Pace of spending for pandemic aid? Try $43,000 every second

To pay out his coronavirus relief package, President Joe Biden must spend an average of $3.7 billion every day for the rest of this year. That’s $43,000 every second of every day until midnight chimes on 2022.

For the amount of time that readers took to reach this sentence, Biden needs to disburse nearly $800,000 to stay on track.

That’s according to Congressional Budget Office estimates, and even then, the Biden administration would still have plenty of the $1.9 trillion to spend in later years as a vaccinated country battles back to economic health.

The president signed the aid package into law Thursday without a comprehensive plan in place to distribute all of the funds, which will be a core focus of the administration in the coming weeks.

The level of spending is a testament to the complexity of addressing a disease that seeped so widely across the nation in less than a year, and the economic pain that it has wrought.

“It’s taxpayer money that you want to put out fairly, but you also want to put out fast,” said Jack Smalligan, a senior policy fellow at the Urban Institute and a former White House budget official.

Some spending, such as cash transfers, can occur at speed.

The Biden administration already announced that it will send the $1,400 in direct checks -- a total of about $400 billion--starting this weekend. The administration also will continue the enhanced jobless aid for the 20.1 million Americans who are collecting some form of benefits. Both the direct checks and jobless aid were part of past COVID aid packages that totaled roughly $4 trillion, meaning the government has systems in place to distribute the money.

But other elements are trickier.

There is $130 billion for K-12 schools to hire teachers, upgrade ventilation systems and make other improvements so that in-person classes can resume. Universities are eligible for $40 billion. Separately, $30 billion in housing aid is available. And there is about $120 billion for vaccine distribution and coronavirus testing, among other public health expenses.

The White House said the billions for schools would “begin” to be distributed this month by the Education Department.

But some funds could take time to distribute since government agencies with their normal spending can take six to nine months to release funds through competitive grants or an application process. Schools and state and local governments also might spread out spending to well after most of the country is vaccinated.

“A fair process can inherently take longer because of the checks and balances and the internal reviews,” Smalligan said. “Having the money flow out quickly and then having state and local government spend the money over the next two fiscal years is probably responsible on their part. You want to be hiring a teacher not for a month but for years.”

The Treasury Department is planning how to best distribute roughly $350 billion in state and local aid. But it hasn’t finalized a plan and is consulting with governors, mayors, and other officials.

“Our Treasury team is going to work to get this aid out as in the quickest way possible – and the one that produces the greatest impact,” Treasury Secretary Janet Yellen said at a Tuesday speech for the National League of Cities. “To do that, we’re going to need your input and advice.”

The Biden package also introduces about $140 billion in temporary tax credits. This includes an expanded child tax credit that would payout monthly, rather than once a year. Parents with incomes below $150,000 could receive at least $250 a month per child beginning in July.

“The real troubles are going to show up in these new tax credit programs: Can the IRS administer this new monthly payment to tens of millions of American families?” said Douglas Holtz-Eakin, president of the center-right American Action Forum and a former director of the Congressional Budget Office.

Holtz-Eakin said the error rates on these tax credit programs tend to be high, since people move to new addresses, earnings change and the IRS might not have the correct ages for children. He noted that about a quarter of payments for the existing earned income tax credit that goes to working parents are in error.

However, he also noted that there are few economic risks to Biden in terms of how the money gets released since the economy was already poised to expand swiftly at the strongest rate in at least two decades.

Holtz-Eakin said the successful distribution of the funds would really influence two goals that he views as tangential to pandemic relief. First is the reduction in child poverty promoted by the Biden team through tax credits and other aid. But secondly, the assorted child tax credits will expire and that puts pressure on Republican lawmakers to not block their extension before the 2022 elections.

That pressure could help Democrats in their push to expand narrow majorities in the House and Senate.

“It’s a clear political trap that they’re trying to set up,” Holtz-Eakin said.

But the spending in the Biden package also reflects how much has changed after the nation went into lockdown a year ago. Back then, rapid aid was needed because of the mass layoffs as businesses shuttered. Now, money is needed to accelerate the recovery because vaccines are available.

“There is a light at the end of the tunnel,” said Kathleen McKiernan, an economics professor at Vanderbilt University. “Biden’s plan targets areas of need, including vaccine distribution and state and local government aid, which will take time but will help the economy bounce back after the virus is controlled.”

 State governments will get a big influx of federal money from the $1.9 trillion COVID-19 relief package that could suddenly enable them to undertake large, expensive projects that have long been on their to-do lists, including high-speed internet for rural areas and drinking water improvements.

The aid plan, approved by Congress in close party-line votes and signed by President Joe Biden on Thursday, includes $195 billion for states, plus separate funds for local governments and schools.

While the package contains considerable short-term financial relief for businesses and individuals who have suffered from the outbreak, its Democratic supporters also see it as a rich opportunity to help states attack poverty more broadly and accomplish the kind of big things the government used to do.

Since most state budgets are not in the tailspins that many feared last spring, states can use their share of the money to go way beyond balancing the books and dealing with the direct costs of the coronavirus pandemic.

“There are no words to describe the impact that has on a state that has long had extreme and persistent poverty,” said New Mexico Gov. Michelle Lujan Grisham, a Democrat. “This is exactly the investment that we have always deserved and that we need now more than ever.”

Even Republican governors who have argued against the plan are drawing up ambitious plans similar to what’s on the wish lists of Democratic lawmakers and governors.

In Democrat-controlled California, GOP-held Idaho, and Vermont, with a Republican governor and Democratic legislative majority, priorities include drinking water and rural broadband projects.

In New Mexico, officials expect to use $600 million to pay off debts to the state’s unemployment fund — a move that would prevent a spike in payroll taxes for businesses — and still have more than $1 billion for projects such as economic development grants, road improvements, and others still to be determined.

While the behemoth CARES Act adopted last March included $150 billion for state, local and tribal governments, that help was restricted mostly to direct pandemic-related costs. The new package gives states much more flexibility.

Republican governors are arguing that the economy is already in recovery and that all the spending will eventually need to be repaid by the taxpayers. They also object to a formula that distributes more money per capita to states with higher unemployment rates, which they see as penalizing them for keeping more of their economies open through the pandemic.

“Instead of using the bipartisan blueprint of previous federal coronavirus relief bills, this legislation is literally a wish list for California and New York,” said Georgia Gov. Brian Kemp. “It’s a slap in the face for my fellow Georgians.”

The Republicans who control the state government in Georgia are working on plans to cut taxes — something being pursued in other GOP-run states, including Arizona and Iowa. But that might run afoul of a provision in the relief package that bars the money from being used to pay for tax cuts.

Around the country, it turns out that the state budget picture generally isn’t as bleak as it was expected to be. Last year’s relief spending helped by sending money directly to governments, businesses, and individuals. It helped keep workers on the payroll and paying taxes.

Further, investors who supply much of the tax revenue in states like New York and California, which announced a $15 billion surplus in January, had a good year because of the soaring stock market. And the job losses from the pandemic were deepest among lower-wage workers, who account for a smaller portion of tax revenue.

An analysis by the Tax Foundation, a nonprofit that promotes “pro-growth” policies, found that 28 states brought in less revenue in 2020 than 2019. The hardest-hit states included Florida, Hawaii, Nevada, and Texas, which rely heavily on tourism and sales taxes.

The amounts states are in line to receive from the COVID-19 relief package exceed the revenue declines in every state, though, and amount to more than 100 times the combined revenue loss, the group found.

Even while objecting to the Democratic measure in general, Idaho Gov. Brad Little outlined some of the same priorities as his Democratic counterparts.

“We know the debt is mortgaged from our grandkids,” he said, “and I will push to use those funds to directly support them through long-range investments in education, broadband, and water infrastructure.”

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