Questions Loom for States, Localities About How to Spend Billions in Covid Relief Funds
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Federal and policy experts told city officials Thursday that governments that lost revenue during the pandemic have greater flexibility for using the American Rescue Plan money.
State and local governments that lost revenue as a result of the coronavirus pandemic have greater flexibility in how they can spend Covid-19 relief money than governments whose budgets withstood economic downturn, according to federal officials.
Treasury Department rules outline specific ways that state and local governments can spend $350 billion in federal aid appropriated through the America Rescue Plan Act. But governments that experience a decline in revenue can offset those losses with the federal dollars—and use the offset amount to pay for any number of government services that would not otherwise be considered eligible expenses.
“The revenue loss category provides the greatest flexibility,” said Jacob Leibenluft, a counselor to Treasury Secretary Janet Yellen.
He cited parks and transportation infrastructure as two examples of government services that cities could spend federal dollars on if their revenues declined during the pandemic. When determining revenue losses, governments can factor in average growth that they would have expected to experience if not for the pandemic, but should not take into account any new taxes enacted.
Leibenluft and policy experts from the National League of Cities discussed eligible uses of American Rescue Plan Act during a panel discussion Thursday with local government officials in an attempt to address numerous questions about the funding.
The Biden administration plan allocates $350 billion in federal stimulus money to state, local and tribal governments as a way to help communities recover from the economic effects of the coronavirus pandemic. Under the plan, states and the District of Columbia will receive $195 billion, counties will receive $65 billion, cities will receive $46 billion, and tribal governments will receive $20 billion.
Treasury issued guidance that provided state and local governments specifics on a broad range of spending options eligible under the plan. Governments must use the money on one of five types of expenditures, including covering lost revenue. Treasury said Thursday it has doled out $105 billion, about one-third of the funds, since the guidance was released 11 days ago.
Other eligibility categories for American Rescue Plan spending include covering payroll and benefits for employees who worked on Covid-19 response, including police officers, NLC officials said. Public works employees who were in the field and employees who reported to city hall amid the pandemic could qualify for eligible “premium pay” to supplement salaries.
Another way cities can spend the money is to pay for programs that would serve communities hard hit by the pandemic. Any money spent to benefit low-income communities that fall within a qualified Census tract would be considered eligible, said Michael Wallace, NLC’s legislative director of Housing, Community and Economic Development. Additional documentation on expenditures would not be needed after the qualified Census tract is identified for spending, he said. But smaller communities that do not have a qualified Census tract would have to demonstrate that their spending would target people in need.
NLC staff were looking into a number of other outstanding questions that city officials have raised, including whether cities can put the federal funds in bank accounts that would accrue interest while officials work on plans to spend the money.
While large cities and counties have started to receive the money, Treasury has not informed local governments with populations under 50,000 people how much they can expect to receive. Those smaller governments will receive the funds through state governments rather than directly from the Treasury. The department expects to release more information about their awards next week, Leibenluft said.
Andrea Noble is a reporter for Route Fifty.
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