The Treasury Department on Monday launched its $350 billion program to distribute aid to state and local governments, giving the U.S. economy an added boost as President Joe Biden sought to assure the country that stronger growth is coming.
The aid is part of Biden's larger $1.9 trillion coronavirus relief package that became law in March. Administration officials said payments could begin to go out in the coming days to eligible governments, allowing state, local, territorial and tribal officials to offset the economic damage from the coronavirus pandemic. The announcement came after the government reported Friday that just 266,000 jobs were added in April — a miss that the president felt obligated to address from the White House on Monday.
“We’re moving in the right direction,” Biden 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.”
Republican lawmakers have suggested that his relief package, with its extra unemployment benefits, has hurt hiring because people can earn more money by staying at home than working. But Biden emphasized that much of the money is still being disbursed and noted the new portal for state and local government aid.
“The money we’re going to be distributing now is going to make it possible for an awful lot of educators, first responders, sanitation workers to go back to work,” he said.
The president is pushing even more ambitious government spending, proposing a combined $4 trillion of investments in infrastructure, families and education to be funded by higher taxes on corporations and the wealthy. Some of that funding would build on the child tax credits and state and local government money that were part of the relief package.
Guidance from the Treasury Department listed broad categories for spending the aid. State and local governments can use the money for public health expenses. They can also offset harm from the downturn to workers, small businesses and affected industries. Money can replace lost public sector revenues. Essential workers can qualify for premium pay, and investments can be made in water, sewer and broadband internet.
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But Treasury has also placed restrictions. Officials said the funds should not be used by state and local governments to cut taxes, pay down debt or bolster reserve funds.
The funding could provide a jolt of growth after the unemployment rate ticked up slightly to 6.1% in April, a sign of how difficult it can be to restart an economy despite an unprecedented degree of federal assistance. Labor Department figures show that state and local governments are still down roughly 1.3 million jobs since the pandemic began more than a year ago.
The aid to state and local governments has largely been pushed by Democrats, who remember how these vital sectors of the economy weighed down the recovery from the 2008 financial crisis and caused relatively modest growth. Republican lawmakers generally opposed the aid because they said it would encourage wasteful spending and noted that state tax revenues had generally rebounded from the downturn.
“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 Gene Sperling, who is overseeing aid distribution for the White House. “This is responding to the lessons of the past in a powerful way.”
Local governments should expect to 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 percentage 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, said 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."