With a lot of money and limited time, state and local governments scramble to capture and spend emergency federal funds

An unprecedented $2.2 billion in emergency federal aid is flowing to Minnesota, launching a skirmish among local government officials who want to grab the funds to cover their first responder and public health costs soaring from COVID-19.

An-end-of-year deadline set by Congress to spend all the money — and unclear guidance on how to divide it up — is setting up clashes not just between parties but among state, county and city leaders scrambling to meet the ballooning costs of the pandemic at the same time that their tax revenues are plunging.

At the State Capitol, the federal funding already has set up a confrontation between Gov. Tim Walz's administration and Republican leaders, who are uneasy about his executive orders shutting down much of the state. They're pushing for the Legislature to have a say in how the federal funds are used to respond to the crisis.

And while state officials were deciding how to use the federal bounty, leaders in Hennepin and Ramsey counties were meeting last week to start hashing out how they'll spend their slices of the pie.

"Local government has been on the front lines responding to the COVID-19 pandemic and will be on the front lines of our recovery," said Ramsey County Board Chairwoman Toni Carter.

Under the CARES Act — short for Coronavirus Aid, Relief, and Economic Security — signed by President Donald Trump in late March, each state and municipalities with populations of more than 500,000 received aid.

The state received the bulk of the funding coming to Minnesota, $1.87 billion, with Hennepin County getting $212 million and Ramsey County $96 million. But the state's largest cities, including Minneapolis (population 428,000) and St. Paul (population 313,000), didn't receive a direct federal allocation. Their leaders now are making a case for a share of the emergency funds.

Minneapolis City Coordinator Mark Ruff said city officials have inquired about a cut of the CARES Act funding that went to the state and Hennepin County.

"We won't get a firm understanding of how these funds will be distributed until all of the federal stimulus packages are completed," Ruff said, adding that they should know more in June when the city adjusts its budget to reflect spending on the pandemic.

Walz's budget commissioner, Myron Frans, said that up to $667 million of the state's share can go to local governments for pandemic-related expenses. But he said they haven't gotten much more guidance than that.

"That's the $667 million question," he said.

Frans said the Walz administration plans to work with the Legislature on how and when that money will be distributed, knowing they're on a deadline. Money that isn't used by the end of the year goes back to the federal government.

Frans said he's watching how other states handle the funding. Maryland, for example, sent half of its local government funding to cities on a per capita basis. Missouri sent all the money to local governments based on population.

"What's a fair way to do this?" he said. "Look at these hot spots we have in Worthington or other places. If you just distribute it on a per capita basis, they're not going to get the money they need in Worthington to really address that issue."

The largest portion of the state's relief funding from the federal government — roughly $1 billion — has other strings attached to it. The state already has moved $228 million to the Department of Human Services to fund congregate and home-delivered meals and to the Health Department for emergency inspection and rural hospital programs. The money also has been used for grants to airports and rural transit.

A $226 million grant is going directly to the Metropolitan Council, along with $93 million for the Minnesota State System and $35 million to the University of Minnesota. Grants of $160 million for child nutrition and $140 million for elementary and secondary education are in the hopper.

St. Paul city leaders, frustrated over being left out by Congress, are hoping to leverage partnerships with the state and Ramsey County to receive some of the federal aid.

Deputy Mayor Jaime Tincher said they've already spent $3 million on such things as overtime and personal protective equipment for first responders. The city also has created a $3.2 million bridge fund that has been tapped for grants to needy families and struggling businesses.

"The biggest challenge ... is a lack of federal assistance to cities under 500,000 population," Tincher said. "Cities under 500,000 have the same responsibility to their community as cities over 500,000 do."

Daniel Lightfoot, a lobbyist for the League of Minnesota Cities, said the pandemic is pressuring cities because of spiking health and public safety costs and because of revenue drops. CARES funding can be used to reimburse COVID-related costs, such as public safety overtime costs and computer equipment for employees working at home, but not to plug budget holes left by lost revenue.

Cities are losing taxes as businesses shut down, and they expect more losses from property tax delinquencies and nonpayments. Licensing and permit fee revenue are down along with user fee payments for shuttered parks, pools and recreation centers.

"We fully anticipate the unbudgeted costs related to this pandemic are only going to go up," Lightfoot said. "And the loss of revenue is going to be substantial."

With all of Minnesota's 853 incorporated cities left out of CARES funding, Lightfoot said cities are fighting for direct aid in the next package from Congress. Meanwhile, they're working with the state to get some of the current payout.

County leaders say that federal aid going to cities should come from the state's much larger share, not theirs.

"St. Paul is the state's second-largest city, with more than half of Ramsey County's population, and should be eligible for direct support from the state's $1.8 billion CARES allocation," Carter, the board chairwoman, said.

The unanswered question is how the amount of aid to cities would be determined. Payment could be based on population, Lightfoot said. Expense reimbursements is another possibility. One option the league likes is using the money to support workers' compensation funds.

There's also time pressure. Cities need cash now.

"It's a tall order; it's quite the challenge," Lightfoot said. "You have the short-term costs and then you have what happens over the next two months."

At the county level, Hennepin staffers estimate that the cost of sheltering and feeding the homeless, including moving some from shelters to hotels, could climb as high as $60 million. The county last week allocated $2 million for a package of $7,500 grants to go to 265 small businesses.

Now commissioners are talking about spending millions more to help renters, senior-home residents and workers, and additional small businesses.

"I have a lot of citizens who are literally losing their life's dream right now," said Commissioner Jeff Johnson, a frequent opponent of increased county spending.

Commissioner Mike Opat expressed frustration at the number of seniors living in community settings who are now dying of COVID-19. "We're six weeks into this and there's no appreciable action that I can see" to curb the crush of COVID-19 deaths at long-term care facilities, he said.

Ramsey County officials are drafting strategies to deploy the aid in three areas: job seekers, individuals and families, and small businesses struggling to survive.

The county has already spent or signed contracts for $8.1 million on COVID responses, increasing capacity and shelter options for the homeless and purchasing personal protective equipment such as masks and gloves for first responders.

"We want to get the money out very quickly to the community and to those most in need," said Ramsey County Finance Director Alexandra Kotze. "But we do need more clarity from the state and the federal government about how to spend those funds."

And with a hard deadline of eight months, it has to happen soon. "It's a short window," Kotze said.