Federal funds infusion creating unique multi-year challenge

Boston Statehouse

Evan Horowitz (left), executive director of the Center for State Policy Analysis at Tufts University, testifies Friday before the House Federal Stimulus Committee, including Chair Dan Hunt (top right) and Vice Chair John Barrett.

BOSTON (SHNS) – Massachusetts is getting so much money from the federal government with unique restrictions on how it is to be spent over the next several years that the Legislature should consider establishing a “separate para-budget process” for American Rescue Plan Act money, an analyst told a House committee Friday.

Between roughly $5.3 billion in state fiscal relief, another nearly $3.4 billion for local governments and other funding, the American Rescue Plan Act is poised to funnel more than $13 billion to the Bay State.

Generally speaking, the funds must be committed by the end of 2024 and spent by the end of 2026. That presents the state with some opportunities and challenges, Evan Horowitz, executive director of the Center for State Policy Analysis at Tufts University, said.

“On the plus side, it means there will be time for robust debate around spending decisions. Just because federal dollars are expected to reach state hands in the coming months doesn’t mean they must be immediately spent; better to make room for careful planning and real deliberation,” he told the House Committee on Federal Stimulus and Census Oversight. “However, the multi-year time frame is also long enough to allow for a lot of temporization and can-kicking. Absent a near-term deadline or other forcing mechanism, it could be hard to reach timely agreement among groups with different goals and priorities.”

So, Horowitz suggested, the Legislature could benefit from putting ARPA spending decisions on their own annual or semi-annual cycle and establishing interim spending targets as the state works through what he called a “seismic fiscal event” that will involve more money than previous stimulus programs and spending guidelines that are far more flexible than those for the American Recovery and Reinvestment Act of 2009.

“The timeframes are different. The players are different in terms of who’s coordinating the spending of money across different levels. The fungibility questions vary across timeframes,” he said. Horowitz added, “We do often separate capital budgets from spending budgets, in general. And this isn’t exactly capital spending, but it has the one-time structure that makes it right for a different kind of thought process for spending decisions and budgeting considerations.”

Rep. John Barrett, the committee vice chair, liked the idea and told Horowtiz he thought it was “practical.”

“I would think it would also be easier to monitor the spending and the planning and things like that, by segregating it in a way that addresses many of them and makes sense,” he said. “That’s my big concern, making sure that where we recommend the money go … assuring that it gets there. And that’d be the clearest and cleanest way of doing it, I would assume.”

Friday’s hearing also featured a presentation from Doug Howgate, the executive vice president of the Massachusetts Taxpayers Foundation, who detailed for lawmakers many of the do’s and don’ts spelled out in the U.S. Treasury’s recent guidelines on allowable uses of the latest round of federal relief funds.

He highlighted the fact that for some policy areas — specifically housing, early education and economic supports — Massachusetts will have three possible sources of funding: dedicated ARPA money, flexible ARPA money and the money that is usually appropriated through the state budget.

“How you coordinate those things and make sure it’s part of a cohesive plan to maximize the benefit of those resources, that’s going to be a challenge that really needs a thoughtful approach starting now about how we marry these fiscal recovery funds with the state budget with other resources,” Howgate said.

He said he thinks “the approach that the Legislature looks to be taking to the fiscal recovery plans of appropriating these funds over the next several years makes a ton of sense” but urged lawmakers not to lose sight of the importance of coordination.

“A big challenge in terms of how you use these resources is how you balance the need right now with the reality that you need to make sure that these resources are available for what they’re supposed to be used for over a longer time horizon,” he said. “That’s going to again require some thought.”

Howgate also explained Friday that the state chunk of discretionary funding is now $5.3 billion, greater than the initial estimates of about $4.5 billion. He said Massachusetts is one of 21 states that will get its ARPA allocation as a lump sum — other states will get 50 percent now and the remainder after one year.

“The $5.3 billion reminds me of the Prego pasta sauce — ‘it’s in there.’ So as long as it’s coronavirus related then we as a commonwealth or the cities and towns can charge off to those sources,” Chairman Rep. Dan Hunt said Friday.

The chairman added, “But as far where, mechanically, things will go and how they will go, that’s going to be a conversation among leadership. So the speaker and the Senate president and the governor are going to have to get together and figure out a piece of legislation that will identify whether we do this in a short-term period, whether we identify priorities on the front end or lay out a plan for the five years. That’s going to be a conversation that the Gang of Three has going forward.”

After the hearing, Hunt said that while prior federal stimulus laws were “very specific and prescriptive on responding to the active virus,” the American Rescue Plan Act “is focused on recovering the economy and the nation after we get back on track and to make sure that everyone shares in that recovery. We know that women and minorities and certain economic sectors have suffered much worse than others.”

In April, House Speaker Ron Mariano said lawmakers may deal with ARPA spending in June, after the annual state budget has been sent to a conference committee.

“We look forward to seeing a product from the governor’s office to review in the near future,” Hunt said Friday.

[Watch: Hearing Video]

(Michael P. Norton contributed reporting)

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