State and local leaders discuss the path to ‘normal’ and lack of budget clarity

Just minutes after the announcement that public schools will not reopen this year due to the COVID-19 emergency, state and local leaders in a weekly conference call convened by the MMA turned to questions of when and how other areas of life will return to normal, and when major budget questions will be answered.

While the Baker-Polito administration’s decisions to close schools and “non-essential” businesses and limit gatherings due to the COVID-19 pandemic were led by federal guidance, Lt. Gov. Karyn Polito said, decisions about reopening the state’s economy will be made based on “facts on the ground” and the advice of public health experts, with input from stakeholders such as businesses and local governments.

Confirmed COVID case numbers and hospitalizations indicate “we are very much in a surge” in Massachusetts, Polito said, and the administration will wait until the data reliably indicate “a downward trend” before the state shifts to the “next phase of this response.”

“It’s really important that we use the data and the science to determine when certain things can take place,” she said. “We need to make the right decisions at the right time.”

Polito said the administration will make an announcement later this week regarding whether the state’s non-essential business order and stay-at-home advisory, currently due to end on Monday, May 4, will be modified or extended.

Local officials on the call supported the administration’s cautious approach moving forward in order to protect the state’s progress against COVID-19 and avoid a potential resurgence in the months ahead.

Polito said the reopening will take place in phases, with a move away from labelling businesses strictly as either essential or non-essential. She asked for the help of local officials in enforcing the evolving safety standards moving forward and educating the public.

“Think about how we started this effort, and how important it was for local inspectors and boards of health to be part of it,” she said. “Your input will be valued in this next phase.”

Fiscal matters
It remains unclear when municipal and school officials will get solid indicators of what to expect for local aid in fiscal 2021, which begins on July 1. The answers will largely depend on two key looming questions: what additional federal aid might flow to states and cities and towns (and for what purposes), and when the economy will be able to reopen.

Administration and Finance Undersecretary Catharine Hornby said, “I realize that in the context of budgeting, what municipalities really would like is support from the state, obviously, and clarity with respect to the timeline. Unfortunately, we at the state level are very much in the same position – that we need clarity in order to move forward, and I think that we’re not quite there yet.”

She said a meeting last week involving state budget writers and leading economists did not bring the state’s revenue outlook for fiscal 2021 into sharp focus. And while the state budget process is now running behind its usual schedule – the House Ways and Means Committee typically would be releasing its House proposal this week – a revised timeframe has yet to be determined.

It remains to be seen whether the administration and legislative leaders will arrive at a new agreement on a state tax collection projection for fiscal 2021, but Hornby assured local leaders that the administration will “work cooperatively” with the Legislature on revenue expectations. The revenue consensus is closely watched by mayors, town managers and select boards, as the growth rate has been used in recent years to determine the rate of increase in Unrestricted General Government Aid, the main discretionary local aid account. The agreement announced in January anticipated growth of 2.8%, but observers now expect a significant drop.

Hornby mentioned news reports coming out of Washington, D.C., predicting additional federal stimulus packages, and said any federal funding to support state budgets – particularly the state’s share of Medicaid costs – could be a major factor in stabilizing the budget, a development that could be reflected in local aid levels.

MMA Executive Director Geoff Beckwith pointed out that the MMA is supporting and working with the National Governors Association, the National League of Cities, state municipal leagues and other organizations in urging Congress to appropriate federal aid directly to states and cities and towns specifically to help offset lost revenue and increased expenses resulting from the COVID-19 public health emergency.

Recognizing the uncertainty surrounding the local budget-setting process, and the likelihood that most municipalities will be significantly behind schedule, Sean Cronin, senior deputy commissioner at the Division of Local Services, said his agency would be issuing guidance within a week on several budget-related provisions included in a “municipal relief” bill signed by the governor on April 3. The guidance will offer further details on:

• The process for adopting short-term (“one-twelfth”) budgets until a full fiscal year budget can be developed and approved
• The use of “free cash” accounts during fiscal 2021 before the annual budget has been adopted
• The amortization of revenue or expenditure deficits over a three-year period

He said the administration is supportive of allowing more time for mayors to submit budget proposals to their city councils – they face a fast-approaching May 15 deadline – and has worked with legislators on language for a legislative solution.

CARES Act
Hornby discussed the $150 billion Coronavirus Relief Fund in the federal CARES Act, $2.7 billion of which is slated for Massachusetts. She said the primary eligibility rules are clear: The funds must be used for necessary but unexpected expenditures incurred between March 1 and Dec. 30, 2020, by state and local governments in connection with COVID-19 response, and the spending has to be for things that were not budgeted for as of March 27. But highly anticipated guidance from the U.S. Treasury Department to provide more details has not yet materialized.

“The state is expected to share funds with municipalities as subgrantees,” Hornby said. “There’s a pretty express expectation that the state will work jointly with municipalities to understand where the COVID-19 costs are being incurred and to figure out how to allocate those costs.”

She said the law calls for the appointment of an inspector general to enforce funding criteria, and includes a provision allowing the federal government to recover allotted funds that were spent impermissibly.

She said her office will be working to determine the best use of the funding to maximize its impact while minimizing “compliance risk.”

“We’re very conscious of the need at the local level,” she said.

It’s not yet clear, Hornby said, what relationship may exist between the CARES Act funding and the emergency aid that states and localities typically pursue following an emergency from the Federal Emergency Management Agency. For example, it’s not clear which takes precedence, or whether a community must exhaust one avenue before applying to the other.

• Audio of April 21 call with administration (37M MP3)