Against federal guidance, Fiscal Committee transfers relief funds to state budget

In a surprise motion, the Legislature’s Fiscal Committee voted 7-3 along party lines Monday to move $26 million in federal Coronavirus Relief Fund money to the state budget to pay for ongoing programs. But federal law does not allow such a transfer, leaving members confused about what the vote accomplished and whether it was legal. 

The Coronavirus Relief Fund included in the Cares Act provides $150 billion to states to help fight the virus. New Hampshire has so far received $625 million from the fund. That money is restricted for use in fighting the coronavirus. 

The IRS has issued clear guidance on how the funds are to be spent. It states:

“The CARES Act requires that the payments from the Coronavirus Relief Fund only be used to cover expenses that—

1. are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19);
2. were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government; and
3. were incurred during the period that begins on March 1, 2020, and ends on December 30, 2020.”

Those three conditions make clear that the federal money may not be used to fund programs that were part of any state budget approved before March 27, 2020.  

Legislative Budget Assistant Mike Kane read that guidance to the Fiscal Committee during its Monday meeting, which took place over the phone. 

Nonetheless, the 7-member Democratic majority voted to move $26,050,000 in federal Coronavirus Relief Fund money to eight existing budget line items. 

In an attempt to navigate around the obvious legal obstacle, the committee’s motion contained the clause “to the extent U.S. Treasury guidance permits.” 

That clause prevents the money from being transferred unless Treasury issues new guidance authorizing budget backfilling.

After Republican members questioned the committee’s legal authority to move the funds, Kane said that under existing federal guidance “there’s not much that the committee can do at this point.”

“I would recommend that legal counsel should be sought,” he added.

He further suggested that any such transfer of federal CARES Act funds might have to be advisory only. 

Sen. Cindy Rosenwald, the motion’s sponsor, said she believed the clause requiring updated Treasury guidance made the motion advisory. 

But because the motion commits the committee to transferring the funds pending federal authorization, it is not clear that the motion is really advisory in nature. If Washington eventually allows the transfer, the vote on Monday presumably would make it automatic.

Sen. Lou D’Allesandro, D-Manchester, acknowledged that the committee didn’t know whether Washington would allow the transfer to happen.

“We now have the money, and if indeed it meets the requirements set forth by the federal government, we can again restore to the public items that we thought they needed at the time so that there’s no disruption in service,” he said.

“If that proves inaccurate, then we have to make a change,” he later added.

Though the move was legally dubious, from a public policy standpoint filling budget holes with relief money has merit.

States are incurring massive revenue losses as a result of the economic contraction caused by business closures and stay-home orders. Gov. Chris Sununu estimated that New Hampshire’s budget could face $500 million in cuts in the next fiscal year, on top of a few hundred million by June of this year.

The Josiah Bartlett Center for Public Policy last week joined other free-market state think tanks in urging Congress to remove those restrictions so states can backfill their budgets in just the way the Fiscal Committee voted to do on Monday.  (CARES Act Coalition Letter[1][1])

But until Washington acts, states cannot use Coronavirus Relief Fund money to fund programs that existed before March 27 of this year. 

Further clouding the issue, Sen. Rosenwald’s motion to move the $26 million was not on the Fiscal Committee’s agenda for Monday’s meeting. It surprised Republican members of the committee, who protested that the vote should be postponed until the public had a chance to weigh in and members had a chance to read the motion. 

No paper copy had been provided to committee members. The text was read aloud during the meeting. 

“We do not have a copy of that motion,” Rep. Lynne Ober, R-Hudson, protested. “I just think that it’s totally inappropriate to be voting on today.”

Rep. Erin Hennessey, R-Littleton, moved to table motion until the public had a chance to see it and guidance from Treasury allowed it. Her motion failed on a 7-3 party-line vote.