What you haven’t heard about the federal HEALS Act
When Senate Republicans released their next relief package, called the HEALS Act or CARES 2, on July 27, a flurry of news stories were published about the contents. The new proposal is a $1 trillion package as a follow up to the CARES Act and a response to the House Democrats’ $3 trillion HEROES Act.
Most of these articles have focused on another stimulus check to Americans or the supplemental unemployment payment. Not many are reporting on what could be one of the most important measures – flexibility.
Shortly after the CARES Act was signed into law in late-March, the Platte Institute and the North Carolina-based John Locke Foundation signed a letter calling for Congress to grant the states flexibility in using $150 billion available through the CARES Act.
Why is flexibility needed? Because state and local governments have lost revenues during the shutdown and directed health measures. There has already been a proposal in the Nebraska Legislature to not accept the tax provisions in the CARES Act, which ultimately results in a $250 million tax increase on Nebraska businesses. There is no telling what other measures or tax increases states and local governments may create to offset their lost revenues.
That is why this measure for flexibility is important. According to the HEALS Act,
- State and local governments can use CARES Act money to make up for lost revenues;
- The date for using the money has been extended into 2021;
- 15% of the CARES Act funds must be given to local governments;
- No funds can be used for pension or retirement benefits;
- No funds can be used to replenish a state or local rainy-day fund;
- States must maintain their own budgeted spending levels (meaning they can’t use the money to replace what the state was going to spend anyway), and
- States may not impose any additional restrictions on the use of the money by their local governments.
If this measure is enacted, it would allow states like Nebraska to offset revenue losses from tax conformity and other negative impacts from the pandemic.
As written, the CARES Act only allows its $150 billion in aid to states and local governments to be used for new spending, not to replace state and local revenues lost as a result of the shutdowns. As we all know, most of the small communities in Nebraska are mostly being affected by the lost tax revenue and no new spending will help our communities recover or avoid a property tax increase next year. This is also the case in many states across the country, which is why this provision in the HEALS Act is so important.