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Alabama Considers How to Spend $2 Billion in Federal Aid

Lawmakers are studying whether they can spend part of the $2 billion the state received from the American Rescue Plan Act on prison construction. The state will have until the end of 2024 to use the funds.

(TNS) — Alabama officials are early in the process of deciding how to use the latest round of federal funds coming to the state because of COVID-19, including a determination of whether some of the money could be used to help build prisons.

The Legislature will have to approve use of the American Rescue Plan money within guidelines set by the U.S. Treasury Department. State and local governments have until the end of 2024 to use the money.

Along with costs directly related to the coronavirus, the money can be used to expand high-speed internet access, a need that increased in urgency after the pandemic showed the importance of being able to work and take classes from home. The money can be used for water and sewer projects and will help counties and municipalities make long-needed improvements, officials have said.

Overall, the American Rescue Plan, signed into law by President Biden in March, authorizes $1.9 trillion nationally to help households, businesses, and governments bounce back from the pandemic and its economic impact.

It’s the same law that sent $1,400 payments to individual taxpayers and $2,800 to couples, plus $1,400 for dependents, along with expanding the child tax credit and other benefits.

The Rescue Plan created the State and Local Fiscal Recovery Fund. Alabama will get $2.1 billion for state government. Half the money has arrived, the other half comes next year.

Alabama cities, towns, and counties, will get a total of $1.7 billion, also with half coming this year and half next year. Birmingham received the first half of its $149 million allotment in May.

Larger cities, generally those with populations of 50,000 or more, get their share directly from the federal government, as are counties. Smaller cities and towns will receive their allocations through the state. The Finance Department has set up a portal for those municipalities to apply for their funds.

A few weeks ago, the Treasury Department released 150 pages of rules on how state and local governments can spend the money.
They can use some of the funds to make up for a loss in tax revenues caused by the pandemic. State Finance Director Kelly Butler said work is under way to determine whether the state lost revenue under the formula set by the Treasury Department.

If the calculations show a loss, the state would have broad flexibility in how it could use Fiscal Recovery Fund money to make up that loss. It could apply those funds to almost any regular expenditure in the budget.

“If we can use some of this money for prisons, that will be the way we could do it,” Butler said.

Butler said compiling the numbers takes time because every source of revenue for every state entity must be counted over a span of several years.

“We can’t just add up our General Fund and our Education Trust Fund and use that,” Butler said. “We have to look at all our revenues that the state receives, including revenues received by entities that don’t operate inside the state treasury, like universities. Their tuition revenue doesn’t come through the state treasury. We have to count that, too.

“We are doing that calculation now. If that results in lost revenue, as defined by Treasury, then the guidelines say you can use it for anything that you would do in your budget.”

There are a couple of exceptions. The state could not use the money for pension programs or to restore revenue lost because of a newly enacted tax cut, Butler said. Also, there is a question over whether the money could be used for debt service.

The pandemic disrupted Alabama’s economy, raising unemployment to 13.8 percent in April 2020, up from a record low 3.5 percent the month before. By December 2020, the rate was back down to 3.9 percent. And Alabama’s tax revenues appeared to hold up well overall.

The Legislature, which is required to pass balanced budgets, was able to slightly increase the General Fund and education budgets for this fiscal year, which runs through September, and passed record-large budgets for next year.

But the Treasury Department formula allows states to plug in an expected average growth factor of at least 4 percent to measure whether they lost revenue during the pandemic.

“Just year-over-year, we haven’t had a whole lot of losses if you just look at the raw numbers,” Butler said. “But when they threw this growth factor in, that changes the calculation. It’s worth it to go through that calculation.”

Lawmakers are not scheduled to meet again until January, although the governor could call a special session before then. One specific reason for a special session would be for the Legislature to fulfill the requirement to redraw congressional and legislative district lines based on the 2020 census.

Butler said he does not necessarily think a special session is needed for decisions on the American Rescue Plan fund because states have more than three years to spend the money.

According to a Fiscal Recovery Fund website set up by the Finance Department, the money is intended to support COVID-19 response efforts, replace lost revenue, support immediate economic stabilization for households and businesses, and address systemic public health and economic challenges.

Those include necessary investments in water systems, sewer and wastewater treatment systems, and in broadband infrastructure to expand access to high-speed internet.

The access to federal money for broadband is timely for Alabama. During the legislative session that ended in May, lawmakers passed a bill to create the Alabama Digital Expansion Authority, which met for the first time last week and is responsible for setting up a statewide broadband connectivity plan.

Alabama has had a state grant program to expand broadband access for several years but funding has been limited.

The Digital Expansion Authority bill was initially a companion to a proposed constitutional amendment for a lottery and casinos in Alabama. A large portion of the state revenue from casinos would have gone to expand broadband access. The gambling bill died but lawmakers passed the bill setting up the Digital Expansion Authority.

Butler said he would expect lawmakers to make a significant investment in broadband with the American Rescue Fund dollars.

Besides the State and Local Fiscal Recovery Fund, Alabama will receive $192 million for a capital projects fund under the American Rescue Plan. Butler said states are still waiting on Treasury Department guidance on that. At this point, he said it’s unclear whether any of that money could be used for prisons.

State officials don’t face the tight timeline in allocating the American Rescue Plan money as they they did under the Coronavirus Aid, Relief, and Economic Security Act, passed in March 2020. The CARES Act, which sent $1.8 billion to the state, required the money to be spent in 2020. Congress finally extended that deadline by a year, but not until late December.

Last year, the Legislature approved a plan proposed by Ivey for spending the $1.8 billion in CARES Act funds. Alabama has spent all but but about $33 million, according to a dashboard maintained by the state Finance Department.

Butler said the administration is working with lawmakers on the American Rescue Plan funds but does not necessarily expect a similar plan to the CARES Act. He said there is more time to spend the money and the state is not faced with the same pressing needs and uncertainty that came when the virus first struck, such as where to buy scarce personal protective equipment.

The state’s experiences with the CARES Act program and its evolving and sometimes contradictory rules should be valuable in navigating the American Rescue Fund, Butler said. The 150 pages of rules the Treasury Department issued a few weeks ago still don’t cover every possible issue or uncertainty from states, which continue to ask questions.

“That’s why I’d say walking carefully and slowly is the better path here,” Butler said. “Because until the federal government finishes what you can do with it, it could change and does change.”

Ivey and the Alabama Department of Corrections worked more than two years on a plan to lease and operate three new men’s prisons that private developers would finance, build, maintain, and own.

But the plan stalled because the developers could not obtain financing.

Legislative leaders met with the governor, ADOC Commissioner Jeff Dunn, and others last week to discuss new options. Lawmakers and the governor said the talks were productive and said they would continue the discussions.

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