New Jersey has received more than $6 billion in federal COVID-19 relief funding, and like other federal aid programs, there’s a long list of things the money can and cannot be spent on.
Gov. Phil Murphy has yet to say exactly how the state plans to use its share of funding from the American Rescue Plan Act within those rules.
But the governor has said recently that he’s been having “good conversations” with lawmakers, who’ve already signaled they want a role in appropriating the latest tranche of federal aid.
The discussions are underway as Murphy and fellow Democrats who control both houses of the state Legislature gear up to also negotiate the next annual budget in the run-up to the July 1 start of the state’s fiscal year.
While there’s no specific deadline for deciding how to use the federal relief funding, the state does have to spend its share of the aid money by Dec. 31, 2024, according to the rules issued along with the relief.
Here’s a breakdown of some of the background and the rules for the federal aid, as well as a look at best practices and what other states are already doing with their share of the federal funding.
Where the federal American Rescue Plan Act money comes from: The $1.9 trillion American Rescue Plan Act of 2021 was signed into law by President Joe Biden on March 11. The relief package provided funding for, among other programs, a new round of stimulus payments to individuals. It also extended enhanced federal unemployment benefits.
The American Rescue Plan also set aside $195 billion to fund the Coronavirus State Fiscal Recovery Fund. This money is coming to the states on top of aid being sent to fund other, more specific purposes, such as the $2.7 billion currently available to schools in New Jersey. A portion of the states’ recovery fund was divided evenly among the states. Another portion was provided to the states based on the number of unemployed workers they had as of late last year. New Jersey received $6.24 billion in American Rescue Plan Act funding on May 19, according to state Treasurer Elizabeth Maher Muoio.
What the American Rescue Plan Act money can be used for: In the most general terms, the federal funding should be used to support the public health response to the coronavirus pandemic and to lay the groundwork for a “strong and equitable” recovery from an economic downturn that was triggered by the health crisis, according to a fact sheet issued by the U.S. Department of Treasury.
More specifically, interim federal rules issued by the Treasury allow the funds to be used to provide support to households, small businesses, impacted industries and essential workers, among other areas. Providing hazard pay to essential workers, replacing revenue that was lost to the pandemic and funding investments in infrastructure like water, sewer and broadband are among other specific allowable uses, according to the interim rules.
What the federal money can’t be used for: While the federal guidance stresses a need to give states flexibility on where to best use the relief dollars, some uses are directly prohibited. These include funding public-worker pension payments and offsetting revenue losses caused by any tax cuts enacted after March 3, 2021, according to a summary drafted by the National Conference of State Legislatures. Funding deposits into “rainy day funds, financial reserves, or similar funds” to prepare for the next economic downturn or using relief dollars to pay down existing debt is also not allowed, according to the interim rules.
What other states are doing: So far, at least seven states have allocated a share of their federal funding in either budget legislation or as stand-alone bills, according to the National Conference of State Legislatures. Bills are pending in several other states, the group said.
The federal funding has also provided states with more overall budget flexibility. Among the spending trends so far are allocations for public health initiatives, funding of premium pay for essential workers and the backfilling of lost revenues, the group said. Some states have also announced plans to use at least a share of their federal funding to replenish unemployment insurance funds that have been leaned on heavily over the last year.
Best practices: The pandemic has strained state budgets and the federal aid will provide some much-needed relief. But there are also concerns that it could tempt state policymakers to fall into bad fiscal habits, such as using the relief dollars to create recurring obligations with what is effectively a one-time source of revenue.
Instead, states should “plan ahead and act responsibly,” wrote Josh Goodman, a state fiscal policy expert at The Pew Charitable Trusts, in a recent report. Goodman suggested states use their federal dollars to “address the immediate challenges posed by the pandemic,” as well as to “position their budgets and economies to be on stronger footing after the federal help ends.”
“States should be cautious about using ARPA money to create new ongoing programs. However, if ongoing spending is below what a state is likely to be able to sustain, then using some of the federal dollars for ongoing expenses is a reasonable choice,” Goodman wrote.
What Murphy is saying: In response to questions during a recent media briefing, Murphy said he and lawmakers share the goal of addressing “inequities that this virus had unearthed” in New Jersey. Murphy also cited the need to strike a balance to ensure the funding isn’t used to create longer-term commitments that will eventually have to be funded by the state itself.
“Getting that balance right is incredibly important,” Murphy said. He did not say when there would be a decision about how New Jersey will use the federal dollars, citing the interim nature of the federal guidance.