State governments are flush with stimulus cash. Is that a blessing — or a curse? | Fletcher McClellan

July 14, 2021 6:30 am

Senate President Pro Tempore Jake Corman, R-Centre, speaks during a press conference on June 25, 2021 after the General Assembly approved the 2021-22 budget (Capital-Star photo).

We are living in those rare times when state governments are flush with cash and are looking for ways to spend it.

Fletcher McClellan (Capital-Star file)

At the end of last year, states were expecting huge budget deficits from the COVID-induced recession. In Pennsylvania, deficit concerns and a desire to increase education spending led Governor Tom Wolf to propose an income tax increase.

However, a surging economy, linked to mass vaccinations and a reduced number of coronavirus cases, boosted revenues from state taxes. A projected $3 billion Pennsylvania state budget gap in February became a $3 billion surplus in June.

Add to that a massive infusion of federal aid, first from the CARES Act and other relief bills in 2020 and then President Biden’s $1.9 trillion American Rescue Plan Act (ARPA), enacted in March.

Not only did ARPA provide $1400 for each eligible worker, extend unemployment benefits, and deliver benefits for businesses, but it authorized $350 billion for state, local, and tribal governments.

Pennsylvania state government is getting $7.3 billion of ARPA aid and local governments will receive $6.2 billion.

All of a sudden, ideas for government spending burst from liberal Keystone State politicians and activists like summer mayflies.

House and Senate Democrats outlined plans for allocating state ARPA funds. Both caucuses called for aid to businesses, investment in broadband, clean energy, and public health, support for frontline and child care workers, remediation of school buildings, and tax relief.

Wolf continued his push for more education funding, especially for poorer school districts.

Republicans argued that much of the budget surplus should go to the state’s Rainy Day Fund. Besides, ARPA state aid does not need to be spent until the end of 2024, they argued, so it is fiscally prudent to wait to see what needs arise.

Wolf to sign $40.8B budget that spends on education, saves billions for the future

In the back of Republicans’ minds was former Governor Tom Corbett, who had to deal with what happened after federal stimulus money to combat the Great Recession dried up. By not replacing stimulus funds, Corbett was accused of cutting $1 billion from education, an issue that fueled his re-election defeat in 2014.

In the end, Wolf and legislative leaders struck a deal on a $40.8 billion budget for 2021-22, including $2.5 billion for the Rainy Day Fund, a $300 million increase for K-12 education ($100 million of which will support the 100 poorest school districts), and no new tax increases.

In addition, Commonwealth schools received a one-time $350 million to attract students back to classrooms and address resource, teaching, and learning issues created by the pandemic.

Of the $7.3 billion ARPA funds, only $1 billion was released for the coming year. The biggest chunk of federal money will cover increased human service spending during the pandemic. Nursing homes, road and bridge construction, and housing each obtained ARPA aid.

Democrats and liberal organizations were disappointed that vast ARPA funds were left on the table. The Pennsylvania Budget and Policy Center called the budget agreement a “colossal error in political and moral judgment.”

In a move that upset organized labor, Wolf apparently backed off from enforcing regulations that would have expanded eligibility for overtime pay in order to get Republicans to agree to more education expenditures.

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Politically speaking, it doesn’t require an advanced degree to see that the rainy day Republicans foresee for spending ARPA and reserve funds will appear in January 2022, if a GOP governor takes office.

Regardless of whether you think federal relief money should be saved, spent, or repurposed, it is worth noting that many states are in no hurry to disperse ARPA funds.

States with divided party government are having prolonged political struggles. In Massachusetts, a Republican governor wants to spend money quickly, while the Democratic-controlled legislature, like Harrisburg Republicans, is extolling the virtues of saving.

Even in Republican states such as Texas, executives and legislatures are fighting over who controls the purse strings. Ideology is not standing in the way of accepting free federal cash.

Pennsylvania could learn from states that have found ways to cooperate. Several states have appointed bipartisan panels to advise political leaders on how ARPA dollars should be spent. Some are holding special sessions of the legislature. Rhode Island is inviting public comment.

Then there are states that imitate Harrisburg. Reminiscent of our beloved WAM grants, Oregon gave each legislator a piece of a $250 million pie to spend as they wish.

Though federal restrictions were issued on how ARPA funds should be used, states are creatively spending manna from Washington.

While new thinking would be a refreshing change in Pennsylvania politics, just sticking to the basics – fighting COVID, repairing crumbling infrastructure, supporting small business recovery, compensating essential workers (broadly defined), helping struggling public schools, and strengthening the social safety net – would be plenty.

Opinion contributor Fletcher McClellan is a political science professor at Elizabethtown College in Elizabethtown, Pa. His work appears biweekly on the Capital-Star’s Commentary Page. Readers may email him at [email protected] and follow him on Twitter at @mcclelef.

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Fletcher McClellan
Fletcher McClellan

Opinion contributor Fletcher McClellan is a political science professor at Elizabethtown College in Elizabethtown, Pa. His work appears biweekly on the Capital-Star’s Commentary Page. Readers may email him at [email protected], and follow him on Twitter at @mcclelef.