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How Should States, Localities Spend CARES Act’s Coronavirus Relief Fund?

May 28, 2020 at 4:00 PM

The CARES Act includes a $150 billion Coronavirus Relief Fund (CRF) to help states, populous cities and counties, tribal governments, and U.S. territories cover unanticipated costs from the COVID-19 pandemic and its economic effects. Working from Treasury Department guidance and an associated “Frequently Asked Questions” document on the CRF’s permissible uses, the fund’s recipients should maximize its impact to help meet the extraordinary fiscal challenges they face.

Unfortunately, Treasury’s guidance forbids using the funds to offset revenue losses due to the pandemic. That’s a serious problem since state, local, and tribal revenues have dropped precipitously and federal relief to date (including the CRF) is far less than needed. States alone face an astonishing $765 billion in shortfalls through June 2022, and revenues for localities, tribes, and Puerto Rico and other territories are also way down. Policymakers should quickly approve much more fiscal relief and rescind the CRF restrictions.

That said, states, localities, tribal nations, and territories should make the most of the CRF to meet the immediate crisis. As with all spending choices, states and other fund recipients should consider, in responding to the crisis, how to build anti-racist, equitable, and inclusive communities and an economic recovery whose gains are broadly shared. Fund recipients should:

  • Cover costs directly related to their response to COVID-19 to the maximum extent possible. Fund recipients should use the money first and foremost to cover costs for medical treatment and equipment, temporary medical facilities, testing, contact tracing, quarantine costs, personal protective equipment, recovery planning, and other costs of responding to the pandemic. The economy’s performance in coming months — and hence the fiscal health of states, localities, tribal nations, and territories — depends fundamentally on this work. States and localities can also use the CRF to cover the cost of tracking the pandemic’s disparate impacts across race, ethnicity, and other identities — a critical step in devising policies to address the underlying causes of inequitable health outcomes. States may use the CRF to cover costs incurred between March 1 and December 30, 2020.
  • Cover payroll of all public safety and public health workers and of other workers doing unanticipated work required by the pandemic. “[A]s a matter of administrative convenience,” fund recipients can presume that the CRF can cover payroll costs for public health and public safety workers, according to the Treasury Department. States, localities, tribal governments, and territories should maximize this opportunity by using the CRF to cover all payroll costs for these employees from March 1 to December 30. Nearly a fifth of state government payroll — and about 36 percent of local government payroll — goes for police, firefighters, and corrections, health department, or hospital personnel.

    Fund recipients should also use the CRF to cover all costs — including payroll costs — associated with unforeseen activities required to respond to COVID-19, such as designing new online school curriculums, enforcing social distancing and conducting additional cleaning in prisons and jails, and enrolling people in Medicaid and other public assistance programs (beyond enrollment costs budgeted before the pandemic). States can also use the CRF to cover “hazard pay” for workers performing dangerous work and payroll for workers whom they reassigned to other duties largely dedicated to fighting the virus, rather than lay them off or furlough them.

  • Provide for direct assistance for people who are struggling to pay rent, utilities, and other bills because of the pandemic and its economic impact. States, localities, tribal nations, and territories may use the CRF to cover a wide range of payments to people needing help due to the economic damage from COVID-19. The Treasury guidance explicitly allows grants to people who risk eviction or foreclosure, can’t pay emergency costs such as funerals, or struggle with utility bills.
  • Avoid using the money to pay unemployment benefits. States may use the CRF to pay unemployment benefits, according to the Treasury guidance, but that’s unwise. States face an immediate, severe fiscal crisis because general fund revenues, which pay for education, health care, and other fundamental state services, have nosedived. States pay unemployment benefits from a separate, dedicated trust fund that’s financed entirely through employer taxes. Unlike general funds, these unemployment trust funds don’t face an immediate funding crisis that could force layoffs and other budget cuts that could worsen the recession.

    When state unemployment trust funds run dry — as most will in this downturn, due to the record-shattering increase in unemployment claims — the federal government loans states the money to continue paying benefits. Employers repay the principal on these loans through higher federal taxes, but those repayments won’t begin until after November 2022. Further, under the Families First Act, interest on these loans — which states pay out of general funds — won’t accrue this year.

    States should maximize their use of CRF dollars to address the immediate crisis: the pandemic and the deepest economic downturn since the Great Depression. The federal government may eventually need to help states rebuild their unemployment trust funds, but that shouldn’t be the priority now. States and localities may, however, wish to use the CRF to cover their payments into the unemployment system in their roles as employers, since doing so presumably would ease their budget pressures and thereby help them avoid more layoffs and other cuts that would worsen the recession.