House Passes Spending Bill, After Ditching Plan to Claw Back State Aid

This story has been updated.

House lawmakers late Wednesday passed a $1.5 trillion spending bill that will keep the federal government funded, after abandoning a plan that would have involved taking away billions of dollars in previously approved pandemic aid that states are expecting.

A version of the spending legislation under consideration earlier in the day called for rescinding about $7 billion in American Rescue Plan Act funds from 30 states to help pay for roughly $15 billion in new emergency Covid-19 funding that the Biden administration requested for the Department of Health and Human Services.

The clawed back dollars would have come from a second round of payments that the states were set to receive under the ARPA’s main, $350 billion state and local aid program.

But after an outcry from states and some Democratic lawmakers jeopardized the prospects of being able to pass the bill, House Speaker Nancy Pelosi announced in a letter to fellow House Democrats that this part of the measure would be pulled. 

The House split off the emergency Covid funding as a separate bill that it could take up later. House Appropriations Committee Chair Rosa DeLauro’s office emphasized that while the standalone measure is “partially offset by returning expired funds to the Treasury, it does not include any offsets from the State and Local Fiscal Relief Funds.”

Despite avoiding what would have been a huge financial blow, states and local governments were disappointed that the spending deal left out a provision that would have allowed them to spend more of their ARPA dollars on infrastructure projects. 

ARPA’s main state and local government aid program generally does not allow spending on infrastructure outside of water, sewers and broadband, unless it’s done with dollars that are set aside to make up for a governments’ lost revenue during the pandemic.

Governments have pushed for a bill passed by the Senate and introduced in the House that would have allowed funding recipients to use up to $10 million, or 30%—whichever amount is greater—of their payments under the aid program on a variety of transportation projects, including roads and transit, and on the types of spending allowed under the federal Community Development Block Grant program. 

For many places, a 30% share of an ARPA allotment is a sizable sum. For instance, 66 cities are in line to receive awards totaling over $100 million, and 47 counties over $200 million, according to Treasury Department figures.

The spending measure that the House passed covers the remainder of the current fiscal year, which runs through Sept. 30. The Senate is expected to follow suit in the coming days approving the legislation.

But it also appeared possible that Congress could have to pass another temporary bill before a stopgap spending measure approved in February runs out on Friday.

In addition to preventing a government shutdown, the passage of the broader spending package is significant to states and localities because it would allow the U.S. Transportation Department to release about $40 billion in funding under the recently signed Infrastructure Investment and Jobs Act.

A quirk in the $1.2 trillion bipartisan infrastructure law had raised the possibility that the money could be stuck. IIJA required some of its transportation funds to be authorized by Congress before the Transportation Department could begin sending the money to states and localities.

A continuing resolution to keep the government running would have simply kept last year’s spending bill in place without unlocking the additional funds. IIJA projects like installing energy-efficient streetlights, protecting highways on storm evacuation routes, and helping transit agencies catch up on a backlog of repairs that the U.S. Transportation Department pegs at more than $100 billion, would have been hamstrung until Congress could reach a budget deal.

State and local agencies in Texas would have seen as much as $3.1 billion held up. Another $2.9 billion that’s supposed to be headed to California could’ve stalled as well.

The prospect alarmed state and local officials. “We can begin to fulfill the promise of the IIJA expected by the public only when full-year appropriations for Fiscal Year 2022 becomes available,” a number of groups, including the National Association of Counties, the National League of Cities, the American Association of State Highway and Transportation Officials and the American Public Transportation Association wrote congressional leaders in January.

But it now seems nearly certain the governments will avoid seeing their public works dollars waylaid in Washington.

Senate Majority Leader Chuck Schumer, a New York Democrat, said in a joint statement with Pelosi announcing the budget deal that he planned to have the Senate pass the measure before the latest temporary measure lapses. In case the Senate ends up needing more time, the House did also pass a short-term spending bill until Tuesday.

Much of Wednesday's drama centered on fallout from the decision of House Democratic leaders to agree to a compromise with Republicans to take money from states to pay for emergency Covid spending. 

“This has been quite a day,” Pelosi said at her weekly press conference after the provision had been pulled.

Under a budget deal between the House and Senate, which was released in the early morning hours on Wednesday, the funds would have come from states that had their ARPA aid payments split in two equal parts because their unemployment rates were below a certain threshold set in the pandemic relief law, explained Brian Sigritz, the National Association of State Budget Officers’ director of state fiscal studies.

How much each state could have lost was not immediately known. Wisconsin’s Democratic Gov. Tony Evers said his state could have lost $225 million or more. A House aide said Washington state faced a loss of $400 million.

Pelosi, at the press conference, blamed the attempted clawback on Republicans, who she said insisted that the emergency aid requested by President Biden be offset by cutting other areas. 

“Sadly, unfortunately, Republicans insisted that every penny for Covid be offset,” she said. 

Three dozen Republican senators suggested in a letter to Biden last week that it is unclear how states and localities are using ARPA dollars and said they want a further accounting of the spending taking place before they would consider supporting the additional emergency Covid funding the president wants. 

“Since passage of the American Rescue Plan in February, questions are mounting about where exactly the additional money has gone,” the senators wrote. 

Pelosi, pressed about why Democrats initially agreed to take money from states during the negotiations, said that they did manage to lower the amount by half and spared municipalities from facing cuts.

The National League of Cities, one of the groups tracking the failed proposal, said it would have rescinded about $7 billion from ARPA’s State and Local Fiscal Recovery Funds program to help cover the added Covid relief spending. But the proposal, according to NLC, was structured in a way that the money would've come first from states, then territories and tribal governments, and then localities. The level of state funding in play meant that local aid was likely to go untouched.

The plan drew protests from the state budget officers, as well as the National Governors Association, which appealed to congressional leaders to leave the money alone.

“Impacted states would be forced to curtail programs such as public health investments; mental health initiatives; programs addressing learning loss; grants to recovering organizations, businesses, and local governments; housing assistance; teacher bonuses; premium pay; critical infrastructure; Unemployment Trust Fund transfers to prevent increased taxes on businesses; public safety upgrades; state park improvements; and more,” wrote NASBO’s President Kate Nass and the group’s past president, Marc Nicole.

NGA’s chairman, Arkansas Gov. Asa Hutchinson, a Republican, and the group’s vice chairman, New Jersey Gov. Phil Murphy, a Democrat, struck a similar chord.

“We strongly urge Congress to safeguard the Coronavirus State and Local Fiscal Recovery Funds (CSLFRF) that were included in the American Rescue Plan Act (ARPA). It is critical states and territories are treated equally no matter if they received federal dollars in one or two equal payments,” they wrote to lawmakers.

Rep. Cori Bush, of Missouri, was one of the House Democrats who spoke out against the plan. “We cannot turn our backs on the progress this money is intended to fund,” she said in a statement, adding that in her state the ARPA funding was already committed to programs having to do with areas like child care, health care, housing and schools.

Sigritz, with NASBO, noted that many states had already appropriated funds from second round ARPA aid payments they expected to receive.