State, local governments need flexibility for CARES Act spending

The CARES Act allocated $150 billion to state, local and tribal governments to help pay for expenses associated with the COVID-19 virus. West Virginia’s share is $1.25 billion.

That is a considerable sum, more than one-fourth the size of the entire General Revenue budget for the state.

The question, however, is how can West Virginia spend all that money?

The bill says the funds can be used for “necessary expenditures incurred due to the public health emergency with respect to the Coronavirus.” The U.S. Treasury Department followed up with more specific guidelines.

For example—and this is a big one—state and local governments may presume that public health and public safety employee services were dedicated to mitigating or responding to the pandemic. Therefore, the grant can be used to pay their salaries.

The number of West Virginians filing for unemployment has surged to over 200,000. Federal dollars and payroll taxes absorb much of the cost of the benefits, but the grant money can help cover the state share.

But even with those expenses and others allowed by Treasury, there is no way West Virginia will come close to spending all the $1.25 billion by the December 31st deadline. Money not spend must be returned to Washington.

That’s why Governors, including West Virginia’s Jim Justice, are pushing Washington to broaden the guidelines to allow the money to be used to offset the dramatic drops in state, county, and municipal tax revenue.

Congress is considering several bills to accomplish that. One, co-sponsored by West Virginia Republican Senator Shelley Moore Capito, has gained bi-partisan support. Capito and Senators from several small population states, have signed on to the Coronavirus Relief Fund Flexibility Act.

“We’re hearing from our municipalities, we’re hearing from our county governments, but also from the state, that if we can’t use this money for lost revenues and we can only use it to defray expenses from COVID, that ties our hands too much,” Capito said on Talkline last week.

The proposal adds a simple paragraph to the CARES Act that would allow the money to be used to make up budget shortfalls resulting from the pandemic and the economic shutdown.

West Virginia state government has been hit hard. The state is staring at a $500 million shortfall June 30. City and county governments also face unexpected shortfalls because of a dramatic drop in business activity and, in some cases, the inability of individuals to pay property taxes.

An act of Congress would provide the necessary flexibility to patch those sizable holes, but time is running out. The fiscal year ends in a few weeks. At best, Congress will not take up this bill until later next month.

But there is another way. The fact that the bill has bipartisan support should be a strong signal to Treasury Secretary Steve Mnuchin that this is something both sides of the aisle can agree upon and the change can be made through additional guidelines.

Whether the adjustment comes from Treasury or Congress, language needs to be added so state and local governments can offset some of revenue lost due to the pandemic.