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How local governments are spending their share of Minnesota’s $841 million in federal COVID-19 aid

Under the federal government’s use-it-or-lose-it constraints, Minnesota cities and counties are quickly finding ways to spend the money. 

The Alexandria City Council met July 27, in part to discuss how to spend its share of a federal aid package for local governments to deal with the coronavirus pandemic.
The Alexandria City Council met July 27, in part to discuss how to spend its share of a federal aid package for local governments to deal with the coronavirus pandemic.
MinnPost photo by Walker Orenstein

Local governments around Minnesota are hustling to spend their share of an $841 million COVID-19 aid package from the federal CARES Act, planning to use the money on everything from child care operations and business grants to city hall remodeling projects and technology upgrades for remote work.

Local officials welcomed the cash, which was distributed based on population size by Gov. Tim Walz roughly a month ago, though it comes with strings attached. 

The money cannot be used to cover lost tax revenue and it must be dedicated to pandemic-related costs. And governments have also been given a short deadline: Cities and towns must commit the cash by Nov. 15, or the money will be kicked up to county officials, or, for cities and towns in Hennepin and Ramsey counties, to local hospitals. And counties must dedicate the money by Dec. 1 or it will be returned to state coffers.

Under those use-it-or-lose-it constraints, cities and counties are quickly finding ways to spend the federal aid. As Lisa Bode, governmental affairs director for the City of Moorhead, said at a recent council meeting: “We don’t want to forfeit a dollar.”

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How the CARES money works

It was largely up to the state how to distribute the CARES Act money to local governments, and lawmakers struck a deal in June to use a formula based on population. (Hennepin and Ramsey counties, however, received money directly from the U.S. Treasury.) Walz initially balked at the plan, saying that actual need for pandemic relief was not distributed proportionally; some areas have had worse COVID-19 outbreaks or economic problems than others.

Eventually, though, Walz relented and shipped the money out as proscribed by the plan brokered by House Democrats and Senate Republicans. (The governor also distributed $12 million to food shelves and food banks in the state.)

Federal guidelines lay out what cities, counties and towns can use the money on, namely to reimburse money spent fighting COVID-19. That includes paying for a range of local services, such as communication and enforcement of public health orders, purchasing personal protective equipment and sanitation supplies and payroll for public workers who are responding to the pandemic. Also allowed are payments to businesses, nonprofits, hospitals and schools for COVID-19-related reasons.

Recouping city expenses … and addressing longstanding problems 

Several cities contacted said they expect to direct a significant chunk of the money to city expenses related to the pandemic. In Alexandria, most of the $1.05 million the city received in CARES Act money will be spent on technology upgrades for employees to work from home and to better record and stream council meetings and other city business. “Currently we can’t easily or with any quality, connect the mayor and council to the public through video,” said city spokeswoman Sara Stadtherr.

The city also expects to use CARES Act money to buy signs in city buildings that will highlight COVID-19 regulations, as well as to create an employee-only entrance at city hall to control staff interaction with the public.

Winona Mayor Mark Peterson said the council is still deliberating on how it wants to spend the city’s $2.05 million, but one possibility is to reimburse the fire and police departments for extra staff costs. That includes overtime incurred from a new shift system where the public safety workers rotate weeks at a time to prevent staff from being decimated by a COVID-19 outbreak.

Bemidji City Manager Nate Mathews said their main focus is to recover budget expenses, including money spent buying PPE, but also staff time for city employees and officials who have dedicated much effort to developing and implementing protocols and preparedness plans for the pandemic. One expense Mathews highlighted was the purchase of barricades the city put in parking stalls to help restaurants grow their outdoor seating capacity. Bemidji got roughly $1.1 million from the federal aid package.

Some of the CARES Act money is likely spent addressing long-standing problems that local officials can justify as a COVID-19 expense. In Moorhead, Bode, the city’s governmental affairs director, said they already have a detailed strategic plan for city upgrades and many would be a good fit for pandemic response — such as cleaning air duct systems. “We matched the resource to the need,” she said.

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In all, a draft plan for Moorhead’s $3.28 million would spend $1.28 million on city expenses like election support, public building improvements, telework equipment, public housing upgrades and public safety staff salaries.

Many governments rolling out grants 

Another popular choice for using the CARES Act money is to spend it on grants for businesses and nonprofits. Nearly all officials who talked to MinnPost said they are considering dedicating at least some money to them.

In Moorhead, the city’s remaining $2 million would go to a grant program for small local nonprofits that could be launched as soon as mid-August. Derrick LaPoint, president and CEO of Downtown Moorhead Inc., an economic development nonprofit that partnered with the city to devise the local business initiative, said at a late July council meeting they wanted to build on a state grant program that saw far more demand than it had money to hand out. 

LaPoint said one hole in the state program was that only Minnesota residents were eligible, even though many Moorhead businesses are owned and operated by people who reside in North Dakota. 

Nick Leonard, deputy administrator of Otter Tail County in west-central Minnesota, said he expects the bulk of their $7.21 million will be used on grants for small businesses and nonprofits. While the county has incurred plenty of expenses, Leonard said the county board wants the money largely to flow back into the community. A draft plan, which Leonard said was just a “starting point” for the board, earmarked $4 million for the business grant program and $1.5 million for housing food and financial assistance. Other cash was reserved for education, high-speed internet projects, public safety expenses and more.

The city of Marshall plans to spend $500,000 of its $1.04 million on business and nonprofit grants to help a local economy that was “really affected” by Walz’s stay-home orders, said Mayor Robert Byrnes. “The lifeblood of our community and any community is the business sector,” Byrnes said. “If we can help the business sector then other sectors that rely on the business community are also indirectly helped.”

One city that may eschew business grants is Fergus Falls. Mayor Ben Schierer said his city hasn’t settled on a final plan for its $1.04 million, but that he’s exploring spending money to help a local health care provider and schools — especially since their county, Otter Tail, may have a business grant program of its own. Business help may come in indirect ways, such as partnering with nonprofits to provide space for child care programs, particularly if local schools decide not to have in-person classes.

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Dealing with restrictions

One thing local officials can’t spend the CARES Act money on is to replace lost tax revenue during the economic downturn that have followed the pandemic and Walz’s restrictions on public life.

Many city and county officials said they expected to have budget holes, though they were still assessing the economic damage. Mathews, the Bemidji city manager, said they would welcome the ability to make up for lost taxes. He said the city is considering restarting an ice rink at its Sanford Center, which hosts the Bemidji State University men’s and women’s hockey team. The athletes need to practice, but without money from food, beverages, sponsorships and tickets, taxpayers could be left to shoulder a significant burden of reviving the ice and running the building, Mathews said.

New money for cities and states is a sticking point in Congressional negotiations over a large new coronavirus aid package, one that could allow local governments to pay for lost taxes.

Besides the federal limitations on how CARES Act can be used, the short timeline for doling out the money is the largest restriction. It has sent some government officials scrambling to throw together spending plans.

Still, local leaders universally said they will find an outlet for the money rather than letting the cash-strapped state reclaim any of it. “The big thing is ultimately getting the money into businesses hands, and not giving the money back to the state,” LaPoint, of Downtown Moorhead Inc., told the city’s council with a laugh. “That is the number one goal out of this whole thing is making sure this money gets distributed to the community.”