Lawmakers return to Washington this week to negotiate another stimulus package even as billions remain unspent from the last round of spending.
Congress doled out $150 billion in state and local aid in March aimed at keeping smaller towns and municipalities afloat. But across the country, from West Virginia to Maine, local officials say the program – like others created in the CARES Act – has not worked as intended and that strict federal rules designed to ensure the funds are spent on Covid-related expenses has kept much of the money bottled up in local coffers, even as these places face huge budget shortfalls.
Cities and counties across the country have urged Congress to give them more direct payments, discretion and guidance in how they can spend the money they’ve received. But so far none has come, leading to confusion and fear that they will be penalized if they misspend money.
The National Association of Counties estimated in May that nationwide, counties would lose $144 billion in revenue this fiscal year while incurring $30 billion in additional costs to combat coronavirus. Those costs could have a major impact on the 3.6 million county employees whose jobs could be threatened by shortfalls and the millions of Americans who rely on county services from health care to public safety to sanitation.
And it is not just the next few months that could be hard on local governments. In many places, the squeeze is already being felt.
“How do you decide if something is COVID related?”
In Henrico County, Virginia, which straddles the outskirts of Richmond, the coronavirus has meant a budget and hiring freeze, canceled summer camps, reduced park maintenance and a pause in plans to expand the county’s addiction treatment programs even as officials there say drug overdoses in the county are up 100 percent over last year.
It’s the kind of crisis that Tony McDowell, Henrico’s deputy director for public safety, says could be addressed with some of the $38 million in federal CARES Act money the county has received. But McDowell says strict rules from the Treasury Department and Congress mandating that the funding can only be used for expenses directly related to coronavirus has led to uncertainty over how to spend it.
“How do you decide if something is Covid related when its tentacles are everywhere?” McDowell asked. “If we use the money thinking it’s an acceptable expense and find out later it doesn’t qualify, it might put us in a risky financial position.”
The fear for many counties is that if they spend federal dollars on expenses deemed to be non-Covid related they could have to pay the money back.
Meghan Coates, the deputy director of finance for Henrico County, told CNN that by her estimate Henrico has incurred about $5 million in direct, coronavirus-related expenditures, but that the real needs are in replacing the programs that they had to scale back as a result of the economic downturn. The county had to shave $99 million from its fiscal year 2021 budget.
Coates says it helps that federal money can be used on testing sites, cleaning supplies, personal protective gear or technology to respond to virus directly. But in her community, and many like it across the country, she says the federal dollars would be more helpful if they could be used to replace revenues lost from having to close parks, schools and businesses.
With restaurants and stores shuttered, the county lost out on sales tax revenue it depends on. And while federal stimulus programs like additional unemployment benefits, direct checks and loans helped in the short term, those programs are expected to come to an end soon.
“We are worried that when those things expire, we are going to see additional losses of revenue. We are going to be in a world of hurt,” Coates said.
So far, Henrico has been able to avoid layoffs, but Coates and McDowell say the uncertainty around how they can use the federal money they have is crippling. Certain programs they fought to maintain like one that provides in-person services to special needs families could be on the chopping block if they don’t get more flexibility.
Moody’s analytics estimated that without an additional $500 billion in federal assistance to local and state governments over the next two years, the spending cuts and tax increases communities will need to make could delay recovery and cost additional jobs far into the future.
“There is very little certainty about what is going to happen with the economy going forward. Are we going to have to step backward and put travel restrictions in place? When states are cautious with their budgets, that can have a major impact on the economy,” said Dan White, the Director of Public Sector Research at Moody’s Analytics. “It took states almost 10 years to regain the jobs they lost during the great recession.”
For areas that rely on tourism income to balance their books, the economic downturn paired with travel restrictions have taken an especially harsh toll.
In Camden, Maine, an upscale seaside retreat on the central coast, the slow summer and contagious virus have meant having to close the storied opera house and contend with reduced profits from the town’s working harbor. While it received $102,000 in federal stimulus money, the real need will be in replacing those lost revenues, says Audra Caler, the town manager.
“The tourism economy is just not here this year. We need some sort of program that is going to address lost revenue,” Caler said.
In some places, money has also been slow to trickle down from states to local governments. Under the CARES Act, communities with fewer than 500,000 people have to rely on governors or state legislatures to pass the federal dollars on, creating a bottleneck in some cases at the state level.
While many states have convened sessions of their state legislatures, in West Virginia, the governor has largely decided how the money will be spent. According to the state auditor’s website, four months after the CARES Act passed, only about $16 million of the $1.25 billion in federal money has actually been spent on local governments.
It’s led to a fierce fight between the state’s Democrats and Republican Gov. Jim Justice.
“It will be a cold day in hell before I vote to give more money to states unless it has a direct pass through to cities or counties because you cannot trust this governor,” Manchin told CNN in an interview. “Just to send $1.25 billion to some of the smallest states and trusting the governors will do the right thing, didn’t work.”
Justice’s office did not respond to a request for comment.
Will Congress offer more flexibility?
On Capitol Hill, the debate over giving states and local governments more flexibility to use their money has been raging for months with no resolution. Within the Republican Party, the issue has scrambled the conference leading to passionate debates in closed-door lunches. Sen. John Kennedy, a Republican from Louisiana, has personally lobbied President Donald Trump on the issue, urging the administration to loosen restrictions without any change.
Maine Republican Sen. Susan Collins and Louisiana Republican Sen. Bill Cassidy have signed onto legislation led by New Jersey Democratic Sen. Bob Menendez to give local governments a more direct cut of federal funding and give them additional flexibility to use federal dollars to pay bills they couldn’t pay because of lost revenue from the pandemic. But, there is little promise the proposal would make it into the next stimulus bill.
There is also strong conservative opposition to loosening the regulations as some members argue that giving states more flexibility empowers state and local governments to use the money for bloated programs and pensions that were underwater anyway.
And, the debate over flexibility is just the beginning. Democrats have also vowed to fight for billions more in state and local aid even as some Republicans argue that money remains unspent. It’s unclear if senators can come to an agreement before the August recess in three weeks.
“Personally, I think the money should have been used for Covid expenses,” said Sen. Roy Blunt, a Republican from Missouri and a member of leadership. “But, I do think there was a lot of feeling that the easiest way to deal with it now is to give the states more flexibility with the money they’ve got.”