States have billions of dollars from the American Rescue Plan. Now they have to spend it

Some states will use their share to fill budget holes caused by COVID's economic shutdown, and others are spending on initiatives to bring equity to people of color.

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President Joe Biden signs COVID-19 relief bill, includes $1,400 stimulus checks
President Joe Biden signed the American Rescue Plan, the $1.9 trillion COVID-19 relief package that includes $1,400 stimulus checks.
Associated Press, USA TODAY

Indiana plans to use some of its $3 billion for police body cameras.  

Maryland used a fifth of its $3.9 billion to send checks to low-income workers, establish tax benefits for families and businesses and support other relief programs.

Louisiana could spend its $3.2 billion to repair the aging water systems that left nearly a quarter of its residents without clean water from the tap during a rare Deep South freeze in February.

And in Oregon, $2.6 billion might help address isolation-induced mental health troubles in youth, or tackle homelessness in the capital city of Salem.

The American Rescue Plan, approved in March by Congress and President Joe Biden, is pouring an unprecedented $195 billion directly into states' coffers, a windfall to help them recover after COVID-19 shuttered businesses and stalled most of their state economies for months.

But now they have an enviable problem: Deciding how to spend billions of dollars in newfound revenue, which in some states goes above and beyond any shortfalls they had faced. 

It is leading to a brewing fight in state capitals across the nation, a review by USA TODAY Network statehouse reporters found. 

The politically charged debate that led Republicans in Congress to blast Biden’s plan as a “blue state bailout” is now happening in state halls of power, where governors and lawmakers of both parties are drafting or approving budgets banking on huge inflows of cash.

“We’re in much stronger financial shape now than we have ever been as a state,” said Maryland’s Republican Gov. Larry Hogan, who has pushed back on rhetoric that the plan would disproportionately benefit Democratic-led states. 

The money going directly to state governments is part of $350 billion the stimulus package is sending to states and municipalities — which is also making cities, counties and towns flush with cash. 

States with healthy budgets want to use the money to make transformative investments in long-avoided problems, like projects that repair roadways, strengthen bridges, fix water and sewer systems or expand high-speed internet access.

Many states will use their share to fill budget holes caused by COVID's economic shutdown, and others are spending on initiatives to bring equity amid a pandemic that disproportionately harmed people of color.

Yet many states are putting off spending commitments while they wait for more federal guidance and the outcome of a lawsuit filed by Republican attorneys general.

In some states, the money has led to bipartisan agreement, but that’s not universal — especially where budgets remain stretched.

Florida lawmakers considered cutting Medicaid payments to hospitals and higher education funding and redirecting millions from affordable housing. They ultimately passed the largest budget in state history, which was fattened by $6.7 billion in stimulus money that will support public works projects and environmental programs and bolster savings accounts.

The Republican majority's approach has frustrated many Democrats, who unsuccessfully pushed for more of the dollars to be spent quickly, and more on people than on projects. 

“President Biden's American Rescue money saved Florida’s safety net hospitals from draconian cuts proposed by Republican lawmakers during a pandemic," said state Rep. Carlos Guillermo Smith, an Orlando Democrat. "But I would have liked to see even more direct relief for small businesses and for the millions of Floridians pushed into poverty due to COVID.”

Florida: Lawmakers end controversial session with flurry of last-minute deals and big budget

Louisiana: How Gov. John Bel Edwards wants to spend American Rescue Plan dollars

Broadband, roads and water 

Louisiana Gov. John Bel Edwards called the state's $3.2 billion from the American Rescue plan a "once-in-a-lifetime opportunity" to make long-needed improvements in his state.
Louisiana Gov. John Bel Edwards called the state's $3.2 billion from the American Rescue plan a "once-in-a-lifetime opportunity" to make long-needed improvements in his state. Catherine Hunt/LSU Manship School News Service

Billion-dollar cash infusions are allowing lawmakers to continue the fight against COVID even as they consider funding one-time projects that have been put off in years when budgets were tight, a review of records and interviews showed.

For residents, that could mean better and safer commutes, improved education services and better access to high-speed internet. 

Estimates say 14.5 million to 42 million Americans could not access high-speed internet at the start of the pandemic, when work, school and doctors' visits for many people shifted online. 

But tech giant Microsoft has said its own data shows that 157 million people — just under half of all Americans — did not have broadband-speed internet access.  

States are “not just trying to get back to normal but building the state back better than it was before, really looking to the future with increased investments, greater equity,” said Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers.

Louisiana Gov. John Bel Edwards, a Democrat, called the state's $3.2 billion portion of the American Rescue Plan a "once-in-a-lifetime opportunity" to make improvements. 

Delaware Rep. Eric Morrison, a Democrat, wants some of the money to fix roads and drainage issues in his district, as well as to help people who have struggled financially during the pandemic.  

“I’d like to see that money help those who suffered the most during this time — including people of a lower socioeconomic status, people of color, folks who lost their jobs, and struggling small businesses,” Morrison said. 

Lawmakers in Kentucky, slated to receive $2.6 billion, have already budgeted hundreds of millions for drinking water and wastewater projects, rural broadband deployment, K-12 school facilities renovations and replacements and repairs at the state Capitol. 

Those projects would not have been funded without federal dollars, legislators said.

Long-overdue sewer and water projects are targets for South Carolina lawmakers, as is possibly paying for a $550 million barge and railroad upgrade at the Port of Charleston.

“South Carolina has a rare opportunity to use these funds to make significant investments that will make our state more competitive for new jobs and capital investment in the future,” a spokesperson for Republican Gov. Henry McMaster said.

Pennsylvania Gov. Tom Wolf, a Democrat, has said he would like to use the stimulus money to fix Pennsylvania’s structurally deficient roads and bridges — but he has also lamented that the GOP-led Legislature may not go along with that plan.

Republicans countered they are trying to be deliberate in making decisions with what could be a once-in-a-lifetime cash infusion for states.

"Federal relief dollars will not last forever — so we must make responsible decisions that set us up for success over the next several years," House Speaker Bryan Cutler said.

More: Pa. COVID relief: The money is coming, but where is the state's plan to spend it?

More: How much money will your state get if Biden's COVID-19 relief passes?

Supporting people and business 

NJ Governor Phil Murphy said he is still awaiting federal guidance on whether he can spend federal stimulus money to help undocumented workers.
NJ Governor Phil Murphy said he is still awaiting federal guidance on whether he can spend federal stimulus money to help undocumented workers. Thomas P. Costello

State lawmakers are looking to use their incoming windfalls to bolster businesses, nonprofits and residents' coffers that have been depleted during the pandemic.

The local focus represents a shift in economic development priorities brought on by the pandemic, experts said.

Where states may typically prioritize things that generate revenue from outside their borders, like manufacturing, now they are focusing on keeping restaurants and local businesses afloat, said Josh Goodman, senior officer for the state fiscal health project at The Pew Charitable Trusts. 

"Helping businesses on a shorter timeframe actually is more valuable to businesses, and that point is kind of doubly important right now when this money is temporary and states shouldn't be making a long-term commitment based on [stimulus] money if they're going to have to find money elsewhere to pay for it later on," Goodman said.

One of states’ priorities includes paying back loans and rebuilding unemployment trust funds gutted by a tsunami of claims as states shut down nonessential businesses. 

Maryland, for example, will spend more than a quarter of its share of stimulus money to refill the state’s unemployment trust fund and stabilize unemployment insurance tax rates for struggling businesses.

Kentucky lawmakers approved spending $575 million to pay back a massive federal loan to its trust fund taken out last year. 

Nevada has called for an unspecified amount of spending meant to shore up the state’s beleaguered unemployment office.

A few states have also vetted or approved direct payments to residents and businesses. 

Kentucky Democratic Gov. Andy Beshear had proposed spending nearly $900 million on direct payments to households, businesses, nonprofits and industries affected by the pandemic, but the GOP-dominated Legislature chose not to go down that path as the legislative session ended March 30.

In New Jersey, Gov. Phil Murphy, a Democrat, is weighing requests that some of the state’s $6.4 billion share be given to undocumented workers, who largely have not benefited from prior stimulus plans. Three dozen workers have started a fast and protested to be included.

“I worked during the pandemic to make sure families stayed fed, but when I lost my job, I couldn't make ends meet," said Noemi Ruiz, one of the fasters in New Jersey. "Even though I paid into unemployment, I couldn't receive a penny in aid. I'm a single mother, and I could barely provide for my daughter.” 

Murphy is waiting for federal guidance to say whether stimulus dollars can cover those payments but said he would get the workers “the support that they deserve.” 

New York: State to create $2B excluded workers fund. Some worry it goes too far.

Arizona: Gov. Ducey unveils $12.3B state spending plan with boost for law enforcement, schools

New Jersey: NJ isn't saving money for a rainy day, despite COVID surplus. Here's why

Waiting for the feds and tax cut questions

As in New Jersey, many states haven’t yet committed their funds to specific projects and are waiting for U.S. Treasury guidance expected to be released in weeks. 

In Iowa, Republican lawmakers, the majority party, are coming to an agreement on the state budget, but they’re not including stimulus funds in their appropriations.

“Our approach to that would be, number one, we need to be cautious that we're not using them in a way they're not intended to,” said Iowa House Speaker Pat Grassley. 

Grassley and other Republicans say they don’t want to end up in a situation like last year — when the federal government told Gov. Kim Reynolds that she had improperly used $21 million in CARES Act money to pay for a cloud-based human resources system. The Legislature later appropriated money for the project through the state’s general fund. 

One of the remaining questions is how states can use the federal funds if they also intend to cut taxes — a question that 13 Republican state attorneys general have asked a court to decide.

Biden’s plan said stimulus dollars could not be used directly or indirectly to finance tax cuts, but the Republican policymakers filed a lawsuit arguing that it is an unconstitutional mandate and usurps states’ rights to set their own tax policies. 

The confusion has left some states in limbo. 

Two months before Congress approved the American Rescue Plan, Arizona Gov. Doug Ducey unveiled a budget proposal prominently featuring a major income tax cut starting at $200 million for the 2022 budget year.

Ducey and his GOP counterparts in the Arizona Legislature have pointed to the state’s unexpectedly rosy financial picture to argue that federal aid isn’t needed to make tax cuts happen. 

The proposal has rankled Democratic lawmakers, who want any extra revenue to go toward boosting unemployment benefits and other elements of the state's social safety net.  

“This is not the time to propose $1.2 billion in tax cuts over the next three years, when Arizonans are still hurting, the pandemic is not under control, and the vaccine rollout has been slower than expected,” said House Minority Leader Reginald Bolding, a Democrat. 

More: Iowa holds off on spending $1.4 billion in federal COVID-19 stimulus money

Arizona: Democrats pass $1.9T COVID-19 aid plan on party-line vote; state could get $16B

Tax cuts and hikes elsewhere

The New York State Capitol Building in Albany on Thursday, April 29, 2021. Even with the federal stimulus money, state lawmakers are raising taxes on the rich.
The New York State Capitol Building in Albany on Thursday, April 29, 2021. Even with the federal stimulus money, state lawmakers are raising taxes on the rich. Georgie Silvarole/New York State Team

Kentucky legislators chose not to directly tie the new funds to tax cuts, but they did enact new tax breaks for certain industries — over the objection of some who felt that it would violate terms of the federal act.

In Kansas, legislators publicly weighed using a chunk of the funds to underwrite a sweeping tax relief bill. 

Kansas Attorney General Derek Schmidt, who is also part of the lawsuit, has pushed back on the plan’s tax provision, calling the move "one of the most egregious power grabs by the federal government in the history of the United States.” 

Yet other states are turning to tax increases in part to provide an ongoing stream of cash for the state when the federal bailout money ends.  

New York received $12.6 billion in federal stimulus money to help close a $15 billion budget gap over the next two years.

But the influx of cash still wasn't enough for the Democratic-led Legislature, which approved higher income taxes on New Yorkers earning more than $1 million a year and even higher brackets for those making $5 million a year. 

The new tax rates could bring in $3 billion a year. 

But New York's new revenue isn't going to address long-standing fiscal problems, warned state Comptroller Thomas DiNapoli.

While New York plans to spend a record amount on schools and infrastructure, it still deferred $3.5 billion in Medicaid payments, for example.  

"Federal support is finite," DiNapoli said in a statement, "and there were missed opportunities in this budget to ensure the state is well-positioned to weather future emergencies and recessions.”

Stacey Barchenger is a statehouse reporter for the Trenton Bureau of the USA TODAY Network.

This story is based on reporting by USA TODAY Network writers: John Kennedy in Florida; Kaitlin Lange in Indiana; J.D. Prose in Pennsylvania; Gareth McGrath and Brian Gordon in North Carolina; Shaun Robinson in Massachusetts; Kirk Brown in South Carolina; Joe Sneve in South Dakota; Stephen Gruber-Miller in Iowa; Sarah Gamard in Delaware; Joe Sonka in Kentucky; James DeHaven in Nevada; Greg Hilburn in Louisiana; Andrew Bahl in Kansas; Maria Polletta in Arizona; Connor Radnovich in Oregon; Madeleine O’Neill in Maryland; and Joseph Spector in New York. 

Email: sbarchenger@gannettnj.com 

Twitter: @sbarchenger 

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