American Rescue Plan (COVID-19 Response VI)

Both the House and Senate have approved the $1.9 trillion COVID-19 response package. We will continue to analyze the contents of the package, but here’s what we know so far that may be of interest to state finance officers.

What is the State of Play?

The U.S. House of Representatives passed its version of the American Rescue Plan (ARP) on Friday, February 26. The Senate Parliamentarian made several rulings relating to the “Byrd Rule,” including one that shuts the door on a standard labor rule change to increase to the minimum wage. The Senate passed its own amended version of a package on Saturday, March 6, after significant debate and negotiations. The House went on to pass the Senate-amended bill on Wednesday, March 10.

• Legislative Text of Bill
• Section-By-Section Summaries
• Section-By-Section Summaries of Senate Changes
• Statement on House Passage from President Biden

For reference and comparison only: Legislative Text of the original House-Passed Bill

Where Do Things Go From Here?

President Biden signed the bill into law on Thursday March 11. Agencies will now work to implement the various provisions and issue clarifying guidance.

What’s Included?

The high-level details of the bill largely track President Biden’s proposal from last month. Many details will continue to emerge as agencies issue guidance to implement provisions of the bill. Below, we’ve outlined some key provisions of interest to states and where they stand:

State and Local Aid

One of the key provisions of the plan is the inclusion of nearly $350 billion in aid to state, local, tribal and territory governments. The House-passed proposal would roughly provide 60 percent of the funds to states and 40 percent to local governments. The money would be distributed in three “tranches”. Additional information on the current House proposal can be found here.

The Senate tweaked the distribution by permitting the Secretary of the Treasury to distribute all of the money this year. Proceeds would still be allocated in two tranches spaced 12 months apart. Additional money would be directly provided to select local governments (CDBG entitlement communities with populations of 50k). Money for non-entitlement communities would be passed through state governments.

Distribution of Funds:

• Each State and the District of Columbia will receive an equal share of $25.5 billion.
• The District of Columbia will be made whole from their receipt of Coronavirus Relief Funding under the CARES Act.
• The remainder of the allocation for states will be determined by a state’s proportional share of unemployed persons.
• The minimum distribution to states was elevated from $500 M (in the House version) to $1.25 B, which is consistent with the minimum received by the Coronavirus Relief Fund under the CARES Act.
• In order to receive the funding determined by unemployment, States will need to provide the Secretary of the Treasury, signed by an authorized officer of such State, that such State or territory requires the payment to carry out the permitted activities.
• The Secretary of the U.S. Treasury will withhold 50 percent of the allocation to each state and territory for 12 months. A second certification would be needed for the states prior to the receipt of their second distribution. *This is an update from previous versions of the tracker.*

Use of Proceeds:

The U.S. Department of Treasury will likely produce additional clarifying guidance, but below is what we know from statute. The funds must be used to cover qualifying expenses during the covered period, which ends December 31, 2024.

Qualifying expenses include:

1. To respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality.
2. To respond to workers performing essential work during the COVID–19 public health emergency by providing premium pay (up to $13 an hour up to $25,000 for the a year) to eligible workers of the State, territory, or Tribal government that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work. Eligible employees are defined as workers needed to maintain continuity of operations of essential critical infrastructure sectors and additional sectors as each Governor of a State or territory, or each Tribal government, may designate as critical to protect the health and well-being of the residents of their State, territory, or Tribal government.
3. For the provision of government services to the extent of the reduction in revenue of such State, territory, or Tribal government due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the State, territory, or Tribal government prior to the emergency;
4. To make necessary investments in water, sewer, or broadband infrastructure.

Funds may NOT be used:

1. To either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.
2. For deposit into any pension fund

Other provisions:

• Recipient governments must provide periodic reports to the Treasury Department with a detailed accounting of the use of funds. States and territories must also provide any modifications to tax revenue sources. 
• Funds can be recouped by the Treasury Department if the recipient does not comply with the eligible uses. 

Allocation Estimates: Recipient allocation projections available here. (Via downloadable spreadsheet. Estimates under the Senate regime from 3/8/21).

An outline of Senate changes to House-passed bill provisions regarding state and local aid is available here.

NAST Comments: On Thursday, March 18, NAST submitted the a joint request for needed clarity in forthcoming guidance pertaining to the Coronavirus State and Local Fiscal Recovery Fund (CSLFRF).

Coronavirus Capital Projects Fund

The Senate bill proposed a new $10 billion Coronavirus Capital Projects Fund would give $100 million to each state, D.C., and Puerto Rico to fund “critical capital projects directly enabling work, education, and health monitoring, including remote options, in response to the public health emergency with respect to the Coronavirus Disease.” An additional $100 million would be split between the Virgin Islands, Guam, American Samoa, the Northern Mariana Islands, the Marshall Islands, Micronesia, and Palau. An additional $100 million would be split equally between Tribal governments and Hawaii, with each receiving a minimum of $50,000. Of the remaining money left in the Fund, 50% would be distributed based on population, 25% would be distributed based on rural population, and 25% would be distributed based on household income that is below 150% of the poverty line

Paid Sick Leave Tax Credit Extension for State and Local Governments

The Families First Coronavirus Response Act (FFCRA) included requirements for certain employers to provide employees with paid sick leave benefits related to COVID-19. FFCRA also provided private sector employers with a refundable payroll tax credit to alleviate the financial burdens of the sick leave, but prohibited state and local governments to claim it. Both the House and Senate proposals would extend eligibility for the refundable tax credit to be used by state and local employers who are currently ineligible.   

Federal Medical Assistance Percentages (FMAP)

Both bills propose a 5 percent increase to state FMAP rates for the next two years if they expand coverage.

Unemployment Insurance

The bill extends unemployment insurance for the 18 million Americans until September 6, 2021. This includes an extension of the federal unemployment insurance bump that is added to all unemployment benefits (Federal Pandemic Unemployment Compensation, or FPUC), at the current law amount of $300. It also includes extensions of the Pandemic Unemployment Assistance (PUA) program, which expands eligibility for the self-employed, gig workers, freelancers and others in non-traditional employment who do not qualify for regular unemployment insurance, as well as the Pandemic Emergency Unemployment Compensation (PEUC) program, which makes additional weeks of benefits available to workers who exhaust their state benefits. The bill also creates a $10,200 tax exclusion for unemployment compensation income for tax year 2020 for households with incomes
under $150,000.

All other CARES Act and Families First Act unemployment programs are similarly extended until September 6.

Minimum Wage

The House version of the bill DID include a provision to gradually raise the federal minimum wage to $15 per hour. The current federal minimum wage at $7.25. The Senate Parliamentarian ruled that its inclusion is not germane to budget reconciliation. While the ruling does not close the opportunity for future minimum wage discussions under normal order, it does mean that it will NOT be included in the final iteration of this package.

Understanding Reconciliation

As we mentioned earlier in the year, Vice President Harris’ tiebreaking vote gives the Democrats a razor-thin majority in the Senate. While Democrats in the House can continue to pass priority legislation with relative ease, the Senate still has the filibuster, which functionally requires a 60-vote majority to pass most legislation under normal order. Under budget reconciliation rules, certain legislation can bypass the 60-votes requirement to invoke cloture (end debate) and pass with a simple majority. This technique was pivotal in the passage of the Tax Cuts and Jobs Act in 2017 and amendments to the Affordable Care Act in 2010.

But there are some catches. Reconciliation bills are limited to topics relating to federal revenue, spending, and debt, and the legislation must follow the guidelines set forth in the preceding budget resolution. The Byrd Rule or “Byrd Wash” further outlines these limitations. Both chambers passed a budget resolution earlier this month that would clear the way for $1.9 trillion in COVID-19 related spending. Historically, legislators have struggled to pass more than one reconciliation package per Congress. Technically, however, Congress can pass one reconciliation act per budget resolution— opening up the possibility for a second package once the 117^th Congress passes its FY2022 budget. There is already discussion about a potential second reconciliation package later this year focused on infrastructure.