WASHINGTON (Reuters) – The U.S. Treasury launched access to $350 billion in COVID-19 aid for state, local, tribal and territorial governments on Monday, releasing rules for allowable uses and a prohibition on tax cuts by recipient states.
The Treasury said that states with seasonally adjusted unemployment rates that are now 2 percentage points above levels in February 2020 can receive all of the funds they are due immediately. But those with smaller increases in unemployment will get their funds in two payments a year apart.
The total funding for states in President Joe Biden’s American Rescue Plan Act is $195.3 billion.
Treasury said $65.1 billion has been allocated to counties and $45.6 billion for metropolitan cities, which will both get their funds in two tranches a year apart, with the first payment coming in May.
Tribal governments, which receive a combined $20 billion, will receive an initial payment in May and a second payment in June based on employment data. The $4.5 billion allocated for U.S. territories will all be delivered in May, Treasury said.
Treasury said the eligible uses for state and local funds include public health responses to the pandemic and replacement of revenues lost to the pandemic determined through a formula in Treasury guidance. Uses also include addressing negative economic impacts from the pandemic, including aid to unemployed workers and hard-hit communities, and premium pay for essential workers.
The Treasury also said the funds can be invested in improvements to water, sewer and broadband internet infrastructure.
But the Treasury maintained its plans to prohibit states from using the funds to offset tax cuts, a provision opposed by a number of Republican states.
“If a state or territory cuts taxes, they must demonstrate how they paid for the tax cuts from sources other than Coronavirus State Fiscal Recovery Funds – by enacting policies to raise other sources of revenue, by cutting spending, or through higher revenue due to economic growth,” the Treasury said.
States must pay back COVID-19 aid funds in the amount of their tax cuts if they cannot demonstrate such offsets, Treasury said.
Reporting by David Lawder; Editing by Andrea Ricci
