Congress Must Rescind the ‘Bidenomics Slush Fund’

T he American Rescue Plan Act (ARPA) rescued state and local governments that weren’t in need of rescuing. The March 2021 law included $350 billion for the State and Local Fiscal Recovery Fund (SLFRF). States didn’t need the money, so they have struggled to figure out how to spend it. Nearly three years after the law’s passage, only $198 billion of the $350 billion has been obligated, which does not necessarily mean it has even been spent yet.

The charitable interpretation of the SLFRF is that it is a classic case of fighting the last war. During the Great Recession, state and local governments struggled to find revenue to balance their budgets. The federal government thought it had learned its lesson from that experience, and made sure to give state and local governments plenty of fiscal support in response to the Covid pandemic. That turned out to be wrong when state governments actually experienced a surge in revenue during the pandemic, with nearly every state running budget surpluses before receiving any pandemic aid.

The less charitable interpretation is that the Biden administration included a $350 billion slush fund in the bill, which was passed with exclusively Democratic votes almost a year after the Covid recession was over, and that it plans to draw on that money to help the president in the run-up to the 2024 election. A new piece of evidence supporting this interpretation is that the Treasury issued a new rule the Friday before Thanksgiving making it easier for states to hoard the remaining unspent cash.

In a new report explaining the Treasury rule, Paul Winfree and Brittany Madni of the Economic Policy Innovation Center call the SLFRF “the Bidenomics slush fund.” They conclude that by changing the definition of what it means to obligate SLFRF funding, the rule will make it more difficult for Congress to claw back unused money.

The original definition said an obligation was “an order placed for property and services entering into contracts, subawards, and similar transactions that require payment.” Now, the Treasury is expanding that definition to include any costs of “terms and conditions” associated with programs.

The Treasury rule means SLFRF money can now be used to cover costs related to reporting and compliance requirements, audits, recordkeeping, and property standards. State and local governments are required to obligate SLFRF funding by December 31, 2024, or lose access to it. The expanded definition of obligation in the new rule will allow them to obligate billions more dollars before that deadline.

Winfree and Madni estimate that the expanded definition could wall off, conservatively, more than $13 billion from any congressional efforts to take it back. First, they note that $90 billion is yet to be approved by Treasury for disbursement and $42 billion has been approved by Treasury but is not yet obligated by state and local governments. Then, they say that even if only 10 percent of that money is covered under the “terms and conditions” expansion, it would come out to over $13 billion.

Winfree and Madni argue this rule is being made in violation of both the Congressional Review Act and the Administrative Procedure Act. The Treasury says the new rule is “not a major rule for the purposes of the Congressional Review Act,” but major rules under the CRA are defined as rules with an impact of over $100 million. Even if Winfree and Madni’s estimated impact of $13 billion is high, there’s almost no way the impact could be less than $100 million.

The Treasury also skipped the normal notice-and-comment procedure under the APA, claiming a “good cause” exception. That means the rule came into effect immediately, with the comment period ongoing even while the rule is operative. The “good cause” exception is for issues such as national emergencies, not the administration of a state- and local-funding program.

Winfree and Madni speculate that one reason for the rush might be to align with state legislative calendars. State legislative sessions often begin in January, and “it is likely that Treasury sees this as a soft deadline that the agency needed to beat to give state governments time to set up a plan for expenditure proposals,” they write.

They also note that we are going into an election year. “As the 2024 election season ramps up, the administration has a vested interest in pushing dollars out the door as rapidly as possible to buy voters’ goodwill,” they write. Projects funded by the ARPA commonly have signs displayed on site noting that they were paid for by the law.

Seeing how some of the SLFRF money has been spent makes doubly clear that Congress should recoup the remainder of the funds. Winfree and Madni list some of the projects supported by the fund.

There’s spending on entertainment or recreation that has little if anything to do with pandemic relief, such as $185 million for projects related to golf courses and $34 million for tennis and pickleball courts. (To which I would add that millions in ARPA funding went to racetracks in North Carolina.)

Then there’s the progressive political spending. At least three states have used funding for diversity, equity, and inclusion coordinators whose jobs would include applying for more federal grants. Illinois used $4.2 million to provide legal services for illegal immigrants.

Then there are the peculiar cases of spending on seemingly pandemic-related projects that, according to state and local authorities, have so far helped nobody. Winfree found that, for example, Clark County, Nev., has spent $5 million in SLFRF money to help review eligibility for rental assistance that it reports has served zero households. Baltimore County, Md., has spent $2.1 million fighting food insecurity that it reports has served zero households.

Madni notes that it is possible funding in these instances has been used for approved purposes, but it is nonetheless concerning that state and local governments aren’t properly reporting to the Treasury how the funding is being used. “No potential good done negates the reporting requirements or the fact that supposedly zero households have been accurately tracked as being supported by these ‘fiscal recovery’ dollars.”

State and local governments didn’t need the extra money to begin with. If the $350 billion in SLFRF funding was a mistake based on incorrect assumptions about states’ revenue needs, there should be no problem with Congress’s rescinding the unspent funds three years after the pandemic recession ended. If the Biden administration has turned the SLFRF into a slush fund, as Winfree and Madni allege, then Congress should rescind the funds to reassert its constitutional power of the purse. Either way, there’s no reason another penny should be spent from the SLFRF.