by Joseph Coletti
Senior Fellow, Fiscal Studies, John Locke Foundation
Money from the federal Coronavirus Relief Fund CARES Act is best held in reserve until we have a clear understanding of how much tax revenue falls, what needs are still left unaddressed by other sources of federal funds, how Gov. Cooper will cut unessential spending, and the flexibility North Carolina has from the federal government. Rushing to spend money today on anticipated needs may leave the state with too little available for unanticipated but potentially more pressing needs.
We at the John Locke Foundation have urged Congress to provide state and local governments flexibility to make up revenue shortfalls with money from the Coronavirus Relief Fund. The money will be spent, but without flexibility it will be spent on countless questionable projects that are justified by a tenuous link to COVID-19.
If Congress provides North Carolina and other states with the flexibility to use CARES Act money to offset lost revenue, that is the best use of these funds. The economic downturn will affect state income tax and sales tax revenues through at least June 2021, and possibly beyond. The state has endured two major storms since 2016 and the risk remains for another one this year, which would also be covered through the Savings Reserve.
In its bill (SB704) the Senate wisely incorporates provisions to use federal funds to provide $600 million for the Department of Transportation (NCDOT) and local governments if the CARES Act “is amended to allow the use of federal funds for that purpose,” and plans to deposit the other $2.9 billion of an anticipated $3.5 billion from the CARES Act Coronavirus Relief Fund in reserve.
Of that eventual $2.9 billion, the Senate would appropriate $598 million immediately through OSBM for a number of specific purposes. Much of that, however, may already be available from other targeted federal relief funds. $67 million for community colleges and universities is potentially duplicative of the $365 million already allocated through the federal Higher Education Emergency Relief Fund, half of which goes directly to the schools. Another $60 million may be duplicative of funds for the first federal coronavirus bill that dedicated money to public health and vaccine development. Summer school programs are a bad use of $70 million that may could also be paid from the $396 million from the Elementary and Secondary Schools Emergency Relief Fund. In addition, a portion of these expenses could be covered through the $96 million Governor’s Emergency Education Relief Fund. Anticipating the $600 million for NCDOT and local governments can be spent, the Senate leaves $2.3 billion in reserve for when legislators return to Raleigh this summer.
While the Senate would spend more money from the CARES Act than is needed. The House multiplies that excess spending. For example, where the Senate bill allocates $15 million to the North Carolina Policy Collaboratory, the House bill (HB1038) would allocate $100 million. As another example, the House for some reason would allocate $40 million for Medicaid costs, even though testing would already be covered entirely by the federal government and the increased federal match for Medicaid would, provide more money than needed to cover higher enrollment and utilization.
In contrast to the Senate’s $2.3 billion, the House would leave $1.8 billion in reserve while Gov. Cooper’s proposal leaves $2.1 billion in reserve.
The Senate spends more money on new programs through the CARES Act’s Coronavirus Relief Fund than it should given the multiple streams of dedicated funding from the federal government. Gov. Cooper and the House both expand the potential for unwise spending even more. It is still better to wait and see than to rush and waste. The only money that makes sense at this point is the conditional $600 million the Senate would dedicate to NCDOT and local governments. Everything else is too much, too soon with too little information.
*This post has been updated for clarity