West Virginia can meet CARES deadline, Hardy says, but hopes for an extension

West Virginia is up on federal deadline to spend millions of dollars in CARES Act relief, and Revenue Secretary Dave Hardy says the state has key decisions to make.

One big factor is whether states receive an extension in another relief package still under discussion by Congress. Lawmakers were expecting negotiations to continue into this weekend on the relief bill.

Dave Hardy

“That’s the chess game we’ve been playing all along,” Hardy said during a Friday interview. “We’ve been trying to hold back as many decisions as we can because we know the law could very well change.”

If Congress should not provide an extension, West Virginia still has $764,887,286 to spend prior to the approaching deadline, according to the state Auditor’s Office. Most of the money remains with the state Board of Investments.

The state received $1.25 billion in CARES Act funding in the spring and has spent about a half-billion dollars.

By year’s end, Hardy said the state will have incurred $1.203 billion in expenses — although not all of that is yet apparent on the state Auditor’s site.

U.S. Treasury guidance calls for governments to spend the money by Dec. 30, although there is a period for paying bills after that date.

“So Dec. 30 is the red letter day,” Hardy said.

If the federal government allows for an extension, Hardy said West Virginia will take it and put millions of dollars toward big expenses likely at the start of the year — continued costs for unemployment and continued costs for covid-19 testing.

But if the extension fizzles, Hardy said, West Virginia could quickly shift to providing documentation for expenses the state has taken on already.

Unemployment 

The biggest allocation of CARES money — “the one that gives everyone sticker shock” — goes to unemployment costs.

West Virginia planned $287 million for unemployment costs prior to July 1, which is when a new fiscal year began. And the state put $300 million toward unemployment costs from July 1 to Dec. 30.

Over the course of the pandemic –from March 1 to Dec. 15 — West Virginia has put $502.2 million into unemployment, Hardy said.

Hardy described the ebb and flow of the state’s unemployment fund over the course of the pandemic.

On March 1, as the pandemic began, West Virginia had $160.4 million in the fund. Premiums from employers going into the fund from March 1 to June 30 added up to another $98.1 million. “It all got spent on unemployment benefits,” Hardy said.

The fund went insolvent, by design, the first week of July.

State government then drew down an interest-free loan from the federal government. “We have been funding unemployment benefits by virtue of an interest-free loan,” Hardy said.

State officials project the balance of the interest-free loan by the end of the year will be $130 million.

Besides that, $75.7 million of employment premiums has gone into the fund from July 1 to Dec. 15.

Another expense that arose during the summer was a brief period when President Trump used an executive order to extend expanded unemployment benefits through FEMA. That had a three-to-one match and West Virginia spent $38 million before the program stopped.

On Dec. 31, the terms of the interest-free loan expire and the state would be charged a 2.4 percent rate for what remains.

“We’re going to have to cut a check to pay that loan off,” Hardy said.

“One of the reasons we’ve held back CARES money is, we know that money will come due at some point. It’s just a question of when.”

Hardy noted that Congress has also discussed forgiving such loans and said his advice to the governor would be continuing with it if that occurs.

More state expenses 

States are able to be reimbursed for expenses they incur for battling the pandemic.

In June, Hardy said, West Virginia had identified $65 million in reimbursable expenses. “We wrote ourselves a check for $57 million when the fiscal year ended,” he said, describing an effort to balance the budget and close the books on the fiscal year.

Including that amount, West Virginia has identified $240 million of what Hardy calls “deep-dive expenses” since then. That doesn’t include December.

“So you can see there’s a balance of $183 million that we have the option of paying ourselves back,” he said.

And more expenses

Besides unemployment costs and state expenses, the state specified several other categories — or “buckets,” as the governor calls them — for CARES spending.

Hardy provided some more context for that spending during a Friday briefing.

—  a $30 million commitment for the West Virginia CARES Act Small Business Grant Program. These grants were up to $5,000 for affected small businesses or $2,000 for sole proprietors. Hardy said most of that was spent, although it was initially described as $40 million.

— An amount originally set at $200 million for local governments wound up being more like $253 million. Hardy said more than that, possibly another $12 million, might wind up being needed. “The program has been remarkably successful,” he said.

— $33 million for broadband development

— $50 million for “medical access highways.” Observers have questioned this one, but Hardy said it was reviewed by state officials and consultants. “They went out and identified a specific set of highways that would impede treatment at medical facilities in West Virginia,” Hardy said.

— $10 million to bolster Fairmont Hospital

— $25 million for public service districts to help allay costs for people who couldn’t pay their utility bills.

— $50 million originally allocated for National Guard work on testing and personal protective equipment.

Hardy described about $70 million in testing costs for the Department of Health and Human Resources. “The testing, of course, is not inexpensive.”

With a few more miscellaneous expenditures, Hardy described a “cushion” of about $39 million.

“So we have met the mission,” he said during a Friday briefing.

“Hold onto the dollars, commit what we have to commit, keep up with the guidelines and be sure there hasn’t been additional money allocated or additional changes to law.”

He concluded, “This is a miracle, as far as I’m concerned. This was very difficult.”

Looking ahead

West Virginia has more decisions to make if an extension is allowed.

The current package being discussed by Congress does not include additional relief for states and local governments.

headshot
Governor Justice

“All eyes are on the stimulus package that’s going on in Washington, D.C.,” Justice said.

The governor described frustration that Congress has been slow to act and that it has not provided more relief to states.

“I surely thought there would be some dollars set aside for the states and the counties,” Justice said Friday. “”There are so many aspects of what if, what if, what  if.”

Several what ifs could extend into the early part of next year.

The governor and Hardy anticipate significant unemployment claims continuing through January, February and March. Hardy said the governor has directed $315 million to replenish the unemployment trust fund for the start of the year.

“We are projecting that we will still have a very large amount of unemployment benefits for January, February and March in calendar year ’21,” Hardy said.

West Virginia could use CARES money to cover unemployment costs. If not, Hardy said, the option would be raising taxes on employers.

“You have to have something to put in the fund,” Hardy said.

Justice has repeatedly described his desire to avoid raising taxes on employers.

“We’ve been over this so much I could stamp it on my hand,” Justice said. “We have insured our businesses against absolute increases.”

Some close observers have criticized the governor for that priority, saying the tax hike for employers would be minimal compared to suffering by small business owners and unemployed individuals who could benefit from millions of dollars in relief right now.

Shelley Moore Capito

U.S. Senator Shelley Moore Capito, R-W.Va., expressed support for the governor’s approach during an appearance last week on MetroNews’ “Talkline.”

“I’ve been in close contact with the Governor’s Office to tell them the things that are in here that would be appropriate for the state, and extending that deadline is definitely in there until the end of 2021 no matter which bill passes,” Capito said, alluding to two related bills with covid-19 financial relief.

She added, “I’ve read that the governor has said he’s committed a lot of the $700 million; it just hasn’t gone out the door. He’s going to have a lot of impetus to keep moving forward on this. I think he’s been waiting so we could open up the window so we could replace lost tax revenues, and he’s going to have the ability to do that. So honestly, I think he’s done it the right way.”

Another continuing expense for the first part of the year will be testing for covid-19. The state is anticipating $80 million in testing costs for January, February and March.

“But that number could change. That’s a projection,” Hardy said.

Right now that cost would not be eligible for CARES funding, but if there’s an extension it would be.

Another cost unknown right now is for vaccine distribution, Hardy said. “The federal government is providing the vaccination but they’re not paying for all the distribution and the administration,” he said. “That is an unknown number at this point.”

In all, Hardy said West Virginia has big financial decisions coming up but much depends on what Congress does.

“We’re committing the money but sometimes we’re holding it back for a strategic reason,” he said.

“It’s like a budget chess game is what it is. Behind all that is an elaborate plan that changes every day. It changes literally every day.”





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