Derek Monson: Remove barriers for flexible use of COVID-19 relief funds

(Andrew Harnik | AP photo) House Speaker Nancy Pelosi of Calif., House Minority Leader Kevin McCarthy of Calif., left, and House Majority Leader Steny Hoyer of Md., right, holds up the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act after Pelosi signed it on Capitol Hill, March 27, in Washington. The $2.2 trillion package will head to head to President Donald Trump for his signature.

What if someone offered you help to address a huge problem, but said you can’t use it in some ways you might need? This is the situation Utah and other states face, and Congress can fix it.

Utah legislative leaders recently learned that economic losses caused by the novel coronavirus pandemic will likely reduce tax revenue between $186 million and $599 million in the current fiscal year (ending in June) and between $592 million and $1.287 billion in the upcoming fiscal year. At the same time, the state of Utah received $687.5 million in pandemic relief funds from the federal CARES Act, of which $433 million remains unallocated.

The downturn driving Utah’s budget shortfall has been caused by the pandemic, so common sense would argue that states should have great flexibility to address pandemic tax revenue impacts with CARES Act funding. But that’s not the case.

Congress needs to change it.

The CARES Act’s state and local pandemic relief funding was a good-faith attempt by Congress to help address the public health crisis created by COVID-19. This policy decision was made with great haste — understandably — but with unreasonable restrictions on the use of these funds. Instead of providing flexibility to use relief funding to address pandemic-driven budget shortfalls, the CARES Act and its administrators put up barriers to such uses of this funding. Only recently have we seen efforts to extend some flexibility to state and local governments. Congress can correct this mistake.

Much of Utah’s CARES Act funding remains unspent, and discussion about additional state and local relief funding is ongoing. Whatever final decisions are made about the amount of federal aid to state and local governments, Congress should apply the principle of local flexibility to that funding so it can be used to address any public health or economic need reasonably connected to the pandemic.

In the case of CARES Act funding, that means enacting the FLEX Act, sponsored by Rep. Don Bacon of Nebraska. The FLEX Act would increase flexibility for the state, counties and municipalities in Utah by adding the offset of revenue shortfalls to the list of allowed state and local government uses of CARES Act funds.

There is reasonable concern that states might seek to use pandemic relief funds to bail themselves out of non-pandemic-related problems, such as decades-long decisions to poorly manage pension funds for state employee retirement. This, of course, should not be allowed. Flexibility does not mean you get to abuse federal taxpayers. But policies like the FLEX Act address this by requiring that federal aid be used for revenue shortfalls explicitly due to the COVID-19 public health emergency, and only for shortfalls occurring between March and December 2020.

The need for such flexibility is not a partisan issue. Nonpartisan national organizations including the National Governors Association, National Association of Counties, National League of Cities and the National Conference of State Legislators have all called for flexibility in federal pandemic relief funding. Local nonpartisan organizations such as the Utah League of Cities and Towns and the Utah Association of Counties have added their voice in calling for greater flexibility in federal pandemic relief funding.

The broader reality is that the pandemic needs of New York City are different from those in Salt Lake City and rural Utah. We have a federal system of government in place so that these differences can be taken into account in a public health crisis such as the current pandemic. A nationally driven, top-down plan is neither needed nor likely to be effective. But resources that don’t come with excessive strings attached would be highly beneficial to local efforts to fight the pandemic and move toward recovery.

Utah communities and citizens would be well served if the members of Utah’s congressional delegation both stepped forward in support of the FLEX Act and demanded state and local flexibility as a condition of any additional federal relief funding. This would meet not only the health needs of Utah families, but their economic needs as well.

Doing so would allow Utah to more quickly move beyond the pandemic and toward recovery – the solution we all need.

Derek Monson

Derek Monson is vice president of policy at Sutherland Institute.