States and Cities Scramble to Spend $350 Billion Windfall

WASHINGTON — When Steve Adler, the mayor of Austin, heard the Biden administration planned to give billions of dollars to states and localities in the $1.9 trillion pandemic aid package, he knew exactly what he wanted to do with his cut.

The remarkable growth of the Texas capital, fueled by a technology boom, has long been shadowed by a rise in homelessness, so local officials had already cobbled together $200 million for a program to help Austin’s 3,200 homeless people. When the relief package passed this spring, the city government quickly steered 40 percent of its take, about $100 million, to fortify that effort.

“The inclination is to spread money around like peanut butter, so that you help out a lot of people who need relief,” Mr. Adler, a Democrat, said in an interview. “But nobody really gets all that they need when you do that.”

The stimulus package that President Biden signed into law in March was intended to stabilize state and city finances drained by the coronavirus crisis, providing $350 billion to alleviate the pandemic’s effect, with few restrictions on how the money could be used.

Three months after its passage, cash is starting to flow — $194 billion so far, according to the Treasury Department — and officials are devoting funds to a range of efforts, including keeping public service workers on the payroll, helping the fishing industry, improving broadband access and aiding the homeless.

“It’s not like all places are rushing out to do the most aspirational things, since the first thing they need to do is replace lost revenue,” said Mark Muro, a senior fellow with the Brookings Institution, a nonpartisan Washington think tank. “But there is much more flexibility in this program than in previous stimulus packages, so there is more potential for creativity.”

The local decisions are taking on greater national urgency as the Biden administration negotiates with Republicans in Congress over a bipartisan infrastructure package. Some Republican lawmakers want money from previous relief packages to be repurposed to pay for infrastructure, arguing that many states are in far better financial shape than expected and the money should be put to better use.

The administration, sensitive to those concerns, has begun bending the program’s rules to allow the money to be spent even more broadly. In May, the Treasury Department told states they could use their funding to pay for lotteries intended to encourage vaccinations. In June, President Biden prodded local governments to consider using the cash to address the recent rise in violent crime, which his aides regard as a serious political hazard heading into the 2022 midterm elections.

For the most part, local officials have been focused on undoing the damage of the past year and a half.

Maine officials are looking to spend $16 billion to bolster the fishing industry, which is facing a combination of lobster shortages and hungry consumers, flush with money after more than a year in lockdown. Alaska is already pouring cash into its fishing sector.

In North Carolina, the concerns are more terrestrial: The governor wants to direct $45 million in relief funds to the motor sports sector, which took a hit when the pandemic halted NASCAR.

In conservative-leaning states like Wyoming that did not incur major budget deficits during the coronavirus, officials have been freed to spend much of their cash on infrastructure improvements, especially rural broadband.

Places like Orange County, Calif., that poured significant funding into fighting the spread of the pandemic are using a lot of their money to pay for huge community vaccination campaigns. And the midsize cities that make up the county — Irvine, Garden Grove and Anaheim — are directing most of their $715 million to plug virus-ravaged budgets.

Last week, New York City passed its largest budget ever, about $99 billion, bolstered by $14 billion in federal pandemic aid that will be used in nearly every facet of the city’s finances, like an infusion of cash needed to cover budget gaps and an array of new programs, including youth job initiatives, college scholarships and a $1 billion backup fund for health emergencies.

Local officials, especially Democrats, have tried to leverage at least some of the windfall to address chronic social and economic problems that the coronavirus exacerbated.

After a series of community meetings in Detroit, Mayor Mike Duggan and the City Council opted for a plan that divided the city’s $826 million payout roughly in half, with about $400 million going to recoup Covid-19 losses, and $426 million to an array of job-creation programs, grants for home repairs and funding to revitalize blighted neighborhoods.

In Philadelphia, officials are considering using $18 million of the new aid to test a “universal basic income” pilot program to help poor people. That is among the uses specifically suggested in the administration’s guidance. Several other big cities, including Chicago, are considering similar plans.

The Cherokee Nation, which is receiving $1.8 billion of the $20 billion set aside for tribal governments, is replicating the law’s signature initiative — direct cash payments to citizens — by sending $2,000 checks to around 400,000 members of the tribe in multiple states.

The $350 billion program has led to legal battles, with officials in many Republican-led states fighting one of the few restrictions placed on use of the money, a prohibition against deploying it to subsidize tax cuts, and partisan clashes erupting over which projects should have been given priority.

And the cash has spawned partisan conflict. Gov. Mark Gordon of Wyoming, a Republican, announced this month that the state would use only a fraction of the approximately $1 billion it was expected to receive on emergency expenditures this year, and would discuss how to use the rest.

“These are dollars borrowed by Congress from many generations yet to come,” he said in a statement this spring.

The idea of the federal government distributing such vast sums has been charged from the start. Republican lawmakers successfully blocked a large state and local package during the Trump administration, denouncing it as a “blue-state bailout” that helped fiscally-irresponsible local governments.

Not a single Republican in either house of Congress voted for the bill. Yet the vast majority of officials from conservative states have welcomed the aid without much fuss. In general, Republican governors and agency officials have tilted toward financing economic development and infrastructure improvements, particularly for upgrading broadband in rural areas, rather than funding social programs.

When the administration updates the guidance for the funding this summer, they are likely to loosen the restrictions on internet-related projects at the behest of Republican state officials, a senior White House official said.

One of the most ambitious plans in the nation is being formulated by Indiana, a Republican-controlled state that is using $500 million of the stimulus money for projects aimed at stemming the decades-long exodus of workers from postindustrial towns and cities.

“It’s huge — it’s found money — nobody thought it was going to be there,” said Luke Bosso, the chief of staff at the Indiana Economic Development Corporation, which has been working on the effort for years.

While lawmakers in Washington debate the scope of a new infrastructure bill this year, the package that passed in March already represents a major down payment for a variety of infrastructure projects.

Christy McFarland, the research director of the National League of Cities, said that many cities across the country were preparing to put money into infrastructure projects that had been delayed by the pandemic, and investing in more affordable housing and spending on core needs such as water, sewer and broadband.

However, she said she was also seeing creative ideas such as recurring payments to the poor and investments in remote work support emerge as cities look to expand their safety nets and modernize their work forces.

“We’re also seeing communities that never recovered from the Great Recession, have an opportunity to think much bigger,” Ms. McFarland said. “They’re asking what they could do that would be transformational.”

The slow pace of recovery from the last recession has been a driving force behind the White House’s push. Mr. Biden has been eager to avoid a mistake that hobbled the last recovery’s pace — underestimating the drag that faltering local governments would have on the national economy. Gene Sperling, a former Obama adviser now overseeing Mr. Biden’s pandemic relief efforts, said not providing help to local governments meant annual economic growth “of about 2 percent versus growth of 3 percent.”

The effort also serves Mr. Biden’s political objectives by bypassing national Republicans to build trust with voters in rural counties, small towns and midsize cities in the Midwest and elsewhere.

“Something like this creates a space for a White House to be talking to governors and mayors of both parties about the basic mechanisms of governing that just cuts through the politics,” Mr. Sperling said. “That’s a good thing.”