As Biden pleads for more Covid aid, states are flooded with federal dollars

FRANKFORT, Ky. — Gov. Andy Beshear has been doling out oversized checks in his state in recent weeks, handing them out to city and county officials for desperately needed water improvements.

The small town of Mortons Gap got $109,000 to bring running water to six families who don’t have it. Residents of Martin County, whose water is too contaminated to drink since a coal sludge spill two decades ago, received $411,000. The checks bear Mr. Beshear’s signature, but the money is from the federal government, part of a huge injection of coronavirus relief aid that is helping fuel record budget surpluses in Kentucky and many others States.

Therein lies a controversy in Washington. The funds, which Congress approved at a time when the pandemic was still raging, are authorized to be used for purposes far broader than fighting the virus, including water projects like those in Kentucky. Most states will receive another set of “fiscal stimulus fund— part of President Biden’s $1.9 trillion US bailout package — next month.

But in Washington, Mr. Biden has run out of money to pay for the most basic means of protecting people during the pandemic – drugs, vaccines, tests and reimbursement for care. Republicans declined to approve new spending, citing state stimulus funds as an example of money that could be reallocated to pressing national priorities.

“These states are awash with money — everyone from Kentucky to California,” said Scott Jennings, former aide to Sen. Mitch McConnell of Kentucky, the Republican leader. “People say, ‘We printed all this money; we sent it. These states have these massive surpluses, and now you need more? »

Republicans have never been fans of Mr. Biden’s bailout, which Democrats pushed through Congress without their support. Despite the many ways it benefits his state, Mr. McConnell used to call him an “untargeted multi-trillion dollar band-aid” that would dump “another huge mountain of debt on our grandchildren”.

On Capitol Hill on Thursday, a day after Mr. Biden made a public appeal to Congress for more money, Senate Republicans and Democrats were close to reaching an agreement on an emergency aid package of $10 billion – less than half of Mr Biden’s original request. But they hadn’t resolved the crucial differences over size and how to pay. Republicans want to use unspent money already approved by Congress, but parties have been unable to agree on which programs to tap into.

Since the start of the pandemic, the Trump and Biden administrations have pumped $5 trillion into the US economy, including the bailout. As the midterm elections approach, the spurt of federal stimulus spending will attract even greater scrutiny as Republicans accuse Democrats of wasting funds and fueling inflation, and demand an accurate account of how the money was spent.

David Adkins, executive director and chief executive of the Council of State Governments, said such questions were inevitable now that policymakers could catch their collective breath.

“We have to build on the idea that states are laboratories of democracy,” Mr. Adkins said. “Some of these things will fail; some of this money will not be well spent. But it’s nature to try to navigate disruptive times.

The bailout set aside $195 billion to help states recover from the economic and health effects of the pandemic. When Mr. Biden made his initial request for help, top lawmakers from both parties negotiated a plan to pay for it in part by taking back $7 billion from the states, as part of a $1.5 billion spending bill. trillion dollars.

Governors and rank-and-file Democrats balked, saying it would disproportionately hurt the 31 states that have yet to get all their bailout funds, and the deal fell apart. It now appears that public funds will be spared, although the fracas has shed light on how fiscal stimulus funds are being spent.

“I was never one to give that money to the states, but I always believed that once you gave it to them, politics wouldn’t allow you to get it back,” said Sen. Roy Blunt of Missouri. , the top Republican on the subcommittee. which controls health spending, said in a recent interview.

In total, the White House says 93% of US bailout dollars currently available have been “legally obligated,” meaning they have already been spent or committed to be spent.

Most states have either have started spending their fiscal stimulus funds, or intend to do so. A recent analysis by the Center on Budget and Policy Priorities found that while most states are still developing budgets for the upcoming fiscal year, states have already budgeted 78% of their fiscal stimulus fund allocation.

Kentucky, where Mr. Beshear, a Democrat, promotes record job growth and economic booms, ended 2021 with a Record surplus of $1.1 billion, and another surplus is expected this year. The state has already received $1.1 billion in federal funds and expects another $1 billion in May. He spends money on broadband, strengthen tourism and bolstering the unemployment insurance fund as well as coronavirus testing, in addition to water improvements.

“These dollars are too big and too transformative to be caught up in a partisan fight,” Mr. Beshear said in an interview, adding, “These are dollars that help us as we come out of Covid. We have a choice to limp out of the pandemic or to come out of the pandemic quickly, and cutting that aid only hurts the people who need it.

Congress has specified four broad purposes for the money: to address the health and economic impacts of the pandemic; providing bonuses to essential workers; prevent cuts in public services; and invest in sewer, water or broadband infrastructure. But states can also use the funds to replace lost revenue, giving them great flexibility in spending the money.

Arkansas, for example, awarded $374,000 to a rape crisis center; $6.3 million to the Arkansas Coalition Against Sexual Assault; and an additional $6.3 million to the Arkansas Alliance of Boys & Girls Clubs. But most of the money has been spent on improving broadband access and meeting the needs of the health care system.

“The Omicron variant arrived, cases skyrocketed, hospitals filled up, and so we had to use a significant portion of our ARPA money to expand hospital space, home testing, and other health interventions. public,” said Gov. Asa Hutchinson, a Republican, using the acronym for the bailout. “So that’s obviously the first responsibility, and then we looked at those other needs.”

Other states are using the money in ways that are only tangentially related to Covid-19, but are allowed under guidelines issued by the Treasury Department.

Alabama spent $400 million of its allocation, or about one-fifth, to build two new prisons, despite a public outcry racial justice and civil liberties advocates. Florida spent $2 billion, nearly a quarter of its $8.8 billion allocation, on highway construction – a move that drew criticism from the nonpartisan Florida Policy Institute. .

“The intended purpose of the American Rescue Plan Act dollars was to ensure that individuals and communities could recover from the pandemic, and I think in many ways there were better uses for that money. “said Esteban Leonardo Santis, the group’s tax and revenue analyst. .

Twenty states, including Kentucky, have spent a total of $15 billion building up their depleted unemployment insurance trust funds. Independent analysts say it’s actually a tax break for businesses, which would otherwise have had to make up for lost revenue. But Mr. Beshear defended it, saying Kentucky businesses have stepped up during the pandemic. A local Toyota factory made face shields and bourbon distillers made hand sanitizer, he said.

The governor’s Twitter feed is full of photos of big checks and smiling city and county officials; he is a candidate for re-election in 2023.

“If there’s one thing a governor knows how to do, it’s drive around his state, hand out huge checks and cut big ribbons with oversized scissors,” Jennings said. “They’re like game show hosts there.”

Experts say, and the White House acknowledges, that fiscal stimulus funds have helped create state budget surpluses. Gene B. Sperling, a senior adviser to the president overseeing the US bailout, said the surpluses were proof Mr Biden’s stimulus package was working – and now was not the time to back down .

“Making sure states and localities have a cushion for some pretty serious roadblocks is smart policy,” Sperling said, “and a lesson learned from what happened after the Great Recession”.

But those surpluses are likely temporary, and how states use them has played into the controversy over Covid relief funds. According to the Center on Budget and Policy Priorities 14 states are using temporary budget surpluses “to seek costly and permanent tax cuts more targeted to the wealthy” – a move the center has called a “bad choice”.

Here in Frankfurt, the state capital, Kentucky lawmakers rushing to wrap up their 2022 legislative session were scrambling to push through a steep income tax cut this week. But a proposal to use the state budget surplus to give Kentuckians a tax refund of up to $500 seemed unlikely to pass, said its sponsor, state Sen. Chris McDaniel, chairman of the credit committee.

Mr. McDaniel, a Republican, has spent much of this week immersed in budget discussions, including planning for the use of Kentucky’s next tranche of fiscal stimulus funds. Another billion dollars is coming, and despite some philosophical reluctance, he said he saw no reason not to spend it.

“I strongly believe that too much money has fallen,” Mr McDaniel said. “But I also believe that Kentuckians will end up bearing the tax burden, like everyone else down the line, and I’m not going to disadvantage future Kentuckians out of philosophical pride.”

Emily Cochrane contributed reporting from Washington.

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