In the last few weeks, the Biden administration began distributing an unprecedented amount of money to states: $195 billion dollars from the American Rescue Plan that congressional Democrats passed in March.
With the sheer scale of dollars at stake, a huge fight has already begun brewing between some GOP-led states and the administration over exactly how to use that money, part of a larger trend of partisan warfare between state capitols and Washington over the past decade.
“These funds are important to ensure we have a strong, robust recovery … but also that it’s an equitable recovery,” Gene Sperling, the Biden administration’s point person for coordinating the rollout of COVID-19 relief money, told NPR.
Sperling was part of the Obama administration during the 2009 recession, and he said there are lessons from that last crisis that the Biden team is trying to avoid this time.
“One of the top lessons from the Great Recession is that when we went into recovery, state and local governments were still starved and cutting back on teachers, and services and vital services,” Sperling said.
And that sluggish state growth, he says, hindered the overall economic recovery.
Democrats, in particular the Biden administration, are keen to avoid a repeat of the slow economic recovery during the Obama years.
At the outset of the pandemic, state officials were nervous they would run out of money for basic services, such as paying public workers. But many states never took as big of a financial hit as expected, and some states, such as California, are actually seeing budget surpluses. Now, with additional money from the American Rescue Plan, they’re experiencing a temporary windfall; and some Republican officials are eager to have full autonomy over those funds.
In many states, funds from the American Rescue Plan are equal to about 10% of what states spent last year. In states like Texas and Nevada, the impact is even larger, closer to 12% and 17% respectively, according to data compiled by the Pew Charitable Trusts.
“This really is a historic opportunity for states,” said Josh Goodman, a state fiscal health policy expert with the Pew Charitable Trusts. “States don’t generally have this amount of flexible money to work with.”
But there are limits on how states can use these funds. In any state where revenue rose, the money cannot be used for traditional infrastructure, such as roads and bridges, even though general infrastructure projects tend to be popular among governors. Those states are only allowed to use the federal aid for certain types of infrastructure: water, sewer and broadband.
The Biden administration’s thinking was that Congress would pass a separate infrastructure package. But that has not yet happened, and some congressional Republicans have advocated that unused pandemic relief money ought to be diverted to pay for an infrastructure bill.
One GOP official NPR spoke with says that Republicans are concerned the Biden administration is using the pandemic to justify unrelated big government spending, and that’s why they’re frustrated with the restrictions on state aid at a time when the Biden administration is trying to push a separate infrastructure bill.
Separately, there are also rules around education funding. States are required to spend a certain amount of money from their own budget on education in order to receive the extra aid money from the federal government. But Republicans in some states insist schools are already flush with money from prior aid packages. The Republican legislature in Wisconsin, for example, is on track to pass a budget that would forgo $1.5 billion dollars from the American Rescue Plan because GOP lawmakers don’t want to put the required amount of state funds into education.
Partisan legal battles over taxes
More than a dozen Republican attorneys general are suing the Biden administration over one particular facet of the $1.9 trillion coronavirus relief package that prohibits state aid from being used “directly or indirectly” for tax cuts.
“But what does ‘indirectly’ mean?” asked Jared Walczak with the Tax Foundation, a group that generally favors more conservative tax policies. “That’s a really tough question.”
It’s a question the Biden administration tried to answer last month with guidance from the Treasury Department.
The rules clarified that states are allowed to cut taxes, so long as they use other revenue streams – not the federal COVID-19 relief money – to subsidize those tax cuts. If they fail to prove that, the states are on the hook to return the money. Some states such as Oklahoma and Montana, have already passed tax cuts.
Ohio is one more than a dozen GOP-led states that have filed lawsuits over this tax cut issue. “It’s unconstitutional on its face,” said Dave Yost, Ohio’s attorney general.
“Ohio is fighting back against the federal government trying to dictate what is traditionally state right to determine its own internal taxation policy,” Yost told NPR.
Despite the objections from some Republican lawmakers and the pending lawsuits from some Republican state officials, Sperling says he’s spoken to just about every governor in the country and insists they’ve had productive conversations.
“Even if there’s controversy or political sniping coming from other parties, when the White House … is talking to governors and mayors, including Republicans, we’re finding people engaged who feel that this money is valuable,” Sperling said.
This tax cut divide is the most recent indication of how state attorneys general have become the frontline combatants in partisan fights with presidents.
Democratic attorneys general repeatedly challenged policies made by former President Donald Trump, on everything from environmental and health regulations to Trump’s travel ban and his decision to end the Obama-era Deferred Action for Childhood Arrivals program. In total, Democratic attorneys general filed 151 lawsuits filed against the Trump administration in his four years. So far, Republicans are keeping pace with at least 13 suits against the Biden administration, according to data compiled by Paul Nolette, a political scientist at Marquette University, who studies the office of the attorney general.
It wasn’t like this just a couple of decades ago, according to Ray Scheppach, who worked as executive director of the National Governors Association for 28 years.
“When I was there 20 years ago, you had no Republican or Democrats AGs… they did some big stuff together,” he said, recalling the landmark bipartisan 1997 tobacco settlement. “Increasingly, what’s happened is they have become extremely partisan. They are sort of the spearpoint politically now.”