Rules of the road for billions in federal aid
Experts lay out spending guidelines, possible priorities
MASSACHUSETTS STATE GOVERNMENT will get an unprecedented influx of $5.3 billion in federal money from the American Rescue Plan to spend over the next five years, $800 million more than state government was initially anticipated to get. In total, the state will be getting between $12 billion and $13 billion in federal aid from the coronavirus relief package that President Biden signed in March, with additional money going to schools, municipalities, transit, childcare, housing assistance, and other areas.
Economic experts say the money provides enormous opportunity, but also risks, and spending it will require close coordination between legislative budget writers and the governor.
“Spending this money will be easy. Spending it effectively will not,” said Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University.
The Legislature’s House Committee on Federal Stimulus and Census Oversight held a hearing Friday to hear from local economic experts on the American Rescue Plan and how state budget writers should consider using the federal stimulus money.
“The big challenge is how you balance the needs right now with the reality that you need to make sure resources are available for what they’re supposed to be used for over the longer time horizon,” Howgate said.
The money also comes with a wide range of flexibility and possible uses, which means lawmakers will have significant discretion in how to spend it.
According to Howgate, there are four major ways the money can be used, based on federal guidelines.
First, it can be used to respond to immediate public health and economic needs related to the pandemic. This could cover a wide range of health services, such as payments for COVID testing or for behavioral health outreach. It could be used to replenish the state’s unemployment benefits trust fund, or to help impacted industries like tourism and hospitality.
Second, it can provide premium pay, or bonus pay, to low-wage workers who performed essential in-person tasks during the pandemic.
Third, it can be used for “revenue replacement,” to replace state money that was lost due to the pandemic. There is a complicated formula for determining how much can be used to replace lost revenue, and Howgate estimates about $1.5 billion could be available for this purpose.
Fourth, it can be used for infrastructure projects, like water, sewer, and broadband.
There are some restrictions. The state cannot use the money to shore up its pension fund or rainy day fund. It cannot be used to offset tax cuts.
“It’s about forward-looking recovery,” Howgate said.
Michael Goodman, professor of public policy at University of Massachusetts Dartmouth, in a detailed analysis of the labor force, made some recommendations for the investments that might be necessary to improve the economy by getting people back to work.
Job losses have generally been concentrated in service professions, like leisure and hospitality. Goodman noted that despite a 6.5 percent unemployment rate, employers are struggling to fill open positions.
But he questioned the connection some conservatives and business groups have been making, blaming high unemployment benefits for people’s lack of willingness to accept open jobs.
Goodman said national data show millions of workers fear getting COVID-19 at work. Two-thirds of unemployed adults say they are considering switching fields. And over 1 million women with children under age 13 have left the workforce, along with more than 600,000 men with young children, indicating that a lack of childcare is likely a primary factor keeping potential workers at home. In this environment, data show that less well-educated workers are also seeking a higher wage in order to return to work.
Immigration restrictions related to public health also affect the labor force, particularly in industries that rely heavily on foreign-born labor, like the building cleaning industry and seasonal jobs in tourism or agriculture.
“If we’re going to get people back to work, we have to tackle the genuine obstacles preventing them from reentering the workforce,” Goodman said. He said while the perception of safety should improve as vaccinations increase, this might involve employers offering higher wages, government investing in job training to help workers switch fields, and policymakers finding ways to make childcare more available and affordable.
As lawmakers seek to lay out their priorities for investment, the experts warned that they need to keep in mind that the federal money is a one-time revenue source. Horowitz said the most straightforward use of the money would be to use it for one-time investments. But if lawmakers choose to fund ongoing programs, they need to ensure another revenue source will be available once the federal dollars run out.
Some potential one-time uses he suggested include: improving air quality and ventilation systems in public buildings like schools and libraries; improving mental health and substance use treatment, possibly by providing hazard pay for health care workers; paying down the state’s debt for unemployment insurance, so businesses do not have to cover the costs; and creating a universal, affordable broadband network. The money could also be used to backstop long-term loan programs.Horowitz also cautioned that unlike past stimulus programs, which emphasized construction projects, consumer spending is now booming, to the point that there is a shortage of supplies like lumber and microchips. “If, today, the state dedicated a chunk of ARP money to school building upgrades and affordable housing in low-income communities, it would face searing costs for labor and materials, dramatically reducing the social return on ARP investment,” Horowitz said.
Both Horowitz and Howgate stressed the need for transparent tracking of the money, and for coordination between the governor and the Legislature. They said there will likely be multiple pots of money from multiple sources authorized for the same use, and someone will need to track that to ensure the money is being used as efficiently as possible.