As Biden pleads for more Covid aid, states are awash in federal dollars

FRANKFORT, Kentucky — Gov. Andy Beshear has been lugging oversized checks around his state for the past few weeks, handing them out to city and county officials for much-needed water improvements.

The tiny town of Mortons Gap was awarded $109,000 to bring running water to six families without water. Martin County residents whose water has been too polluted to drink since a coal mud spill two decades ago received $411,000. The checks bear Mr Beshear’s signature, but the money comes from the federal government, which is part of a huge infusion of coronavirus relief funds that are helping to stoke record budget surpluses in Kentucky and many other states.

Therein lies a Washington controversy. The funds, which Congress authorized at a time when the pandemic was still raging, are allowed to be used for purposes far broader than fighting the virus, including water projects like those in Kentucky. Most states will get another round of “financial recovery funds” next month — part of President Biden’s $1.9 trillion American bailout plan.

But in Washington, Mr. Biden runs out of money to pay for the most basic means of protecting people during the pandemic — medicines, vaccines, testing and reimbursement of care. Republicans have refused to authorize new spending, citing the state’s recovery funds as an example of money that could be repurposed for pressing national priorities.

“These states are full of money — every one from Kentucky to California,” said Scott Jennings, a former adviser to Kentucky Sen. Mitch McConnell, 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 plan, which Democrats pushed through Congress without their support. Despite the many ways it benefits his state, Mr. McConnell once called it an “untargeted multi-trillion dollar patch” that would dump “another huge mountain of debt on our grandchildren.”

On Capitol Hill Thursday, a day after Mr. Biden publicly asked Congress for more money, Senate Republicans and Democrats moved closer to agreement on a $10 billion emergency aid package — less than half of Mr. Biden’s original request. But they hadn’t resolved crucial differences over the size and method of payment. Republicans want to use unspent money already approved by Congress, but the parties couldn’t agree on which programs to tap.

Since the pandemic began, the Trump and Biden administrations have injected $5 trillion into the American economy, including the bailout plan. With the midterm elections approaching, the spate of government stimulus spending will come under even more scrutiny as Republicans accuse Democrats of wasting money and fueling inflation and demand an accurate accounting of how the money was spent.

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

“We have to embrace the idea that states are laboratories of democracy,” Mr Adkins said. “Some of these things will fail; Some of that money is not well spent. But that is the nature of trying to navigate through disruptive times.”

The rescue plan provided $195 billion to help states recover from the economic and health impacts of the pandemic. When Mr. Biden made his first aid request, senior lawmakers from both parties negotiated a plan to partially pay for it by withdrawing $7 billion from states as part of a $1.5 trillion spending bill.

Governors and ordinary Democrats declined, saying it would disproportionately hurt the 31 states that haven’t yet received all of their bailout funds, and the deal fell through. Now it looks as though government funds will be spared, although the uproar has sharply highlighted how fiscal consolidation funds are being spent.

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

All told, the White House says 93 percent of the US bailout’s currently available dollars were “legally committed,” meaning they have either been spent or are committed to spend.

Most states have either begun or plan to spend their financial recovery funds. 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 committed 78 percent of their allocations to budget repairs.

Kentucky, where Mr. Beshear, a Democrat, is promoting record job growth and boom times, 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 funding and expects to receive another $1 billion in May. It spends the money on broadband strengthen tourism and support for the unemployment fund and corona tests alongside water improvements.

“These dollars are too important and too transformative to be caught up in a partisan struggle,” Mr Beshear said in an interview, adding, “These are dollars that will help us as we get out of Covid. We have a choice to hobble out of the pandemic or sprint out of the pandemic, and stopping that aid only harms the people who need it.”

Congress identified four broad purposes for the money: responding to the health and economic impact of the pandemic; provide bonus payments for essential workers; prevent cuts in public services; and to invest in sanitation, water or broadband infrastructure. But states can also use the funds to replace lost revenue, giving them great flexibility in how the money is used.

Arkansas, for example, has given $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 the bulk of the money has gone into improving broadband access and meeting the needs of the healthcare system.

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

Other states are using the money in ways only marginally related to Covid-19 but allowable under guidelines issued by the Treasury Department.

Alabama dedicated $400 million of its allocation, or about one-fifth, to building two new prisons, despite a public outcry from advocates for racial justice and civil liberties. Florida has spent $2 billion, nearly a quarter of its $8.8 billion allotment, on building freeways – a decision criticized by the nonpartisan Florida Policy Institute.

“The intended purpose of the American Rescue Plan Act dollars was to ensure that individuals and communities can recover from the pandemic, and I think that money could be put to better use in many ways,” said Esteban Leonardo Santis, the tax Group Analyst and Revenue Analyst .

Twenty states, including Kentucky, spent a total of $15 billion to build up their depleted unemployment insurance trust funds. Independent analysts say this is effectively a tax break for companies that might otherwise have had to make up for lost revenue. But Mr Beshear defended it, saying businesses in Kentucky have been stepped up during the pandemic. A local Toyota plant 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 standing for re-election in 2023.

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

Experts say, and the White House concedes, fiscal recovery funds have helped create government budget surpluses. Gene B. Sperling, a senior presidential adviser who is overseeing America’s bailout plan, said the surpluses are proof Mr Biden’s stimulus package is working – and this is not a time to back down.

“Ensuring that states and localities have a cushion for some pretty serious bumps in the road is wise policy,” Mr. Sperling said, “and a lesson from what happened after the Great Recession.”

But these surpluses are likely to be temporary, and how states use them has played into the controversy surrounding the Covid aid funds. The Center on Budget and Policy Priorities says 14 states are using temporary budget surpluses “to demand costly and permanent tax cuts that are more aimed at wealthy people” — a move the center called a “poor choice.”

Here in Frankfort, the state capital, Kentucky lawmakers, in a hurry to close their 2022 legislative session, were working to pass a hefty income tax cut this week. But a proposal to use the state’s budget surplus to give Kentucky residents a tax refund of up to $500 seemed unlikely to get through, said its author, state Senator Chris McDaniel, who chairs the Appropriations Committee.

Mr. McDaniel, a Republican, spent much of this week conducting budget talks, including planning how Kentucky’s next tranche of tax recovery funds will be used. Another $1 billion is on the horizon, and despite some philosophical concerns, he said he sees no reason not to spend it.

“I firmly believe too much money has come down,” said Mr. McDaniel. “But I also believe that Kentuckians will ultimately bear the tax burden, as will everyone else down the line, and I will not penalize future Kentuckians out of philosophical pride.”

Emily Cochrane contributed reporting from Washington. As Biden pleads for more Covid aid, states are awash in federal dollars

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