Congress takes up a Network solution to empower states’ financial response to coronavirus

$150 billion. That’s how much money was given to state and local governments through the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Unfortunately, the strings attached to these funds tie state policymakers’ hands in ways that may prevent states from meeting their unique needs and avoiding a budget crisis.

As written, the CARES Act binds states to spend the money only on costs related to the coronavirus. This means states can’t use the funds to address their budget shortfalls due to lost tax revenue. States can’t spend the money on essential services like public safety and transportation. Instead, the Act encourages state and local governments to devise new spending that can be attributed to COVID-19. States have started to go on spending sprees on projects unrelated to the coronavirus, even increasing employee pay—just to use up the funds. The lack of flexibility in the CARES Act not only prevents states from addressing their revenue shortfalls, it encourages unnecessary and wasteful spending.

The John Locke Foundation and Platte Institute called attention to this problem in The Hill, where they noted how states have more than enough federal funding, but not the freedom to use it well:

“North Carolina, Nebraska, and other responsible states would have the wherewithal to endure revenue declines through December if they could cover lost tax and fee revenue with CARES Act funding. This is impossible under current constraints.

States do not need more money in a fifth COVID-19 relief package. They just need flexibility to offset lost revenues and forgive tax bills their citizens can’t afford. Congress should not throw good money after bad. It should not punish solvent states for the crimes of the big spenders.”

On April 13, 2020, John Locke and Platte, along with 29 other state think tanks, sent a letter to Congress asking for flexibility in how state and local governments spend federal relief funds. The group encouraged Congress to allow states to use the money to offset lost local tax revenue or provide one-time tax relief to revive local economies. Doing so would help states address the imminent budget crisis and prevent tax increases on already struggling Americans.

The letter caught the attention of federal lawmakers. On May 1, 2020, a Nebraska congressman introduced bipartisan legislation, H.R. 6652 ‘‘Flexibility for Localities and Eligibility Expansion Act of 2020,’’ also known as the FLEX Act. This bill gives state and local governments much-needed flexibility in how they spend previously allocated federal relief funds. It would empower policymakers to address their state’s unique needs and help businesses and families weather the health and economic crisis.

As the coronavirus pandemic continues, state and local governments are in the best position to respond to the unique needs of the people in their communities. To help the people in their state, they need flexibility on how to spend federal relief aid. Thanks to the credible voices of state think tank leaders who live and work in these communities, Congress is taking note.