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States Are Fighting Over How To Use The $195 Billion From The Federal Government

MARY LOUISE KELLY, HOST:

The Biden administration is doling out an unprecedented amount of money to states across the country. It's $195 billion, part of the COVID relief law that Democrats in Congress passed back in March. A big fight is already brewing between states and the federal government over how to use that money. NPR's Asma Khalid reports.

ASMA KHALID, BYLINE: At the beginning of the pandemic, state officials were really nervous they would run out of money. But turns out many states never took as big of a financial hit as feared, and now they're actually getting an infusion of cash from the federal government.

JOSH GOODMAN: This really is a historic opportunity for states.

KHALID: Josh Goodman is a state fiscal health policy expert with the Pew Charitable Trusts.

GOODMAN: States don't generally have this amount of flexible money to work with.

KHALID: In many states, the funds from the American Rescue Plan are equal to about 10% of what they spent last year. Gene Sperling is the White House point person on rolling out COVID aid money.

GENE SPERLING: One of the top lessons from the Great Recession was that when we went into recovery, state and local governments were still starved and cutting back on teachers and spending and vital services.

KHALID: Sperling was in the Obama administration. He says they learned lessons from 2009 and want to make sure states have extra funds to help people who got hit the hardest. But there are limits on how exactly states can use this money. For example, if a state has a budget surplus, they cannot use it on general infrastructure. Think roads and bridges. Here's Josh Goodman again.

GOODMAN: For states that didn't have revenue losses, it's only water, sewer and broadband infrastructure - the three allowable categories.

KHALID: And there's another sticky issue.

GOODMAN: There's this very broad, expansive language that says that it can't be used either directly or indirectly to facilitate a tax cut.

KHALID: Jared Walczak is with the Tax Foundation, a group that favors more conservative tax policies.

JARED WALCZAK: But what does indirectly mean? That's a really tough question.

KHALID: It's a question the Biden administration tried to answer the other week. It said states can cut taxes if they can prove they used other funding sources - not the extra federal COVID money - to finance those tax cuts. Still, Republicans say that's vague. More than a dozen Republican-led states have filed lawsuits over this. Ohio is one of them.

DAVE YOST: It's unconstitutional on its face.

KHALID: Dave Yost is Ohio's attorney general.

YOST: Ohio is fighting back against the federal government trying to dictate what is traditionally a state right to determine its own internal taxation policy.

KHALID: Sperling says he's spoken to just about every governor in the country and insists they've had productive conversations.

SPERLING: Even if there's controversy or political sniping coming from other parties, when the White House is talking to governors, including Republicans, we're finding people engaged, you know, who feel that this money is valuable.

KHALID: Meanwhile, some states, such as Oklahoma and Montana, have already passed tax cuts. Ray Scheppach was the executive director of the National Governors Association for nearly 30 years.

RAY SCHEPPACH: Governors used to be governors first and Republicans or Democrats second. Today they're basically extensions of the Hill and of their parties.

KHALID: Scheppach remembers a time when state attorneys general worked together on issues like that famous tobacco settlement of the late '90s. But he says now they're often fixated on fighting back against a president of the opposite party. Democratic AGs did this with former President Trump.

SCHEPPACH: Increasingly, what's happened is, you know, they have become extremely partisan. They are sort of the spear point politically now.

KHALID: This isn't the only battle for Republican AGs. They've sued the Biden administration over immigration and climate policies, too.

Asma Khalid, NPR News.

(SOUNDBITE OF KMD SONG, "GET YOU NOW") Transcript provided by NPR, Copyright NPR.