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WATCH NOW: State leaders still figuring out how to spend Indiana's $3 billion in federal COVID-19 aid
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WATCH NOW: State leaders still figuring out how to spend Indiana's $3 billion in federal COVID-19 aid

WATCH NOW: Gov. Holcomb speaks about how Indiana plans to spend American Rescue Plan funds

The American Rescue Plan is poised to deliver approximately $3 billion in COVID-19 recovery assistance to the state of Indiana, plus another $2.6 billion to Indiana cities and counties.

While not a single Republican in Congress — including Indiana U.S. Sens. Todd Young and Mike Braun, and the seven GOP U.S. representatives serving Indiana — voted in favor of the legislation, the Republican-led Indiana General Assembly and Republican Gov. Eric Holcomb seemingly have no qualms about accepting the federal support.

Figuring out how the money can and will be spent, however, is another matter altogether.

In general, the $360 billion allocated in the American Rescue Plan to state, local, territorial and tribal governments primarily is intended to cover costs associated with the COVID-19 pandemic, including its negative economic impacts on households, small businesses, nonprofits, and the travel, tourism and hospitality industries.

The law also allows the money to be used for premium pay for essential workers who stayed on the job amid COVID-19, to replace lost state tax revenue due to COVID-19 prevention measures, and to make necessary investments in water, sewer or broadband infrastructure, in part to accommodate more Americans working from home as a result of COVID-19.

At the same time, the statute prohibits states from simply depositing the money in a public pension fund or using it to maintain government spending levels while reducing tax rates.

Holcomb last week said his intent is to use the money “wisely — in one word.”

“Most of this funding is allocated into specific areas, directed into specific areas,” Holcomb said. “We’ll work, obviously, with our legislative partners who grapple and deal with Indiana’s budget this year, and we look forward to that.”

Cris Johnston, director of Holcomb’s Office of Management and Budget and a Crown Point native, said because the American Rescue Plan takes a broader perspective on COVID-19 relief than the 2020 CARES Act measures there will be opportunities to spend money on other state needs if the money is not specifically directed to state agencies for existing programs, such as rent and utility payment assistance.

“There is an element of budget relief that is an eligible use with the most recent package,” Johnston said. “This does add a new wrinkle and should bring in broader perspectives for discussing how that should be used.”

Waiting for guidance

On the other hand, Johnston and Holcomb said they’re willing to wait for specific U.S. Treasury guidance on American Rescue Plan spending to ensure Indiana doesn’t allocate dollars for a program that’s later deemed ineligible.

Johnston said Indiana recently joined various associations representing states, counties and municipalities that are submitting questions to the Treasury Department seeking clarification about how it will interpret the law.

“What may sound like a simple reading of the legislation really generates a lot of questions,” Johnston said. “It’ll take some time for them to sort through those questions and send out their feedback, as well as their responses, to those questions.”

But the Holcomb administration might not have the luxury of waiting too long, since the General Assembly is due to approve a new, two-year state budget by the end of April.

As a result, the most likely outcome is Indiana lawmakers will substitute federal funds for the state money the Indiana House already has voted to spend on rural broadband expansion ($250 million), regional economic development programs ($150 million), small business assistance grants ($30 million), student “learning loss” remediation ($150 million), and similar COVID-19 recovery measures.

Holcomb said using federal money for those programs, and possibly spending even more than the state could on its own, would create a new pool of state funds that could be used to reduce Indiana’s debt burden in the short-term, paving the way for sustainable, state-funded teacher pay raises or tax cuts for Hoosiers a few years down the road.

“We have the ability to emerge, and accelerate away from this pandemic, because of the strong position we went in and this assistance that’s coming our way,” Holcomb said.

One-time funds

Both Johnston and House Speaker Todd Huston, R-Fishers, insisted that using these one-time funds in a way that creates an ongoing obligation, such as immediate teacher pay hikes, is the wrong policy for Indiana.

“We know these are one-time dollars, and it’s extraordinarily important that you use one-time dollars to give long-term investments a greater return on that investment and don’t create financial cliffs,” Huston said.

“One of the things we’re trying to do is think about both the short-term and long-term implications of this. Obviously, if you buy down debt that reduces the state’s long-term appropriation amounts and gives us flexibility on tax cuts and economic investments in the future.”

Johnston said he’s been working with budget leaders in both the House and Senate to find the best uses for the money as legislators get closer to finalizing the new state budget.

“Throughout this exercise, our goal has been to use the money as judiciously as possible to create the greatest positive impact for Hoosiers,” he said. “And also think about how we can make an enduring impact beyond the use of this money, but also at the same time not create any sort of obligation that the state cannot live up to after the use of this money.”

It’s fairly clear the Legislature will not simply hand the task of deciding where the money goes over to the governor’s office, as largely happened with CARES Act spending, even if there is insufficient federal guidance prior to the General Assembly adjourning for the year.

For example, Senate President Rod Bray, R-Martinsville, has proposed in House Bill 1123 creating a state Economic Stimulus Fund where all discretionary American Rescue Plan money provided to Indiana would sit until the entire General Assembly, or at least the State Budget Committee, decides how it should be spent.

That also has been a primary focus for State Sen. Karen Tallian, D-Ogden Dunes, a member of the State Budget Committee, who believes every dollar spent by the state of Indiana, even money provided by the federal government, should be appropriated by the General Assembly, not spent solely at the governor’s discretion.

During a recent Statehouse committee hearing, former Indiana Supreme Court Justice Frank Sullivan Jr. told Tallian it likely is unconstitutional for the Holcomb administration to spend federal money absent specific direction by the Legislature.

Braun, Rokita want tax cuts

Meanwhile, back in Washington, Braun is seeking to delete the American Rescue Plan provision barring states from using COVID-19 assistance for tax cuts.

Even though Hoosier lawmakers have no plans to reduce taxes in the near future — in fact, they may actually increase the cigarette tax this year — the millionaire businessman is appalled the federal funds cannot be used to reduce state tax rates.

“Not only did this blue state bailout bill penalize states for reopening by calculating state funds based on unemployment, now they are trying to use it as a back door to ban states from cutting taxes. My bill would make sure they don’t get away with it,” Braun said.

There’s little chance, however, that Braun’s notion of redirecting COVID-19 assistance from states to their wealthiest residents, who tend to benefit most from individual and corporate tax cuts, will be approved by the Democratic-controlled Senate.

Indiana Attorney General Todd Rokita, a Republican originally from Munster, recently hinted in a multistate letter to Treasury Secretary Janet Yellen that a lawsuit is in the offing if Treasury interprets the law in a way that blocks states from reducing taxes.

In addition to state and local government aid, the American Rescue Plan provides financial relief to most Americans in the form of a $1,400 per person stimulus payment, increased child tax credits, supplemental unemployment and food stamp assistance, funding for school infrastructure improvements, and money for COVID-19 testing, vaccinations, and other prevention measures.

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