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Minnesota Local Govs Still Have $2B in COVID Aid to Spend

Most of the remaining funds have been earmarked by cities, townships and counties for community projects to address broadband access, housing, workforce development and other needs. But some worry about the debt repayment.

(TNS) — More than 28 months into the coronavirus pandemic, Minnesota’s local governments have an unprecedented amount of federal cash.

Less than half of the nearly $3.3 billion cities, townships and counties received in federal COVID-19 aid was used to directly respond to the pandemic and much of the remaining $2 billion is now earmarked for “transformational” community projects.

“This is a historic, once-in-a-lifetime opportunity to invest in your communities, invest in your needs, that will pay off dividends long-term,” said Matt Hilgart, government relations manager for the Association of Minnesota Counties. Projects funded with the billions sent to local governments could have a “transformational” impact, Hilgart added, with some local leaders likening the program to efforts to recover from the Great Depression or rebuild Europe after World War II.

The federal money sent to cities, townships and counties is just a slice of the more than $73 billion Minnesota received from the five different coronavirus response bills approved by Congress since 2020. The Pioneer Press is working to track where those funds went and how they are used.

Most of the federal money, about $53 billion, went directly to residents as economic aid, and much of the rest was dedicated to specific pandemic needs.

Minnesota’s local governments got roughly $1.2 billion from the 2020 Coronavirus Aid, Relief and Economic Security, or CARES, Act, and $2.1 billion from the 2021 American Rescue Plan Act.

The CARES Act money had to be spent by the end of 2020 and was mostly used in direct response to the pandemic and its economic fallout. Most of the American Rescue Plan money has yet to be spent, and community leaders plan to use much of it to address systemic disparities in essential needs like housing, internet access, workforce opportunities, public safety and health care.

“A pandemic has a way of exposing society’s fault lines really clearly,” said Ryan O’Connor, Ramsey County manager.

Ramsey County got $96 million from the CARES Act and $108 million from the American Rescue Plan. County leaders have spent much of the last year working with the community to decide how to use the American Rescue Plan money.

O’Connor noted that the coronavirus outbreak further exacerbated many of the racial gaps Minnesota was already struggling to address. Ramsey County and other communities hope using federal aid to address those historic gaps should help communities build resilience and the most struggling residents become more prosperous.

“If they succeed, the entire community around them is able to succeed as well,” O’Connor said.

Not everyone sees the $5.7 trillion the federal government has spent in response to the coronavirus pandemic as an opportunity to address societal challenges. It’s also a tremendously large amount of debt that will eventually need to be paid off.

“It may be great for us today, but it’s pretty bad for our children and grandchildren,” said Bill Walsh, spokesman for the conservative-leaning Center of the American Experiment and a White Bear Lake City Council member.

Walsh acknowledged that hindsight makes it easier to criticize decisions made in the heat of a health and economic crisis, but he notes that as early as 2020, some local government leaders struggled to find a way to spend all the aid they received.

“We went overboard,” he said. “I think you can’t deny it has had an impact on the inflation we are seeing now.”

‘A Godsend'

A key focus for many Minnesota communities’ plans for their remaining federal aid is on programs to help people struggling with homelessness and the housing crisis.

For instance, St. Paul and Ramsey County partnered to help fund Project Home, a family shelter now operating out of the Provincial House on the campus of St. Catherine’s University in Highland Park. The Interfaith Action of Greater St. Paul program previously operated out of church basements. Then the former living space for the Sisters of St. Joseph of Carondelet was transformed in early 2021 to house as many as 30 families who are struggling with homelessness.

“This has been a godsend. When I first walked in the door, I could finally breathe,” said Debbie Oliverio, who shares a room at the shelter with her 11-year-old son, Nehemiah. “When you are homeless, you go through a lot of stress. This has been a blessing.”

Sara Liegl, who directs Project Home, says finding affordable housing for lower-income residents was hard before the pandemic. Now it’s like searching for a “needle in a haystack.”

Project Home offers families a “more dignified” place to stay than a typical shelter of cots in a church basement or gymnasium. There are three meals a day, recreational spaces and counselors who help families find permanent housing.

The typical family stays in the shelter about 66 days, down from 84 days during the pandemic. Family size currently ranges from two to as many as nine.

Liegl commends community leaders for focusing on affordable housing and permanent shelter space. Oliverio, who came to Minnesota from California by way of Arkansas, is glad the housing crisis is finally getting the attention it deserves.

“This has been an issue for 40 years,” Oliverio said. “The pandemic opened people’s eyes. People who were able to withstand and survive before found out what it is like to be poor.”

Other Funding Plans

Communities are able to focus their American Rescue Plan funding on things like housing, broadband access, even water and sewer projects, thanks to revised rules from the federal government that were finalized in January.

Lisa Sova, assistant director of finance for the League of Minnesota Cities, said the rules allow communities to spend federal aid in several broad areas: Responding to the public health emergency and its economic impact, replacing lost revenues, premium pay for workers and infrastructure projects. They can also use the first $10 million in funding for “general provisions of government service.”

“It made it easier for cities to put that funding to use where they needed it most,” Sova said of the final rules from the U.S. Department of Treasury. “It also had the added advantage of more streamlined reporting. That is very helpful, especially for our smaller cities who don’t have a lot of staff.”

American Rescue Plan funds must be spent on pandemic expenses by 2024, or by 2026 if it’s for a project that was already underway. It means cities, townships and counties can use federal aid to reduce the property tax impact of renovating a water-treatment facility or officials could dedicate some of it for bonuses for frontline workers.

It can also be used to replace lost revenue from sales taxes, parking and events. For instance, St. Paul leaders estimate they lost a combined $120 million in revenues because of the pandemic.

That’s in contrast to state government, which initially feared a dramatic decline in tax revenue, but began the year with a record $9.25 billion budget surplus. About $7 billion of that remains for lawmakers to allocate when the Legislature reconvenes.

Capital City Priorities

St. Paul received roughly $23.5 million from the CARES Act and $167 million from the American Rescue Plan. The city plans to spend $40 million on neighborhood safety, $40 million on workforce development and $40 million on housing, with the remaining $47 million divided among things like public health, modernizing city services and financial stabilization.

Mayor Melvin Carter says those decisions were made after several rounds of community input to identify the biggest challenges.

“If our budget doesn’t reflect our values, then they’re not our values,” Carter said, calling the pandemic an “existential crisis” the city is still recovering from.

The federal aid is also helping fund new ideas, such as the next phase of the People’s Prosperity Guaranteed Income pilot. The program will get $4 million in federal aid to help provide low-income families with $500 a month for food, rent and essentials.

Carter says the initial results of the program have been positive with recipients gaining employment at a higher rate than peers not receiving the benefit. The added income helps them afford child care, fix their car or take time off from a part-time job to interview for a full-time position.

“It is incredible the extent to which a little bit of money to make it to the end of the month unlocks a whole world of economic potential,” Carter said.

Different Than The Initial Response

Minnesota communities will feel the impact of the American Rescue Plan for years to come as the more than $2 billion that local governments received is spent. That’s much different than the $1.2 billion sent to communities from the CARES Act.

If the American Rescue Plan was designed to improve communities and prepare them for the next crisis, the CARES Act was fashioned to address immediate needs that arose during the first year of the pandemic.

“We had no idea the pandemic was coming, nobody had made any provisions for anything like this,” said Sova, of the League of Cities. “Cities had a bunch of unbudgeted, unexpected costs as the result of the pandemic.”

Data from Minnesota Management and Budget shows about half of the CARES Act dollars received by local governments went directly to responding to the health emergency. Another 25 percent went to businesses and workers in the form of economic aid.

The rest was used to cover the cost of transitioning from in-person to online school and work as well as covering the costs of employees who were reassigned to help deal with the pandemic.

Community leaders had to use the money by the end of 2020 or return it. “It was fast-paced for immediate needs,” Sova said.

Questionable Spending?

Walsh, from the Center of the American Experiment, says that tight timeline likely also led to some questionable expenditures. Last summer, his organization noted communities used the money for things like improving parks and municipal buildings.

Forest Lake hoped to use $150,000 on a golf course clubhouse before public outcry led leaders to reconsider.

Walsh says the loosened rules around how American Rescue Plan money can be used may encourage more debatable spending. It could also lead to new programs without a source of long-term funding.

He noted that White Bear Lake used much of the CARES Act money to help keep businesses afloat during lockdowns, but officials also struggled to get money to residents who are most in need. The city is primarily using American Rescue Plan money to delay future increases in property taxes.

“Governments shouldn’t be asked to hand out money,” Walsh said. “I guess you can connect anything to the pandemic if it is about how people in the community are doing.”

Long-Term Impact

Rather than see it as a handout, St. Paul Mayor Carter and Ramsey County Manager O’Connor see the influx of federal aid as a chance to address some of the challenges facing residents. Minnesota’s most diverse county also has some of the nation’s most stubborn racial disparities.

“Race matters in all of these outcomes,” O’Connor said. Not recognizing that COVID-19 disproportionally impacted people of color means “you’re going to build back in a way in which you are going to continue to perpetuate forward the status quo you came into it with.”

Carter likened the federal aid programs to investments made to combat the Great Depression. He says the community has “infinite potential.”

“I see this as an investment in the future of our country,” Carter said.

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