Minnesota would receive $4.72 billion from the federal government — plus additional money in more targeted programs — under the latest COVID-19 relief bill expected to pass Congress and be signed by President Biden by the end of the week.
Of that total, $2.6 billion will go directly to the state government while $2.1 billion will go to local governments in Minnesota. A separate allocation of $20 billion will be sent to the nation’s tribal governments.
The money sent directly to state and local governments will pay for costs related to pandemic responses. Not only is the amount of that money significantly more than the amount allocated under the federal CARES Act passed in the spring of 2020 — $350 billion compared to $150 billion — its uses are also less restrictive.
The most significant change contained in the pending bill, dubbed the American Rescue Plan, is a provision that states and local governments, as well as tribal governments, can use the new federal dollars to make up for lost revenue from the recession caused by the pandemic. Minnesota has seen two consecutive economic forecasts with improving numbers but is still expecting to collect $450 million less than it was projecting before the pandemic began.
Another difference between the CARES act and the pending $1.9 trillion bill is how the money is distributed to states. Rather than use population, the American Rescue Plan uses a new formula involving unemployment rates, which will produce a slightly different allocation for the various states. According to an analysis of the bill by USA Today, California, Texas and New York will receive 29 percent of the money, though they account for 27 percent of the country’s population. Florida, which is the third-most-populous state, would receive slightly less than New York, which is the fourth most populous.
Republican governors have complained that the formula costs their states money and that it rewards states that had more aggressive and longer shutdowns of economic activity to battle the virus. Ads running in Minnesota, paid for by a group associated with the Republican Governors Association, claim that the bill “cut $805 million” from Minnesota and gave it to California and New York.
Different from previous relief bills
The American Rescue Plan is the third significant response to the pandemic by Congress. In April 2020, it adopted the $2.2 trillion CARES Act. In December, it adopted the $900 billion COVID Relief Bill.
The U.S. House could vote on the bill by Tuesday, though there is unhappiness in the House Democratic caucus over changes made in the Senate, especially the lack of a $15 minimum wage. The House version was also more generous in unemployment benefits. Yet of the leaders of the Progressive Caucus called the Senate changes “relatively minor concessions.”
December’s relief package and the latest relief bill were considered in Minnesota’s most recent economic forecast, which project the state would have a $1.6 billion surplus going into the next two-year budget, depending on whether the Legislature adds spending to the current budget that ends June 30.
State Management and Budget Commissioner James Schowalter said much of the improved state financial picture is due to federal actions in response to the pandemic. “This federal impact is going to increase consumer spending, it’s going to increase business activity which in turn increases taxable activity in Minnesota, which results in the revenues,” Schowalter told the Senate Finance Committee last week.
The turnaround from a forecast last May to the current forecast has been dramatic, and reflects “the unusual circumstances that we’re in and the unusual events of having two stimulus bills from the federal government in between our two forecasts,” Schowalter said.
Yet the Feb. 26 forecast did not take into consideration what now appears to be a major distribution of cash to the state: money that can not only cover lost revenues but pay for pandemic-related costs already covered by the state as well as pay for any future state programs related to COVID-19 relief. Minnesota lawmakers have appropriated around $750 million in state funds to respond to the pandemic for costs, such as help for the health care system and aid to businesses.
The latest bill is different in another significant way. While the $1.87 billion sent to Minnesota last spring under the CARES Act seems comparable in amount to the $2.6 billion in the American Rescue Plan, it isn’t: Of the money received last year, the state shared $841 million with local governments. The new bill gives money to local governments – cities and counties evenly dividing the allocation – from a separate pool of funds. The USA Today analysis says that Hennepin County will receive $245 million, Ramsey County $107 million, Faribault County $2.6 million and Crow Wing County $12.6 million.
The American Rescue Plan has additional sections that will help state and local governments, both directly and indirectly. It includes $50 billion for the Federal Emergency Management Agency to beef up reimbursement of funds spent by state and local governments on items such as temporary housing for the homeless, for example, or for emergency food aid and even the cold-storage warehouse Minnesota purchased to serve as an emergency morgue (but has never used).
The new bill also has money to cover rent by those who have been unable to pay due to the recession. A total of $26 billion is being sent to the states for that program. That’s comparable to the $25 billion in the December bill that resulted in Minnesota getting $375 million. The state expects to have that program running by the end of March.
The American Rescue Plan does something else the December bill did not. It includes $10 billion to help pay mortgage payments for those falling behind due to the recession and $4.5 billion for utility bills.
Minnesota used $100 million from its springtime CARES Act allocation to create a rental/mortgage/utility payment plan. That money was spent by the end of December and a new program with the latest federal allocations has not been set up yet.
The bill also contains sections with direct distributions for public schools, colleges and universities, child care providers, transit agencies, airports, restaurants, small businesses and broadband throughout the country, money that will benefit various entities in Minnesota.
The act also sends a $1,400 check to many residents, extends the $300 unemployment insurance top off, expands food assistance, broadens child care assistance and the earned income tax credit for lower-income families.