Biden administration starts doling out $350 billion in COVID aid with conditions

President Joe Biden’s administration on Monday launched its $350 billion program to distribute aid to state and local governments – with some conditions.

The rules are designed to see that the funds go toward coronavirus relief and were part of the $1.9 trillion American Rescue Plan that Biden signed into law in March.

The guidelines released by the Treasury Department on Monday offer a suggestion list for the funds uses – including rehiring workers and supporting industries hit hard by COVID-19. 

But they also have a laundry list of what the money can’t be used for – such as to pay for tax cuts, which has brought lawsuits from some Republican state officials.  

State and local governments also can’t use the money to fund debt payments, legal settlements, or deposits to rainy-day funds or financial reserves, according to a fact sheet released from the Treasury Department.

Of the $350 billion total, state governments and the District of Columbia will receive $195.3 billion, counties will receive $65.1 billion, cities will receive $45.6 billion and tribal governments and territories will receive $24.5 billion. 

The release of the funds comes after the Labor Department reported on Friday that the US economy added 266,000 jobs in April, well below the 1 million jobs that most forecasters expected.

 Biden defended the low jobs numbers in remarks at the White House on Monday.

‘We’re moving in the right direction,’ he said. ‘Our economic plan is working. I never said – and no serious analyst ever suggested – that climbing out of the deep, deep hole our economy was in would be simple, easy, immediate or perfectly steady.’ 

Biden is pushing even more ambitious government spending, proposing a combined $4.1 trillion of investments in infrastructure and social programs – like expanded child care, universal free pre-K and two free years of college – to be funded by higher taxes on corporations and the wealthy. 

Democrats have pushed for the greater funding for state and local governments, arguing it will help boost the overall US economy. Republican lawmakers opposed the aid, arguing it would lead to wasteful spending. 

‘We all know that one of the things that held back the recovery the most after the Great Recession was the contraction of state and local government,’ said White House adviser Gene Sperling, who is overseeing aid distribution . ‘This is responding to the lessons of the past in a powerful way.’

Local governments will receive funds in two tranches, with half coming this month and the rest a year from now. 

States that saw their unemployment rates jump by 2 points relative to February 2020 will get their money in a single payment, while the rest will receive their funding in two tranches. 

Adam Levin, who researches state fiscal policy for The Pew Charitable Trusts, told the Associated Press the state and local government aid amounts to roughly $1,000 for every American. He said a major factor going forward will be how the cash infusion changes state and local finances for the long term, not just in the immediate aftermath of the pandemic.

‘The key to ensuring these resources yield returns is not just about the amount of funding but how that money is spent,’ Levin said. ‘State and local leaders should take a long-term perspective on these new funds and analyze what their budgets will look like after this federal relief expires in 2024.’