US Treasury launches $350BN in state, local COVID aid

The United States Department of the Treasury launched access to $350bn in COVID-19 aid for state, local, tribal and territorial governments on Monday, releasing rules for allowable uses and a prohibition on tax cuts by recipient states.

The Treasury said that states with seasonally adjusted unemployment rates that are now two percentage points above levels in February 2020 can receive all of the funds they are due immediately. But those with smaller increases in unemployment will get their funds in two payments a year apart.

The total funding for states in President Joe Biden’s American Rescue Plan Act is $195.3bn.

The Treasury said $65.1bn has been allocated for counties and $45.6bn for metropolitan cities, which will both get their funds in two tranches a year apart, with the first payment coming in May.

Tribal governments, which receive a combined $20bn, will receive an initial payment in May and a second payment in June based on employment data. The $4.5bn allocated for US territories will all be delivered in May, the Treasury said.

The Treasury said the eligible uses for state and local funds include public health responses to the coronavirus pandemic and replacement of revenues lost to the pandemic determined through a formula in Treasury guidance.

Uses also include addressing negative economic impacts from the pandemic, including aid to unemployed workers and hard-hit communities, and premium pay for essential workers.

The Treasury also said the funds can be invested in improvements to water, sewer and broadband internet infrastructure.

But the Treasury maintained its plans to prohibit states from using the funds to offset tax cuts, a provision opposed by a number of Republican states.

“If a state or territory cuts taxes, they must demonstrate how they paid for the tax cuts from sources other than Coronavirus State Fiscal Recovery Funds — by enacting policies to raise other sources of revenue, by cutting spending, or through higher revenue due to economic growth,” the Treasury said.

States must pay back COVID-19 aid funds in the amount of their tax cuts if they cannot demonstrate such offsets, the Treasury said.