Federal stimulus is poised to make a major boost in both state and local government budgets, and individual Utahns’ bank accounts. President Joe Biden signed the $1.9 trillion economic stimulus, dubbed the American Rescue Plan, as the largest and latest iteration of coronavirus relief passed by the U.S. Congress in the past year.
“This historic legislation is about rebuilding the backbone of this country,” Biden said in a prime time address last week before signing the legislation. “And giving people in this nation, working people, middle-class folks, the people who built this country, a fighting chance.”
Republicans criticized the legislation as an ill-fitted response to the pandemic and largely unnecessary. In addition to $1,400 individual stimulus payments, the bill also earmarked $350 billion for state and local aid. Senator Mitt Romney, R-UT, pointed out on the U.S. Senate floor that twenty-one states, including Utah, saw revenue increases during the pandemic and argued the additional spending was excessive. In a written statement, Senator Mike Lee, R-UT, referred to the COVID relief bill as “bloated” and “wasteful.” Despite the party-line vote, Democrats passed the bill which is being hailed as Biden’s first major legislative accomplishment.
Utah’s state budget, already flush with higher-than-expected tax revenue, will receive roughly $1.5 billion from the federal government with an additional $136 million for state capital projects according to the Governor’s Office of Management and Budget. Furthermore, counties and cities will divide another $1.09 billion to bring Utah’s collective state and local government relief package to a total of $2.7 billion.
However, the Beehive state ranks near the bottom of the amount each state is receiving from the federal government. This is due to the bill’s funding formula largely relying on the number of unemployed citizens in the state to determine the amount of funding. As of January, Utah’s unemployment rate of 3.1% tied South Dakota for the lowest in the nation according to the U.S. Bureau of Labor Statistics.
Utahns may be victims of their own success when it comes to this government handout, but state Senator Jerry Stevenson, who chairs the senate Executive Appropriations Committee, still views the federal stimulus as a significant amount of money. “The difficulty is spending that money wisely and not putting it in places where we shouldn’t,” he said. “Federal stimulus packages are a mixed bag because they seem to generate a lot of one-time money. The temptation is treating one-time money as if it is ongoing, that is what worries me.”
Although state legislators had adequate money to take care of immediate needs last session, Stevenson sees an opportunity to address additional needs with the stimulus. “There’s a lot of places we can put it. There’s water systems that need to be rebuilt across the state. The Lake Powell pipeline project and the update of our transportation infrastructure will need quite a lot of money in the future.”
“It’s an exciting time to be involved but it’s also rather precarious too,” Stevenson continued. “My dad farmed in Davis county and he’d say the one thing that’s worse than not enough water is too much water. You have a lot of control when there is not enough, and the same is true for money and budgets.”
Biden’s covid relief package differs not only in size but also in scope. The CARES Act in March of 2020 and the Supplemental Appropriations Act in December of 2020 distributed funds to state and local governments primarily to cover expenses incurred from fighting the pandemic and to maintain government services. Funds in the American Rescue Plan, however, are not limited to pandemic expenses but can also be used to make up lost tax revenue and ease the overall economic impact from the COVID-19 pandemic.
This wide scope led national Republicans to decry the stimulus package as funding a “liberal wish list.” “[Democrats] want to send wheelbarrows of cash to state and local bureaucrats to bail out mismanagement from before the pandemic,” Senate GOP Leader Mitch McConnell, R-KY, said on the U.S. Senate floor.
Stevenson acknowledges the bill’s broad flexibility but notes that Utah’s financial future is already in good shape. “If we were in California, we might take the money and pour it into the retirement system to shore it up,” he said. “But in Utah, we put our retirement system together 10 years ago and started fixing it. Now, we’re only a couple years away from having it fully funded.”
While states can use the money to spend on what they deem most critical, Congress did explicitly direct that they cannot use it to cut taxes. “A state or territory shall not use the funds to either directly or indirectly offset a reduction in the net tax revenue,” the bill says.
This fiercely debated provision might soon prove problematic. Utah Attorney General Sean Reyes and twenty other GOP attorneys general signed a joint letter Tuesday urging the Biden Administration for more clarification. They argue the prohibition on tax cuts could be unconstitutional.
Their concern lies with state sovereignty and what they warn is an attempted “invasion” by Congress into state power. Since the mandate applies to “indirect” tax revenue offsets, states risk violating the law if they reduce taxes any time “during the covered period,” which lasts through 2024. If a state is found in violation of this provision the federal government could require repayment of COVID relief funds.
In their letter, they ask Treasury Secretary Janet Yellen to explain how the federal government will apply this section of the law. “This language could be read to deny states the ability to cut taxes in any manner whatsoever – even if they would have provided such tax relief with or without the prospect of COVID-19 relief funds,” they wrote.
Utah’s red-hot economy and tradition of fiscal discipline certainly could allow for future state tax relief, if federal law allows it. “We’d like to lower taxes if we could,” Stevenson said, “but the federal government won’t let us use the money for that. We’re going to have to spend the next few months figuring out how to spend the money to benefit our taxpayers without breaking any of their rules.”
The American Rescue Plan’s direct individual relief payments and expansion of the Child Tax Credit will significantly boost family budgets in the state.
Individuals making $75,000 or less or couples’ combined income totaling $150,000 or less will receive the full payment of $1,400 per person. Those with dependent children will also receive $1,400 per dependent. In total Utahns are positioned to collectively receive $3.8 billion in the next few weeks from the direct federal payments, according to preliminary estimates from the University of Utah’s Kem C. Gardner Policy Institute.
Utah’s banks and credit unions are well versed in the process of receiving and distributing this vast sum of money, said Scott Simpson, president of the Utah Credit Union Association. “The distortive effects of a mass influx of cash can be problematic on their balance sheets.” However, he reassured that Utah’s financial institutions are in good shape.
Along with the one-time direct payments, Congress enhanced the current child tax credit for the 2021 tax year. Under the new law, families will receive a $3,000 annual benefit per child ages 6 to 17 and $3,600 per child under 6.
The credit will also be fully refundable for parents making up to $75,000 and couples earning up to $150,000. Under this new expansion of the law, Utahns could get a payment as soon as this summer. Families could receive half of their total 2021 child tax credit this year and claim the remaining amount on their 2021 tax returns.
Utah’s large families and young population could furnish another $1.2 billion in federal aid to Utah families throughout the next year, according to the Gardner Institute. The average Utah household of three to four children could see $9,000 to $12,000 in additional revenue.
“The aspiration of these stimulus packages are not that they stay in the credit union accounts of the individuals,” said Simpson. “But we are finding that, from the very first tranche of stimulus from last year until today, most are simply holding on to the money.”
Most Utahns appear to have padded their savings accounts with federal stimulus. This is not out of the ordinary according to Simpson when you consider Utah’s rip-roaring economy and near full employment numbers.
Simpson views stimulus cash hoarding to be a problem for financial institutions in the short term but does not anticipate major problems as the public perception of our future health and safety improves and families start spending the money.
At the end of both my conversations with Simpson and Stevenson, each warned of issues that concern them. “The affordability of housing continues to outpace incomes in the state,” Simpson said. “A lot of senior executives and presidents of credit unions lived through the housing crisis of 2009 through 2011, so the anxiety of a volatile housing market is still fresh on folk’s minds; although, none of the same signals of inventory overhang are repeating.”
In reference to the rising national debt, Stevenson cautioned, “I am not sure yet if this stimulus was a good deal or not. It is kind of like going on a vacation and putting it all on a credit card. We might enjoy a few minutes in the sunshine, but I am sure my grandkids aren’t going to enjoy paying all this money off.”
