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Why Biden’s Rescue Act is a BFD for States

States of Crisis with Dan Vock
Why Biden’s Rescue Act is a BFD for States
By Daniel C. Vock • Issue #35 • View online
It’s hard to overstate what a big deal the new American Rescue Plan is for states and local governments.
For a year, state governments in particular have had limited support from the federal government while trying to deal with the fallout of the COVID-19 pandemic. The disease itself and the economic chaos it created havoc in state governments.
Even agencies that don’t deal directly with health have been swamped by the crisis. Outdated unemployment insurance systems struggled to meet a surge in demand or a spike in fraud. Prison systems couldn’t contain outbreaks. Transportation departments saw their revenues plummet while road deaths shot up.
Outside of state capitals, the virus pushed other government entities into existential crises, too. I’ve spent a lot of the last year covering public universities and transit agencies, whose leaders wondered if they’d ever be able to go back to doing what they are best at doing.
But with Biden’s signature on a $1.9 trillion relief bill, almost all of those financial worries for government entities evaporate. In fact, one of the chief Republican complaints about the Democratic bill is that it gives too much money to state and local governments. More than they need. (Democrats dispute that.)
The influx of funds reflects Biden’s desire to prove that government can work to solve problems.
“It’s critical to demonstrate that government can function and delivery prosperity, security and opportunity for the people in this country,” Biden said at a Rose Garden event Friday.
But the Rescue Plan could mark a turning point in how Washington works with states more broadly as well. It is, as Biden once remarked about another law, “a big [expletive] deal.”
That’s the news this week, as Biden emerges from self-imposed seclusion in the White House to take a victory lap, and state officials ponder how to handle the influx of new money.
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Onto the news…

President Joe Biden signs the American Rescue Plan into law on Thursday.
President Joe Biden signs the American Rescue Plan into law on Thursday.
Yes, Biden Is Helping States, but He's Also Flexing Federal Authority
When Joe Biden addressed the country’s governors last month, he reminded them of how the Obama administration passed a major economic stimulus package in its first few days in office. The Obama stimulus package passed before any of the country’s current governors were in their posts. Biden helped oversee the relief effort, which eventually cost more than $820 billion.
That package, called the American Recovery and Reinvestment Act, sent billions of dollars to state and local governments to pick up a bigger share of their medical insurance bills and prevent layoffs of teachers and other school personnel. It also included money for fixing roads, building out green energy and giving Americans tax cuts.
“Now,” Biden said, “economists tell us that saved us from a depression. Well, that’s the approach I think we need to take today.”
“But there’s one big difference: We need to be more ambitious right now. The greatest risk from all the major economists, from Wall Street to overseas to — to the major think tanks, is that we don’t do enough of what is needed; it’s when we do too little,” he added.
So, when Biden’s stimulus package landed on his desk, it included $350 billion in direct aid to state and local governments. On top of that, it designates $128 billion to help local schools reopen, sets aside $30 billion to transit, nearly $40 billion for colleges and universities, and billions for a slew of safety net programs.
States and localities would get support for responding to disasters, expanding Medicaid if they haven’t already done so, providing help to residents who can’t afford their heating bills, helping renters avoid evictions and helping homeowners avoid eviction.
The direct aid to states comes with a few restrictions. The money can be used to:
  • Respond directly to the COVID-19 health emergency and its negative economic impacts
  • Cover COVID-related costs
  • Replace revenue that was lost because of the pandemic
  • Address the negative economic impacts of the emergency
While the categories are pretty broad, the law restricts states from using the influx of money to do things like pay down their pension debt (as Republicans worried that Democratic-led states would do) or cut taxes (as Democrats worried that Republican-led states would do)
The law also requires state officials to certify that they need the federal money in order to carry out the stated goals of the relief money. That could put state officials in a tough spot. Several governors have touted their states’ healthy budget situation, so they may not want to admit to needing federal assistance.
In fact, U.S. Sen. Rick Scott, a former Republican governor of Florida, and the right-leaning Heritage Foundation have encouraged governors not to take the Biden stimulus money.  
“By rejecting and returning any unneeded funds, as well as funds unrelated to COVID-19, you would be taking responsible action to avoid wasting scarce tax dollars,” Scott wrote. “After all, every dollar in this package is borrowed.”
As a newly elected governor, Scott criticized the Obama stimulus package. He was one of three Republican governors – along with Scott Walker of Wisconsin and John Kasich of Ohio – who canceled high-profile rail projects that had been funded through the package. (Scott’s administration later backed a private rail project that is constructing a similar route.)
Obama, in fact, had tried to curry favor with governors before even coming into office. He met with the National Governors Association in Philadelphia and later invited the governors to a gala at the White House that included a performance by Earth, Wind and Fire.
But Republican governors formed the first kernel of resistance to Obama, starting with his plans to expand unemployment insurance in his stimulus plan.
Biden’s legislation, on the other hand, seems to give governors less leverage in resisting the federal aid. There aren’t the kinds of competitive grants, like high-speed rail dollars or Race to the Top education awards, that generated a huge amount of attention under the Obama administration.
Biden himself has tried to assert federal authority during his first 50 days in office. He said he will “direct” all states to allow any adult to qualify for a vaccine starting on May 1. The president is pushing for schools nationwide to reopen to in-person learning in less than two months. The Centers for Disease Control and Prevention under Biden has tried in vain to prevent governors from lifting health restrictions as the number or COVID-19 cases has waned.
The president shared his frustration over the free-for-all among states and their COVID responses, something the Trump administration encouraged. “Too often,” Biden said Thursday, “we’ve turned against one another. A mask — the easiest thing to do to save lives — sometimes it divides us. States pitted against one other instead of working with each other.”
So far, though, Biden has had only limited success appealing to Republicans.
This month, 22 Republican governors objected to the Biden rescue plan’s method for doling out state aid. As we discussed last week, they said that Democrats in Congress favored blue states by basing the amount of money each state gets on its unemployment rate, rather than just the overall population.
Still, the massive rescue plan includes a lot more than that pot of money. One analysis by news reporters showed that, taken as a whole, red states may benefit even more than blue states from the package.
“Overall,” Reuters reported, “Republican-leaning states would get a net $3,192 per resident from these provisions, which account for slightly more than $1 trillion of the bill’s $1.9 trillion cost. Democratic-leaning states would get $3,160, according to a Reuters analysis.”
President Ronald Reagan famously said in 1986, “The nine most terrifying words in the English language are: I’m from the government, and I’m here to help.”
It looks like Joe Biden is trying to prove Reagan wrong, even if the ones needing the help are other governments.
A Reuters examination of how each state's residents would fare under the American Rescue Plan.
A Reuters examination of how each state's residents would fare under the American Rescue Plan.
Check out Reuters’ full interactive graphic here.
Your turn
Will states breathe easier with new federal money on the way? Or will they object to ceding their financial flexibility? Let me know what you think on Twitter at @danvock or @StatesOfCrisis
More from me...
What Should Illinois Do With New Federal Funds? - Center for Illinois Politics
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Daniel C. Vock

A pandemic. Recession. Civil unrest. State leaders are grappling with several enormous crises all at once. We explore how they're responding.

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