$1.9 Trillion American Rescue Plan: State and Local Effects

The U.S. Senate yesterday approved President Biden’s $1.9 trillion COVID-19 relief package. The legislation — which includes direct, flexible aid to states and county governments across America — now heads back to the U.S. House of Representatives, after the House passed a slightly different version of the bill last week.

The legislation includes direct payments of up to $1,400 to most Americans, a $300 weekly boost to jobless benefits into September, and an expansion of the child tax credit for one year. Individuals earning up to $75,000 and couples earning up to $150,000 would receive the full direct payments of $1,400 per person. But those payments would phase out for individuals and couples who make more than $80,000 and $160,000, respectively.

The relief package also includes nearly $130 billion for schools to safely reopen, $160 billion for testing/vaccines, $15 billion for small businesses, and $20 billion for housing aid. The plan would also put in place a federal moratorium on evictions and foreclosures until the end of September and would allocate billions of dollars toward food insecurity.

Direct, Flexible Aid to States and Local Governments

Under both the House-passed bill and the Senate-passed bill, states, along with the District of Columbia, would receive $195.3 billion in direct aid, distributed mostly upon each state’s share of unemployed workers. Local governments would receive $130.2 billion, which is based on population and split evenly between cities and counties. Tribal governments receive $20 billion and U.S. territories receive $4.5 billion.

As previously reported on Conduit Street, the State of Maryland would receive approximately $3.9 billion in direct, flexible aid. Maryland’s 24 counties and 157 municipalities would receive approximately $1.9 billion.Source: NACo

Recovery Funds: Allowable Uses

According to analysis from the National Association of Counties (NACo), the Senate bill outlines that funds may be used to:

  • Respond to the public health emergency with respect to the COVID19 or its negative economic impacts, including assistance to
    households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality.
  • For the provision of government services to the extent of the reduction in revenue (i.e. online, property, or income tax) due to the public health emergency.
  • Make necessary investments in water, sewer, or broadband infrastructure.

It is important to note under #1 that the examples outlined are intended to clarify congressional intent that these activities would be eligible. However, state and local activities would NOT be limited only to these activities.

The Senate bill also outlines that:

  • States shall not use funds to either directly or indirectly offset a reduction in net tax revenue from cutting state taxes.
  • States shall not use funds to either directly or indirectly offset a reduction in net tax revenue that results from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax. If a state violates this provision, it would be required to repay the amount of the applicable reduction to net tax revenue.
  • Funds cannot be deposited into any pension fund.
  • State and local governments are authorized to transfer to a private nonprofit organization, a public benefit corporation involved in the transportation of passengers or cargo, or a special-purpose unit of State or local government.

The U.S. Department of Treasury would oversee and administer these payments to state and local governments, and every county would receive a direct allocation from Treasury. The House-passed bill provides that the funds have no expiration date. However, the Senate-passed bill requires that the funds be spent by December 31, 2024.

NACo has launched a COVID-19 Recovery Clearinghouse, which houses critical resources for county governments, including allocation estimations, examples of county programs using federal coronavirus relief funds, the latest news, and more.

Stay tuned to Conduit Street for more information.

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