(Bloomberg) — The U.S. Treasury Department is sending a message to states and cities that the billions in aid from the American Rescue Plan should provide relief to residents, not their governments’ debt burdens.
The department on Monday released guidance on how state and local governments can use $350 billion in funding from President Joe Biden’s $1.9 trillion rescue package. The funds are intended to help states and local governments make up for lost revenue, curb the pandemic, bolster economic recoveries, and support industries hit by Covid-19 restrictions. In a surprise to some, these funds can’t be used for debt payments, a potential complication for fiscally stressed governments that had already etched out plans to pay off loans.
Illinois Governor J.B. Pritzker had suggested using some of the state’s $8.1 billion in aid to repay the outstanding $3.2 billion in debt from the Federal Reserve’s emergency lending facility and to reduce unpaid bills. Illinois was the only state to borrow from the Fed last year, tapping it twice. On Tuesday, Jordan Abudayyeh, a Pritzker spokesperson, said the administration is “seeking clarification” from the Treasury on whether Illinois can use the aid to pay back the loan from the Fed.
The rule could also affect New Jersey, which sold nearly $3.7 billion of bonds last year to cover its shortfall during the pandemic. Assembly Republican Leader Jon Bramnick, a Republican, in April had called for Governor Phil Murphy, a Democrat, to use some of the federal aid to pay down the state’s debt.
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 from the Treasury Department. 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. Money must be spent by the end of 2024.
A poverty-fighting measure included in the COVID-19 relief bill passed this year will deliver monthly payments to households including 88% of children in the United States, starting in July, Biden administration officials said on Monday.
The Democratic-backed American Rescue Plan, signed into law by President Joe Biden in March as a response to the coronavirus pandemic, expanded a tax credit available to most parents.
Those people will get up to $3,000 per child, or $3,600 for each child under the age of 6, in 2021, subject to income restrictions. The benefit will reach 39 million households, many automatically and by direct deposit every month, starting on July 15.
The first round of aid for state and local governments is set to go out next week, but with no guidance yet on the spending rules, leaders are becoming increasingly frustrated.
The American Rescue Plan Act (ARPA) included $350 billion in direct aid to states and localities and the law requires the U.S. Department of Treasury to distribute the first tranche by May 10. Since it passed on March 11, the department has been developing guidance on the spending rules with input from government organizations. The ARPA law says governments can use the money for public health crisis expenses and for budget deficits, but more specifics are needed because governments are required to track and report on their spending.
Now, with just days to go until the first round of aid is to be delivered, the rules still aren’t out and frustrations are mounting. This is particularly true for those governments who are receiving direct federal aid for the first time since the pandemic began.
Household income rose at a record pace of 21.1% in March as federal stimulus checks helped fuel an economic revival.
The March surge in income was the largest monthly increase for government records tracing back to 1959, largely reflecting $1,400 stimulus checks included in President Biden’s fiscal relief package signed into law in March. The stimulus payments accounted for $3.948 trillion of the overall seasonally adjusted $4.213 trillion rise in March personal income.
Spending was also up sharply, increasing 4.2%, the Commerce Department said, the steepest month-over-month increase since last summer.
Consumers shelled out more on goods, particularly big-ticket items such as autos and furniture, compared with services in March. Economists expect that to change in the coming months due to widespread vaccinations and broader reopening of the economy.
I don’t remember anything that has ever drawn so much fraud to itself, like an industrial magnet attracting ferrous scrap metal, as the federal government programs to support the unemployed and struggling businesses.
When it comes to this twin-spike in business applications, the forgivable Payroll Protection Program (PPP) loans and Economic Injury Disaster loans come to mind immediately – especially since the spike into July, and then the renewed spike this year, are timed with the two PPP generations.
Businesses that applied for the PPP loans had to submit documentation of wages paid over specified periods. The first-generation PPP program ended on August 8, 2020. The second-generation PPP program started this year and remains open.
The dates were structured so that it would be impossible by honest people to create a business entity after the announcement, pay wages for long enough to qualify for a PPP loan, and then apply for a PPP loan. Applicants had to submit historical wage documentation to the lenders whose job it was to check all this out.
There’s little doubt that Illinois politicians are salivating over the $13.7 billion windfall they’re about to spend. Those billions are Illinois’ share of the $350 billion in aid dedicated to state and local governments, a key part of President Biden’s $1.9 trillion stimulus package passed earlier this year. The state of Illinois itself will get $7.75 billion and the remaining $6 billion will go directly to counties and cities.
The numbers are big. Take the city of Berwyn, Illinois, which is set to receive $32 million in stimulus dollars, according to a data release from the Illinois Municipal League. The city’s take is equal to a whopping 81 percent of its 2019 general budget. Peoria expects $46 million, or nearly half of its $100 million budget. And the city of Chicago will get nearly $2 billion, worth 60 percent of its general budget, based on financial data from the Illinois Comptroller.
Even the state, which nearly broke even in revenues in 2020 compared to 2019, will get more than $7.75 billion, nearly a fifth of its budget.
Embedded below are a set of searchable databases that provide the estimated allocation of the $360 billion in direct government aid to states, counties and cities under the $1.9 trillion American Rescue Plan. The remaining stimulus includes funding for schools and other programs, for which detailed data is not yet available.
The $360 billion is split as follows: State governments are set to receive $230 billion in direct and capital project grants, county governments will receive $65 billion, and municipal governments will receive the other $65 billion.
Author(s): Ted Dabrowski, Mark Glennon, John Klingner
California’s total estimated pension liability is something like $1 trillion. To balance its books, Sacramento had to get money from taxpayers in Florida, South Dakota, Utah and, other, better-managed states (through the COVID-19 stimulus) to close the gap.
Whether it will be enough to stop municipal fire departments from bringing private ambulance and medical services “in-house” is yet to be seen. Hopefully, it will — which would be a good thing for taxpayers and people in need.
Otherwise, the pattern of using federal reimbursements for services provided to cover the losses in underfunded public employee pension plans will continue, much to the determinant of taxpayers.
It’s getting harder for the Biden Administration to claim we’re in an economic crisis that demands more spending. It’s closer to the truth to say the economy is growing in a way that calls for spending and monetary restraint.
The latest evidence arrived Monday with the Institute for Supply Management’s news that its March survey for service businesses hit 63.7. That’s an all-time high, and it signifies rapid growth and optimism. The only problem is that many businesses say they can’t find enough workers or supplies to meet their order books.
That follows Friday’s blowout employment report for March, with a net total of 1.07 million new jobs including revisions from the previous two months. Wage gains were bigger than they looked at first glance, given that many returning workers were those in lower-wage services jobs hurt by the pandemic.
Most observers believe that the Treasury will interpret the law narrowly. Rather than seeking to claw back funds from any states passing tax cuts or credits, the feds are considered likely to challenge only those states that clearly use federal dollars to pay for them. “Nothing in the act prevents states from enacting a broad variety of tax cuts,” Treasury Secretary Janet Yellen wrote in a response to the AGs. “It simply provides that funding received under the act may not be used to offset a reduction in net tax revenue resulting from certain changes in state law.”
But the fact that the law blocks federal money from being used even indirectly to pay for tax cuts has state officials not just worried but angry. “Democrats in Washington and in the White House are not going to tell me, or the Georgia General Assembly, that we can’t cut taxes for hard-working Georgians,” Gov. Brian Kemp complained at a news conference last month.
That prohibition lasts as long as the stimulus dollars are spent, which will be into 2024. And there are limits, Walczak notes, on where and how states can spend federal aid. They can use the money to address pandemic and health needs, for example. While those are clearly ongoing, much of the cost of vaccine supply and distribution has been underwritten by the feds. Other costs in these areas have already been addressed by last year’s federal CARES Act, which some states struggled to spend.
If a state or local government’s public pension funds have large unfunded liabilities, those liabilities accrue at the assumed rate of return on the assets that should have been there to cover that liability.
The point is this: if it makes sense to pay down the pension unfunded liability with muni bonds, thus creating new liabilities and thus new leverage, it makes even more sense to take a “windfall” of cash and pay down the pension debt, which creates no new state/local government liabilities