U.S. Await Guidelines on Spending Stimulus

U.S. states and cities are ready to tap billions of dollars about to come their way in the new federal stimulus funding. They are, however, anxiously awaiting U.S. Treasury Department guidance.

Americans are looking forward to some clarification on the states’ ability to cut taxes. Moreover, the use of stimulus money to pay off debts.

President Joe Biden signed a $1.9 trillion American Rescue Plan Act in March. It allocates $350 billion to help repair their pandemic-damaged budgets and economies. These refer to states, municipalities, counties, tribes, and territories.

The federal government has a tight deadline to begin distributing the funds.

The $150 billion that the governments received from last year’s federal CARES Act was limited to spending that was related to the pandemic. But this new money may help replace revenue lost due to the pandemic. 

Moreover, to provide “premium pay” for essential workers and to invest in water, sewer, and broadband infrastructure, according to the U.S. Treasury.

Eligible Uses for the Money

Governments have tons of questions about eligible uses for the money. That includes financing other capital improvements that were deferred due to the pandemic. Moreover, parking stimulus funds in interest bearing accounts, said Emily Swenson Brock, director of the Government Finance Officers Association’s Federal Liaison Center.

Brock said that several state legislatures are talking about using stimulus money to pay off outstanding debt. There is no mention of the move in the act.

Jennifer Sciortino, spokeswoman for the state treasurer’s office said New Jersey has identified bonds that could be retired in the next few years. That is, if the state recieves greater flexibility, she said.

At this point, it is entirely unknown if the federal government will permit them to use funds to pay off existing debts, she added.

Illinois Governor J.B. Pritzker wants to use stimulus money to take out the remainder of the $3.2 billion his state borrowed last year. That was through the U.S. central bank’s (Federal Reserve) Municipal Liquidity Facility to ease a cash crunch.

What’s More?

Notably, the act does not allow the money to be used for pensions or to subsidize new state tax cuts.

This latter prohibition brought about five lawsuits against the U.S. President Biden’s administration by Republican attorneys general in several states. On March 17, Ohio filed the first case, contending that Congress lacks constitutional authority to limit states’ taxing power in this manner.

With the case still pending, the Ohio House of Representatives on Wednesday approved a 2% income tax cut. That totals about $380 million over two years.

As of April 6, bills have been introduced in 16 other states to cut personal or corporate income taxes, the National Conference of State Legislatures said.

Furthermore, U.S. Treasury Secretary Janet Yellen said nothing in the act prevents tax cuts. Further guidance, she said, would be forthcoming.