87th LegislatureFederalState HouseState SenateFederal Coronavirus Aid to Bring Surplus Dollars with Stipulations

Under the American Relief Plan Act (ARPA), Congress appropriated $1.9 trillion in spending — with a large portion designated for state and local governments. The funds can be used for a number of purposes such as public health-related projects, recompense for tax revenue loss, premium wages for essential workers, and infrastructure renovation.

The entities with earmarked funding are the states and the District of Columbia; counties; metropolitan cities; tribal governments; territories, and cities with less than 50,000 in population.

Funding for the lattermost category will be given first to the state which will then pass it onto the local governments. Local governments will receive their allotments in two batches — the first this month and the second in May of 2022 — while the state will receive its lump sum in one remittance.

Public school funding, at $11.2 billion, has already been released by state leaders — most of which is to be distributed by the Texas Education Agency and the rest by the U.S. Department of Education. There was concern among legislators that the federal cash influx would lead to disingenuous complaints in two years by school districts that the legislature was cutting their funding.

These funds are meant to cope with the pandemic-caused expenses and are one-time payments. But schools are also facing a serious enrollment drop caused by the pandemic and so a typically large expense has dwindled.

In Texas, the remaining disbursements include $15.8 billion for the state, $10 billion for local governments, and $4 billion for infrastructure projects. It is likely that the latter category will largely go toward the state’s broadband expansion plans, which will come at a hefty price.

Governor Greg Abbott indicated this week that the legislature will have its say over how the state portion is spend, announcing the inclusion of disbursement of federal ARPA dollars on the special session to-do list this fall.

As stipulated by the federal government, the funds can neither be used to cut taxes nor to shore up underwater pension systems. As of last year, Texas’ various public pension systems had a collective $86 billion in unfunded liabilities — money promised but not accounted for in budgets.

Legal challenges to the tax cut prohibition are making their way through the court system. The most substantial appears to be a lawsuit by Ohio challenging the constitutionality of Congress’ tax cut stipulation — specifically on the grounds that it violates Congress’ enumerated power under the Spending Clause.

A federal judge ruled that Ohio’s case was likely to succeed on its merits, most notably that the federal government’s stipulation is much too broad to provide states a clear directive. But the case is far from over.

The ARPA funds’ stipulations provide some roadmap for intended uses, but the categories are not exactly airtight.

State and local governments have been hit with tax revenue losses throughout the pandemic, but the fiscal outlook has improved drastically compared with the dire projections of last summer. Texas’ latest biennial revenue estimate projects a $725 million surplus.

The State Policy Network estimated that state and local governments across the country are in calm fiscal waters after aid that has already been distributed.

Some object to the funding, saying it’s not necessary and makes too convoluted the process of deploying the money. “The tangle of strings attached to this ARPA money makes it almost impossible to shrink government,” said Vance Ginn and Rod Bordelon with the conservative Texas Public Policy Foundation in its virtual The Cannon Online pages.

“Furthermore, states with respectable fiscal track records, like Texas, are being punished while irresponsible state and local governments, like California and Austin, are being rewarded.”

Ginn and Bordelon advocate the use of the funds for a 2-cent compression of local property taxes. But that would be, on its face, a violation of the federal parameters, although the pair say it could be circumvented. “Since these are technically local taxes, this could be a way to navigate around the unwise restrictions imposed by D.C.”

Other uses TPPF suggests are $9 billion to replenish the state’s unemployment fund and $5.1 billion to complete the unfinished southern border wall and to buttress border security.

“[W]ith so many hoops to jump through, Texas should strongly consider rejecting some or all the funds,” Ginn and Bordelon conclude.

On the flip side, the progressive think-tank Every Texan wants the state use the ARPA money to expand the state’s public education financing and to buttress Texas’ need-based college financial aid program.

Every Texan also advocates expansion of Medicaid — an effort that died on the House floor this session, again — and the use of ARPA money to provide a two-year bonus payment to Medicaid enrollees. Various other health care-related budget riders such as a continuation of state coverage for women aging out of the Children’s Health Insurance Program (CHIP) — essentially, Medicaid but for minors — and bilingual education incentives for high school students.

The state budget conference committee has released its final budget, a process two years in the making. Each chamber avoided allocating expected ARPA money in its budget process until a point at which more information was known. It is unclear what the state will do with its funds, but they are on their way.