The White House unveiled plans Monday to provide federal funding to state and local governments attempting to build their economies in the wake of the COVID-19 pandemic.
The $350 billion that will be paid out is part of President Joe Biden’s $1.9 trillion American Rescue Plan and provides emergency funding intended to fill revenue shortfalls and support communities that have suffered ill economic effects, the administration said on Monday.
A senior administration official said that the funds will begin being disbursed in the coming days and that states, local governments, municipalities, and tribal governments will be able to request funding through a Treasury Department portal.
“With this funding, communities hit hard by COVID-19 will [be] 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,” said Treasury Secretary Janet Yellen.
The White House is touting the aid as “flexible” and in a news release said it hoped to support public health expenditures, address negative economic effects of the pandemic, provide premium pay for essential workers, invest in water, sewer, and broadband initiatives, and assist communities hit the hardest during the pandemic.
Local governments should expect to receive funds in two tranches, with half provided beginning this month and the balance delivered next year. Many states will also receive funds in two tranches, although states that have experienced a net increase in the unemployment rate of more than 2 percentage points from February 2020 will receive the full amount of funding in one payment.
During a Monday phone call with reporters, White House American Rescue Plan coordinator Gene Sperling said that during the last recession, not enough was done to assist state and local governments. He said the recovery of the entire country was held back because of economic contraction at the state and local level and that had Congress been willing to provide a “more robust” assistance package to state and local governments, growth would have been much greater.
“This $350 billion for the state, local, and tribal governments is a critical component of the president’s plan to have a strong and equitable recovery,” Sperling said of the $350 billion provision. “Yes, this is responding to the lessons of the past in a powerful way.”
One point of contention in the plan that has drawn the ire of Republican states is a provision that limits the ability of states to provide tax cuts. The plan prohibits states from using relief funds to offset tax cuts or credits “directly or indirectly.” There are fears that it could be interpreted to give the federal government power over state tax policies.
More than a dozen GOP state attorneys general have filed various lawsuits against Yellen and the Biden administration over the mandate and have blasted it as unconstitutional government overreach and unenforceable because of the fungibility of money. In one lawsuit, several states branded it as “one of the most egregious power grabs by the federal government” in U.S. history.
“If a state or territory cuts taxes, they must demonstrate how they paid for the tax cuts from sources other than Coronavirus State Fiscal Recovery Funds — by enacting policies to raise other sources of revenue, by cutting spending, or through higher revenue due to economic growth,” the White House said in a fact sheet provided to reporters.
The administration said that if funds provided by the federal government are used by states to offset tax cuts, the amount used for that purpose would have to be paid back to the Treasury Department. A senior administration official said a state would have to prove that they were putting the funding given to them by the federal government to eligible uses. “And yes, there would be a check to make sure that they were not indirectly” using the funds for tax cuts, the official said.
News of the state and local funding comes as the economy continues to improve. Although April saw a slight increase in unemployment and the state of the economy fell far short of expectations, the Federal Reserve has predicted that the U.S. will experience robust economic revival in the year ahead. The recovery is being led by states easing restrictions on businesses and more people now willing to venture outside their homes as vaccinations continue.
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