Commentary, COVID-19, NC Budget and Tax Center

Maximizing federal dollars to meet urgent needs should be the first priority of state leaders

On Friday, Gov. Roy Cooper released his recommended coronavirus response budget, which would invest $1.43 billion through July 1, 2020. The budget proposes allocations for immediate public health and safety operations, education and state government services, and small businesses and local government assistance.

Prioritizing urgent necessities such as testing and other public health services is a crucial first step, but more should be done in the short term to meet the immediate needs of families and communities while also giving state agencies the assurance that they can build capacity and respond to increased public demands well beyond the three-month window proposed in this budget.

Our analysis of the first three pieces of federal legislation passed in response to the COVID-19 crisis suggests that at least $6.5 billion in relief funds have been allocated to North Carolina. To put this figure into perspective, if the state were to invest all of these dollars today, in addition to the piecemeal budgets enacted instead of a comprehensive budget, we still would only be spending at roughly the historic average as a share of the economy, despite the unprecedented economic shock to our communities.

That is to say, these federal dollars deployed for the increased needs of public health, workforce, housing, and education will barely scratch the surface in comparison to the scale of need that people and communities are facing during this pandemic.

Not all federal funds will be received in the state’s General Fund, the primary fund from which state appropriations are made. State agencies that directly receive federal funds should quickly and fully deploy these dollars to address those needs that they are expert at addressing and at the same time, they should provide the public with a way to understand the priorities and allocation formulas used to deploy those dollars.

Notably, the Coronavirus Relief Fund, the largest stream of federal funds thus far and the source from which the governor proposes appropriating dollars, cannot be used for one of the state’s pressing needs — the anticipated steep loss of revenue brought on by COVID-19 and the simultaneous economic crisis. That’s because this week, the U.S. Treasury released guidance for states that outlines the restrictions on allowable uses, including that the funds be used for necessary expenditures incurred “due to” the public health emergency resulting from the COVID-19 pandemic. These limits are another reason why we need a fourth federal relief package that includes flexible aid to state and local governments and an increase in the federal share of Medicaid costs. North Carolina needs more flexible federal aid to ensure that state leaders can access funds to address revenue losses without making cuts to critical public services and to ensure the state can sustain a crisis response beyond the next three months and for the duration of a full economic recovery.

After years of underinvestments and in light of the high demand for services, our state’s public infrastructure needs a rapid investment of dollars for supplies, technology, and – perhaps most importantly – administration. After all, people run our government.

Take the state’s Division of Employment Security (DES), for example. With over 700,000 state unemployment claims filed since the beginning of the crisis — up from about 2,600 claims per month during the period before the crisis – DES identified early on the need for more equipment, IT infrastructure, and staff and subsequently tripled its staff from 500 to 1,600. Still, many applicants are still waiting to receive their unemployment benefits or for their application to be processed due to the backlog.

Identifying needs and responding quickly by mobilizing dollars at the state and local levels will mean that more families will be able to make ends meet during this crisis by accessing the services and benefits they desperately need. North Carolina should maximize the federal dollars it receives and should prioritize smart investments that quickly put those dollars to use and strengthen the public infrastructure necessary to withstand this economic downturn and to rebuild our communities so they are more resilient for the future.

 Suzy Khachaturyan is a policy analyst at the N.C. Budget & Tax Center, a project of the North Carolina Justice Center.

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