As Congress debates additional pandemic relief money, Minnesota debates how to spend the last of what it got in March

Four months ago, Minnesota was told it would receive $3.6 billion from the federal government to help it respond to the health and financial challenges of COVID-19.

Since then, the state has allocated $2.74 billion of those funds, some of which has gone out in big chunks — $317 million to Hennepin and Ramsey counties; $841 million to other cities, counties and townships throughout the state — and small ones: the Office of Administrative Hearings got $6,391 to broadcast remote hearings and to buy masks and sanitizers for in-person ones.

Other allotments went to pay for personal protective equipment; testing for and tracing infections; food assistance for kids and the elderly; and support for child care and a rental assistance program. [PDF]

But with the state now facing a $2.4 billion deficit caused by the COVID-19 recession, some in the state Legislature want to use what’s left of the money — there’s still $600 million in the most flexible pot of funding, known as the Governor’s Allocation — to reimburse the state for $520 million it dedicated to pandemic response back in March, a move that could soften the blow to the state budget.

But Gov. Tim Walz and his budget and finance commissioner are worried that the money will be needed for additional costs in responding to coronavirus. And until the state learns how much of those costs will be borne by the Federal Emergency Management Agency — and whether Congress will send additional help — they’re going to be cautious about committing it, they say. 

“Given the needs out there, we’re not confident yet that we’re going to be able to use any of that money for reimbursing state expenses,” said state Management and Budget Commissioner Myron Frans. 

Where Minnesota’s CARES Act money went

The $2.2 trillion CARES Act (an acronym for The Coronavirus Aid, Relief, and Economic Security Act) allowed states to use the money to pay for COVID-related expenses but not to make up for revenue shortfalls caused by the recession. In other words, states have to buy stuff, not refill the treasury. 

As of now, all money must be spent by the end of 2020, though that could change in subsequent congressional actions.

Congress directed the money be sent to the states, local governments, tribes and individuals in dozens of different pots of money. The biggest is the Governor’s Allocation, a per capita distribution with the most flexible spending rules.

In Minnesota, the money has been used to create a $100 million rent and mortgage assistance program for low-income residents and to provide nearly $57 million in grants for child care providers. It’s also been used to buy personal protective equipment, testing supplies, a mobile testing lab, contact tracing personnel and software and food aid for children, seniors and tribal nations.

But the CARES Act also doled out money based on population or existing funding formulas. In Minnesota, $367 million will flow to school districts and colleges; $135 million will go to various Health and Human Services programs; $18.3 million will pay for emergency food assistance and food stamps; $466 million for transit agencies and airports; $474 million for health care provider relief and hospital preparedness; and $65 million for housing assistance.

There was also separate federal funding directly to hospitals, of which $1.3 billion went to Minnesota institutions. All together, the federal actions over the spring sent $4.8 billion to the state, according to Federal Funds Information for States.

Different processes for funds

Distributing the state funds and the federal funds follows two different processes, something that has led to tension between Walz and legislative Republicans. 

Under a law passed by the Legislature with bipartisan support  in March, any expenditure of the state funds must be approved by a special commission of legislative leaders, though most requests have been approved with only a handful of no votes. 

But the federal funds can be allocated mostly by Walz and his Office of Management and Budget with just a brief stop in front of what’s called the Legislative Advisory Commission. That body, created long before the pandemic, was meant to process federal funds that come to the state after a two-year budget has been approved. Lawmakers on the commission can give their views but the governor doesn’t need their approval to spend the money. 

Various attempts to give the Legislature a stronger voice in that process have been rebuffed by Walz, and led to complaints among Republican lawmakers. 

“We’re not sure how this process has worked, where these requests come from, have they been spent properly, is there any remaining funds available,” said Senate Finance Committee Chair Julie Rosen, R-Vernon Center. “It’s been very frustrating just to have the Legislative Advisory Commission where you can’t stop it, all you can do is give it a review.”

Rosen sponsored a bill to place the federal CARES Act money into a state account that would need legislative appropriation, and the measure won bipartisan support in the Senate. But Walz opposed it as too slow and cumbersome and the DFL-controlled House did not adopt it.

“I believe that any appropriation should be coming from the Legislature and not from one single person and his staff,” Rosen said. 

The partisan stalemate in the Legislature has allowed Walz to allocate hundreds of millions of dollars on his own, with hundreds of million still left to spend. Rosen noted that nothing the Senate has proposed has been accepted by Walz, including a bill by Sen. Michelle Benson, R-Ham Lake, to provide $13 million worth of personal protective equipment to state dentists. 

Even a local government funding bill, with a Senate-crafted distribution formula, was not adopted by the House after it got tied up in Walz’s supplemental budget request. The governor then created a program to distribute money to local governments by executive order.

“The Legislature has been boxed out … and I think that is extremely dangerous,” Rosen said. 

Waiting for a surge

Though the state has so far allocated $2.74 billion in CARES Act money, there is still more than $600 million left in what’s known as the Governor’s Allocation, the most-flexible pot of the money. 

Some in the state Legislature want to use most of that money to reimburse the state for $520 million it dedicated to pandemic response back in March. That money went to the Minnesota Department of Health, state hospitals and into a $200 million fund known as the COVID-19 Minnesota Fund, which was tapped for the still-unneeded emergency morgue in St. Paul; to help the financially strapped Minnesota Zoo; and to facilitate the testing consortium between the Mayo Clinic and the University of Minnesota school of medicine. 

“To me it’s a no-brainer that we reimburse the general fund,” Rosen said. “Our general fund desperately needs to have that money reimbursed.”

But the state is being cautious about doing that, with Walz and his and his budget and finance commissioner, Frans, worried that the money will be needed for additional costs of the pandemic.

Minnesota, like all other states, doesn’t know what expenses are still to surface to deal with COVID-19 — or whether Congress will send more help to the states. Some congressional Democrats want more money sent to states, while some Republican members seem willing to at least let money already sent to be used to replace lost revenue.

The state is also anticipating spending money — perhaps hundreds of millions of dollars — to help public schools either reopen for students, enhance distance learning or some combination of both. That announcement is scheduled to be made by Walz Thursday.

“We don’t think it’s the right time to do that yet,” Frans of reimbursing the state. “Maybe we will be able to, but it depends on what happens this fall.”

A fall surge in COVID-19 cases could again tax health care and the economy, gobbling up what is left in CARES Act money, he noted. At the same time, the states might get additional help from Congress and or significant funds from FEMA. In fact, much of what the state has done to respond to the pandemic is potentially covered by FEMA disaster aid. But to get it, the state must spend it, then make a claim and then wait for an answer. “We’re trying to get FEMA reimbursement for everything that we can,” Frans said.

“Our strategy is, as we go along, to identify those likely reimbursable activities and get that FEMA request in,” he said. “But not only is there a time lag to send in the request, there’s an unknown time lag about when we’ll find out from FEMA.”

Frans said that if there are federal dollars left over at the end of the year, the Legislature could be called into session to use it to reimburse some of those state expenditures and help with the budget deficit.

“We don’t have to do it now, and it’s premature to do it until we see what fall brings in terms of surge,” Frans said. “It’s a great idea, we just felt the timing wasn’t right until we had a better idea of what was going to happen.”