Arizona Governor Doug Ducey directed millions in federal pandemic relief funds to finance operations at state agencies, and local Democrats are accusing him of misusing the funds.
As part of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act that Congress passed last spring to keep the economy on life support after pandemic-induced economic shutdowns, Arizona received $2.82 billion for local and state governments, according to a recent report from the state Joint Legislative Budget Committee (JLBC). Those funds were intended to cover costs incurred during the pandemic, according to guidelines provided by the U.S. Department of Treasury.
Of the $1.86 billion that went to the state of Arizona, $397 million went to reimburse spending from the general fund, while $5 million financed Department of Public Safety and Arizona Department of Transportation, according to the JLBC report. The rest of the money was issued to a variety of recipients, including $441 million for small local governments, $150 million for the Arizona Express Pay Program, $14 million to the Department of Health Services for Personal Protective Equipment, $9 million for the Secretary of State's COVID-19 response and election operations, and $370 million for public school districts and charter schools through the Enrollment Stability Grant Program. (Out of the state's total $2.82 billion CARES Act allocation, another $965 million went to local governments with populations over 500,000, such as Maricopa County, the city of Phoenix, and Tucson.)
Similarly, an August JLBC report noted that while the state was originally expected to have a $190 million budget deficit at the end of 2020 (due to the pandemic), JLBC staff now expect that the state will close out the year with a $377 million surplus — a roughly $500 million shift. An estimated $319 million of that is attributed to "lower-than-expected spending," primarily due to the "use of COVID-relief federal funds to offset existing General Fund spending." The spending "occurred mostly in the Department of Corrections and the Department of Health Services," the report states.
Local Democrats, who were briefed on the use of the federal relief funds last week, pounced on Ducey for the decision, arguing that the money should have been used to directly combat the pandemic, rather than prop up state agencies and their basic functions. They cited Arizona's dysfunctional unemployment benefits system as needing additional support to aid those out of work due to the pandemic.
"Over the course of the last few days, we've learned that hundreds of millions of dollars from the CARES Act money has been used by the governor to backfill our Department of Corrections," said State Representative Aaron Lieberman, who represents north Phoenix, at a October 2 press conference. "The design and intent of those funds were to fight COVID and help Arizonans who are dealing with the impact of this pandemic. Our position is really simple: Let's use those CARES Act dollars to do things that will help Arizonans today."
At this time, Phoenix New Times has not confirmed Lieberman's assertion that "hundreds of millions of dollars" were used to finance Department of Corrections, other than JLBC's estimate that the state's new surplus was mostly due to the use of federal funds to cover "existing" spending in the Department of Corrections and the Department of Health Services.
"We have so many needs right now with our schools and testing and contact tracing to minimize the current spread. We were surprised to hear that so much of it went to the Department of Corrections," Lieberman told New Times after the press conference. "It’s particularly ironic that the Department of Corrections has been a hotbed of COVID itself. The CARES Act money was paying for the Department of Corrections while the Department of Corrections wasn't taking the necessary precautions to keep prisoners safe."
Lieberman and the other Democrats got their information on Ducey's use of the federal relief funds from a September 30 briefing on the state's revenue and budget outlook with Richard Stavneak, director of the JLBC. However, this presentation was focused on the state's overall fiscal outlook and contained limited information on how the federal relief funds were spent, Lieberman said.
In response, Patrick Ptak, a spokesperson for the governor, adamantly defended Ducey's use of the federal relief funds, but didn't deny the assertions from Democrats and the JLBC reports that relief money went to state agencies.
"This is responsible and prudent decision-making. The virus is with us for the foreseeable future. We've been able to stretch the social safety net to support people in need. Arizonans expect that will continue to be the case," he wrote in an email. "With this plan, it will be. Many states are having to cut from vital areas, like education. Arizona is not. We are investing."
"This pandemic isn’t just about the public health response; it’s also about the long-term recovery," Ptak added. "These decisions and responsible agency spending is helping prioritize public health now and saving dollars that will help us avoid, in years to come, the tough decisions other states are going through now."
He also noted that numerous agencies that received federal funding, including the Department of Corrections, "plan to return money to the General Fund."
But U.S. Treasury guidelines clearly state that governments can only use the relief funds for costs caused by and during the pandemic — and not to cover existing budget holes. And Ptak did not respond to questions about how exactly the money was spent within the agencies that received money, nor did he address questions about when the spending occurred or whether the expenses were already accounted for in agency budgets before the pandemic hit.
"Funds may not be used to fill shortfalls in government revenue to cover expenditures that would not
otherwise qualify under the statute," the guidelines state. "Although a broad range of uses is allowed, revenue replacement is not a permissible use of Fund payments."
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It's unclear at this time whether the governor's use of the relief funds was in-line with the U.S. Treasury guidelines. Ptak did not respond to New Times' request for the governor's legal rationale for how the money was spent.
At the October 2 press conference near the State Capitol, three Arizona House Democrats including Lieberman slammed Ducey's position of punting to Congress for any additional weekly unemployment benefits, citing the struggles people have experienced accessing benefits from the state system and its meager offerings. They also called on Ducey to use any remaining federal funds to pay for a boost in weekly unemployment benefits and give money to small businesses who have been hit hard by the pandemic.
According to an unofficial JLBC estimate from a Powerpoint presentation given to Democratic lawmakers during the September 30 briefing, $425 million in federal relief money has not yet been allocated. Ducey spokesperson Ptak wrote in an email that "there is $400 million remaining" of the federal relief funds allocated to the state.
"Congress is at a gridlock, the president has COVID, and everyday Arizonans are still struggling," said State Representative Reginald Bolding, a Democrat who represents south Phoenix. "The governor has an opportunity, with the dollars that have already come from the federal government, to utilize this as an opportunity, to put those dollars to work, and not backfill state functions that we should already have resources for."