“I was assured this funding would be able to be used flexibly by states, filling holes we now must deal with,” he said during his daily news conference. “Those assurances apparently were empty.”
As a result, Murphy said, the Treasury Department’s policy “renders much of this funding literally unusable.” He predicted that without changes, the state might have to “return a good chunk of it to the federal government.”
Murphy’s criticism was the latest public complaint about the Trump administration’s implementation of coronavirus emergency funding programs. The Treasury Department already had to make adjustments to a small-business bailout program and acknowledged glitches in the way it has sent payments of $1,200 to millions of Americans. Federal assistance for state unemployment programs, meanwhile, also has been delayed because of a surge in applications from hard-hit states.
The Treasury Department declined to discuss the state aid program on the record. Officials, who spoke on the condition of anonymity because they were not authorized to speak publicly, said the agency offered as much flexibility as the law allowed, a view shared by some experts outside the government.
“Treasury only has so much authority in this regard,” said Jared Walczak, the director of state tax policy at the Tax Foundation, later adding, “The recent Treasury guidance helps states understand how they can use this funding, but it still leaves substantial uncertainty.”
The rebuke from Murphy reflects the intensifying standoff between state governors and federal officials over Washington’s responsibilities as the coronavirus unleashes economic havoc nationwide. A bipartisan group of governors has asked Congress for $500 billion to shore up their budgets, warning of steep spending cuts that could make the economic downturn even worse. Democrats share their concerns, but Republican lawmakers so far have balked at this figure, and no local aid is included in the latest coronavirus aid package adopted by Congress.
On Thursday, President Trump waded into the battle, suggesting the issue is the “next thing on the list” — even as he swiped at some Democratic governors at his news briefing.
“There’s different ways of helping states. Some ways are better than others. So we’re looking. It is interesting that the states that are in trouble do happen to be blue,” Trump said, before singling out New Jersey, a state he said had “a lot of problems long before the plague came.”
Earlier this week, Senate Majority Leader Mitch McConnell (R-Ky.) signaled his staunch opposition to providing more aid to scores of local governments that have requested it, at one point saying he would be open to allowing states to seek bankruptcy protections.
“I would certainly be in favor of allowing states to use the bankruptcy route,” McConnell said in a radio interview. “It saves some cities. And there’s no good reason for it not to be available. My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they don’t have to do that. That’s not something I’m going to be in favor of.”
In response, New York Gov. Andrew M. Cuomo (D) called McConnell’s remarks “dumb,” and Maryland Gov. Larry Hogan (R) predicted that the GOP lawmaker would “regret” allowing states to go insolvent amid a crisis.
For New Jersey and many other states, new trouble stems from guidance issued by the Treasury Department late Wednesday. Federal officials ruled that the $150 billion approved as part of the stimulus legislation, known as the Cares Act, “may not be used to fill shortfalls in government revenue,” according to the agency. Eligible expenses also have to be “substantially different use from any expected use of funds” in a state’s existing budget.
Treasury officials said the new dollars doled out to states and large cities can be put to use on some coronavirus-related costs incurred by first responders and public hospitals, for example. Analysts at the Tax Foundation said this week that the aid even could be redirected to local economic relief programs. But local governments cannot tap the cash to cover Medicaid costs or to pay for employees whose work duties “are not substantially dedicated to mitigating or responding to the covid-19 public health emergency,” the federal agency said.
The guidelines have generated immense confusion in New Jersey, where one state official, who was not authorized to comment publicly and spoke on the condition of anonymity, said it remains unclear how the program would work in practice. Take the example of a police officer, who might be on normal patrol yet helped in enforcing stay-at-home orders. New Jersey officials said they aren’t sure whether federal aid covers that expense because public safety is already budgeted and new federal dollars cannot help close revenue gaps.
In the meantime, New Jersey faces an immense shortfall, leading the state official to predict it could run out of cash at the current rate in about four to six weeks, perhaps leaving the state no choice but to consider huge cuts and layoffs, including those targeting education and teachers.
Similar budget headaches have surfaced nationwide: With businesses shuttered, more than 26 million workers out of a job and precipitous declines in travel and shopping, fewer tax dollars are flowing into cash-strapped cities and states, forcing many to consider cuts to local services or reductions in their workforce. More than 2,100 cities say they are bracing for withering cuts, including those that affect public safety.
Murphy previously said in an interview that he expected New Jersey to be “many billions” of dollars short of what the Garden State needs — making federal aid all the more critical.
“If the federal government doesn’t do its job and support New Jersey’s families, we may not be able to keep our teachers, cops, firefighters and paramedics employed, the very people who are on the front lines every day,” he said Thursday. “And we’ll have to send this money back to Washington.”
Erica Werner and John Wagner contributed to this report.