Cities and counties across the country have urged Congress to give them more direct payments, discretion and guidance on how they can spend the money they have received. But so far none have come, leading to confusion and fear that they will be penalized if they waste money.
The National Association of Counties estimated in May that across the country, counties would lose $ 144 billion in revenue this fiscal year while incurring $ 30 billion in additional costs to combat the coronavirus. Those costs could have a big impact on the 3.6 million county employees whose jobs could be threatened by scarcity and the millions of Americans who depend on county services, from health care to public safety and sanitation.
And not only the next few months could be difficult for local governments. In many places, the grip is already being felt.
“How do you decide if something is related to COVID?”
In Henrico County, Virginia, which spreads outside of Richmond, coronavirus has meant a budget and hiring freeze, canceled summer camps, reduced park maintenance, and a pause in plans to expand programs County addiction treatment, even when officials say drug overdoses in the county increased 100 percent from last year.
It’s the kind of crisis Tony McDowell, Henrico’s deputy director of public safety, says could be addressed with some of the $ 38 million in federal CARES money the county has received. But McDowell says that strict Treasury Department and Congress rules that the funding can only be used for expenses directly related to the coronavirus have created uncertainty about how to spend it.
“How do you decide if something is related to Covid when its tentacles are everywhere?” McDowell asked. “If we use money thinking it is an acceptable expense and then find out that it doesn’t qualify, it could put us in a risky financial position.”
The fear for many counties is that if they spend federal dollars on expenses that are considered unrelated to Covid, they may have to pay it back.
Meghan Coates, Henrico County Deputy Chief Financial Officer, told CNN that according to her estimate, Henrico has incurred some $ 5 million in direct coronavirus-related expenses, but that the real needs are to replace the programs they had to cut. as a result of the economic recession. The county had to save $ 99 million from its budget for fiscal year 2021.
Coates says it helps that federal money can be used in test sites, cleaning supplies, personal protective equipment, or technology to directly respond to viruses. But in her community, and many like it across the country, she says federal dollars would be more useful if they could be used to replace lost income from closing parks, schools and businesses.
With restaurants and stores closed, the county lost the sales tax revenue it depends on. And while federal stimulus programs such as fringe unemployment benefits, direct checks, and loans helped in the short term, those programs are expected to end soon.
“We are concerned that when those things expire, we will see additional revenue losses. We will be in a world of pain,” said Coates.
So far, Henrico has been able to avoid layoffs, but Coates and McDowell say the uncertainty about how they can use the federal money they have is paralyzing. Certain programs that they struggled to maintain as one that provides in-person services to families with special needs may be on the way if they don’t get more flexibility.
Moody’s analyzes estimated that without additional $ 500 billion in federal aid to state and local governments over the next two years, spending cuts and tax increases that communities will need to do could delay recovery and cost additional jobs. in the future.
“There is very little certainty about what will happen with the advancement of the economy. Will we have to step back and establish travel restrictions? When states are cautious about their budgets, that can have a big impact on the economy,” he said. Dan White, Director of Public Sector Research at Moody’s Analytics. “It took nearly 10 years for states to recover the jobs they lost during the great recession.”
For areas that rely on tourism revenue to balance their books, the economic downturn combined with travel restrictions has come at an especially harsh cost.
In Camden, Maine, a luxury coastal retreat on the central coast, the slow summer, and the contagious virus have meant closing the historic opera house and dealing with reduced profits from the city’s working port. While she received $ 102,000 in federal stimulus money, the real need will be to replace that lost income, says Audra Caler, the city administrator.
“The tourism economy is simply not here this year. We need some kind of program that addresses loss of income,” said Caler.
In some places, money has also been slow to come from the states to local governments. Under the CARES Act, communities with fewer than 500,000 people have to rely on state governors or legislatures to pass federal dollars, creating a bottleneck in some cases at the state level.
While many states have called 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 was passed, only about $ 16 million of the $ 1.25 billion in federal money has actually been spent on local governments.
It has led to a fierce fight between state Democrats and Republican Governor Jim Justice.
“It will be a cold day in hell before I vote to give more money to the states unless I have a direct passage to the cities or counties because this governor cannot be trusted,” Manchin told CNN in an interview. “Just sending $ 1.25 billion to some of the smaller states and trusting that the governors will do the right thing, didn’t work.”
The Justice office did not respond to a request for comment.
Will Congress offer more flexibility?
On Capitol Hill, the debate about giving state and local governments more flexibility to use their money has been raging for months without resolution. Within the Republican Party, the issue has stirred the conference that led to passionate debates at closed-door lunches. Senator John Kennedy, a Republican from Louisiana, has personally lobbied President Donald Trump on the issue, urging the administration to loosen the restrictions without change.
Maine Republican Senator Susan Collins and Louisiana Republican Senator Bill Cassidy have signed legislation led by New Jersey Democratic Senator Bob Menendez to give local governments a more direct cut in federal funds and give them additional flexibility to use dollars to pay bills. could not pay due to loss of income from the pandemic. But, there is little promise that the proposal will make it to the next stimulus bill.
There is also strong conservative opposition to loosening regulations, as some members argue that giving states more flexibility allows state and local governments to use the money for inflated programs and pensions that were still underwater.
And, the flexibility debate is just the beginning. Democrats have also promised to fight for billions more in state and local aid, even as some Republicans argue that the money remains unspent. It is unclear whether the senators can reach an agreement before the August recess in three weeks.
“Personally, I think the money should have been used for Covid’s expenses,” said Senator Roy Blunt, a Republican from Missouri and a member of the leadership. “But I think there was a lot of sense that the easiest way to deal with this now is to give states more flexibility with the money they have.”
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