as determined by the number of unemployed individuals over a recent three-month period.
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.
Reah Joey Garrison on Twitter @joeygarrison.