Red states skim money from COVID relief funds: Money to go toward tax cuts for businesses

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Tennessee Gov. Bill Lee — Photo by Mark Humphrey / AP
Tennessee Gov. Bill Lee — Photo by Mark Humphrey / AP

Republican governors are seeking to use federal COVID relief funds to cover state tax cuts, instead of for the intended purpose of providing relief to businesses that lost customers due to health restrictions, and state agencies overwhelmed by people seeking assistance.

Congress approved a $1.9 trillion COVID relief package in March 2021. Of that money, some $350 billion was available for distribution to states. While Congress stipulated very few restrictions on how the money could be used, but they were clear that is was never to be used to reduce state taxes.

Sen. Joe Manchin (D-WV) — one of the key negotiators in the deal-making process — said at the time that Congress refused to be on the hook for reductions in state tax revenues, since that could leave major budget holes once federal aid ran dry.

Now, however, governors in several Republican-led states are signing budgets that expect to use federal COVID relief funds to cover tax cuts. And that could be a violation of federal law.

Florida Gov. Ron DeSantis — Photo by Steve Cannon / AP  

For example, Florida Gov. Ron DeSantis — a leading candidate for the Republican presidential nomination in 2024 — recently signed a $109.9 billion state budget bill that includes pay raises for state workers and law enforcement.

In addition, DeSantis's budget includes $200 million worth of tax cuts on fuel, a scheme he plans to pay for with federal COVID funds.

In another example, Tennessee Gov. Bill Lee signed a new version of his state's budget that offered sales tax relief paid for by $100 million from the state general funds. The money was available partly because the state previously secured more than $700 million in "reversions," a technical term for money transferred from key state agencies back to its general coffers.

Some of the savings were made possible because those same agencies had received federal stimulus aid, the local officials said.

In contrast, federal COVID relief money in Washington state has gone primarily to direct economic relief, with large sums also going to testing services and schools and childcare facilities.

Republican-controlled states have gone to federal court to challenge the Biden administration's oversight on COVID relief spending, claiming that once their states receive the money, it's theirs to do with as they please.

Twenty-one state attorneys general have filed suits to overturn the Biden administration's policy, and they are backed by powerful groups like the US Chamber of Commerce, whose corporate members have lobbied conservative-leaning states to reduce their tax bills.

In one case brought by Alabama and West Virginia with the support of 11 other states, Republican officials argued that the federal government had no right to dictate how they spend their money, balance their budgets, or set tax policy.

They said federal stimulus money had forced them to make an "untenable choice" between relinquishing "control" of their taxing powers or surrendering "massive and much-needed aid."

In nearly every case, these legal efforts have prevailed, preventing the Treasury Department from exercising control over federal funds, while opening the door for states to pursue their own tax cuts.