States, cities that expected to go bankrupt due to pandemic now see cash surplus

When the pandemic hit Alexandria, Virginia, the economic outlook was bleak.

In April 2020, the city forecast a budget deficit of up to $ 100 million as businesses shut down and workers lose their jobs, wiping out key revenues from sales, tourism and income taxes.

“At first it was catastrophic for us,” Alexandria Mayor Justin Wilson told ABC News. “Every week, unfortunately, I got a notification from hotels, big restaurants, telling us that they were laying off workers.”

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But a year later, those dire budget forecasts still haven’t become a reality. In fact, the city just passed its spending plan for the first $ 30 million in aid it received from the federal government’s American Rescue Plan Act 2021. The proposal includes investments in infrastructure, food aid and a guaranteed basic income pilot program giving $ 500 to about 150 families.

“We are working on different ways of trying to help our residents: food insecurity, housing insecurity [and] further efforts to make sure they get back on their feet as a result of this, ”Wilson said.

It’s a story that unfolds from coast to coast. Thanks to generous federal relief funds, a rebound in consumer spending, and stock market gains, state and local governments that predicted economic calamity now find themselves full of cash.

“So far, we find that many states [that] talked about how they were going to have to raise all kinds of taxes and cut all kinds of expenses, and that didn’t happen, ”Richard Auxier, senior policy associate at the Tax Policy Center, told ABC News.

Auxier said that while it’s too early to say states are out of the woods, federal support has helped them stay afloat during the pandemic.

The American Rescue Plan Act passed in March provided for $ 350 billion in direct aid to state, local and tribal governments. A spokesperson for the Treasury Department told ABC News that about $ 200 billion of that funding has already flowed.

Unlike the previous two COVID-19 relief laws, there are fewer restrictions on how states can use the money, which must be committed by 2024 and spent by 2026.

“By the time the third major bill arrived in 2021, there was a great desire to give them that freedom, to have a little slack on how they want to spend it,” Auxier said.

President Joe Biden is now urging some cities to use part of the funds to fight crime – for example, by paying police officers overtime.

The Cherokee Nation also receives $ 1.8 billion from the American Rescue Plan Act. Senior Chief Chuck Hoskin Jr. told ABC News the funding was going towards stimulus checks of $ 2,000 for each resident, as well as investments in mental health, broadband internet and a new hospital.

“Plan number one was to bring relief directly to our citizens,” Hoskin told ABC News.

Meanwhile, 13 Republican state attorneys general are suing the Biden administration for wanting to use federal aid to fund tax cuts, which is one of the few restrictions under current law.

“It’s not for the federal government to decide Arkansas’ own tax structure,” Arkansas Attorney General Leslie Rutledge told ABC News. “This is where the federal government is going too far.

In Maryland, Comptroller Peter Franchot has established a task force to determine where the federal money is going. He said the funding had “changed the game” by helping the state avoid bankruptcy. But he added that it is clear that some of the money is not going to the hardest-hit communities who need it most.

“A part will be well spent, [but] a lot of it probably won’t, ”Franchot told ABC News. “It’s the nature to have a cash fire hydrant suddenly going into the state.”


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