Legislators question how federal stimulus money can be spent

The ink is barely dry on the federal stimulus bill crafted in response to the COVID-19 pandemic, but Montana’s legislators want to be ready for the money when it arrives.

On Tuesday, the Leadership of the Montana Legislature held a conference call to discuss the money that Montana will receive from the federal CARES Act, passed on Friday, and how it could be used. The Legislative Leadership includes the House and Senate speakers, and majority and minority leaders and whips.

The Coronavirus Aid, Relief and Economic Security Act is one of three federal bills that provide money to help stave off the economic downturn brought on by businesses closing and people making and thus spending less money.

The Treasury Department has up until April 24 to send the money out to the states. But Treasury officials have yet to develop the rules to regulate how the money can be spent so legislative advisors were somewhat in the dark.

However, Legislative Chief Legal Counsel Todd Everts said no legislative action is required to disperse the $1.25 billion that Montana will receive within the month. So the Legislature won’t have to call a special session.

“The focus is on the Treasury Department,” Everts said.

Quinn Holzer, Legislative Fiscal Division operations manager, said the state is receiving from money from two earlier bills in addition to the CARES Act.

The first bill allocated a total of $2.5 billion for public health and safety grants for states and tribes. Montana received $4.6 million, which was put in place immediately, but part of that goes to Montana’s eight tribal nations.

The second bill allocated money for Medicare/Medicaid Services, but Montana’s amount is difficult to quantify because the money is available only until the Department of Health and Human Services declares the emergency to be over. Holzer estimated the amount at about $80 million, but that’s based on assumptions of a consistent caseload.

Finally, the state of Montana receives $1.25 billion out of the CARES Act, and another $8 billion will go to tribal governments. The state has until the end of the year to use the money.

Holzer said cities and states might also be able to apply for some money out of the $500 billion set aside for business loans, but it would depend on the Treasury Department’s interpretation.

Fiscal Division director Amy Carlson said the law requires the $1.25 billion to be deposited into the state general fund. But that’s where accounting could get a little tricky, because the federal government will penalize states if the money isn’t spent on specific things.

“That definitely gives us a lot of cash flexibility,” Carlson said. “That will make the state more nimble in addressing any issues. It’s just documenting how that is spent.”

Everts said if the state could show a causal relationship between COVID-19 shutdowns and an uptick in certain costs, they would probably be covered by the CARES Act. For example, county elections offices could request money to help with changes to the upcoming primary election, Carlson said.

Rep. Llew Jones, R-Conrad, said he was worried that the state could run into a cash-flow problem after the income tax deadline was pushed back three months. So he wondered if the federal money could be used to offset the deferred money in the meantime.

Carlson said the state would potentially lose revenue not only because of the income tax deferral but also accommodation and oil and gas tax revenue would likely decrease due to lost business.

“There are multiple things that are going to affect general fund revenue,” Carlson said. “(The federal money) might not be able to be used for revenue replacement, but maybe it can be used for cash flow in the meantime.”

Carlson said the state would publish a revenue update within a few weeks, but it may be too early to reflect most of the decreases resulting from the shutdown.

Rep. Nancy Balance, R-Hamilton, cautioned that the federal money needed to be kept separate and tracked somehow so it wasn’t spend on the wrong things.

Rep. Greg Hertz, R-Polson, agreed the money should be kept separate because the Legislature needs to know when the general fund minus the federal money drops too low.

“Once our revenues start to decline, we have to do some emergency budget cuts in order to continue with the balanced budget,” Hertz said. “Yeah, cash flow is great, and although it might look like we’re cash rich, all that cash does not belong to us, and it cannot be spent on items not related to coronavirus.”

That prompted a discussion of whether a special session might be needed if the budget dropped low enough to trigger concern.

Ballance said talk of a special session was premature, and Jones agreed.

“If there’s a fortunate part of where the state was when it entered this crisis, it was in a fairly solid fiscal position,” Jones said. “The general fund was at $300 million, $291 million, I believe.”

Everts said the governor has broad authorization to designate an officer to distribute the funds. The legislators wanted to know if counties could be an officer and would the state be on the hook if counties then misspent the money.

“One of the thresholds that we’d better nail down as quickly as we can is that term officer in the law,” said Sen. Fred Thomas, R-Stevensville. “That needs to be analyzed as quickly as possible, and hopefully, there’s a way that it includes whoever it needs to include.”

Contact reporter Laura Lundquist at lundquist@missoulacurrent.com.