Senate Narrowly Rejects Resolution to Nullify Treasury’s Recovery Funds Rule

WASHINGTON, May 17, 2024 – The U.S. Senate narrowly rejected a joint resolution on Wednesday that aimed to nullify Treasury Department guidance on how state and local governments can spend COVID-19 relief funds, with 46 Senators voting in favor and 49 against.

The rule in question would have impacted $350 billion in federal projects making investments in water, sewer, and broadband infrastructure, by rolling back the Treasury’s interim final rule issued on November 20. This rule provided clarification on the definition of “obligation” in the Treasury’s rules governing the use of Coronavirus State and Local Fiscal Recovery Funds.

The resolution, S.J. Res. 57, faced strong opposition from the Executive Office of the President which argued the rule would disrupt critical infrastructure projects, risk layoffs of public safety workers, and create significant oversight gaps that could put taxpayer dollars at risk.

“Across the more than 30,000 governments implementing critical programs through State and Local Fiscal Recovery Funds, Res. 57 could result in projects being cancelled midstream, reduced project management and oversight, and higher costs as state and local governments are forced to contract out programs,” the Office of Management and Budget wrote in a statement issued Wednesday.

“If the President were presented with Res. 57, he would veto it.”

During floor debate, Senator Eric Schmitt, R-Missouri, who introduced the resolution in February, criticized the Treasury Department’s change in guidance, accusing it of trying to “pull a fast one” on Congress, reported the Missouri Independent.

The fund for state and local governments, Schmitt said, was intended to assist with “revenue shortfalls tied to the COVID-19 pandemic” and the law clearly stated that “all costs incurred with money from this fund must be incurred by December 31, 2024.”

Schmitt argued that the interim final rule released by the Treasury around Thanksgiving extended that deadline by two years for “administrative and legal costs, such as compliance costs and internal control requirements.” He described Treasury’s action as an “insult to Congress and those who believe in our Constitution,” and a misuse of taxpayer dollars.

Proponents of the relief spoke in defense of interim final rule

However, Sen. Ron Wyden, D-Oregon, spoke out against the resolution during the floor debate, emphasizing its potential impact on various projects across multiple states. He noted that it could affect 17 projects in Georgia, 160 in Michigan, 342 in Ohio, 50 in Arizona, 404 in Montana, and 73 in West Virginia.

“Nationwide there could be thousands of projects closed. Tens or even hundreds of jobs lost,” Wyden said. “This one is one of the most unusual votes that I’ve seen recently, a true head scratcher.”

Wyden said he didn’t “see a good reason for the United States Senate to backtrack on solid, bipartisan progress and have this chamber act in a way that leaves more of our nation’s infrastructure in a state of disrepair.”

The United States Conference of Mayors also issued a statement encouraging a “No” vote on Res. 57, warning that its passage would add tremendous confusion and uncertainty for local governments, impacting the projects they’re leading to strengthen the nation’s cities.

The Treasury’s interim final rule did not alter the existing obligation or expenditure deadlines or expand eligible categories of use, argued OMB

Instead, it clarified the definition of “obligation” in Treasury’s regulations for the Fiscal Recovery Funds, ensuring that projects administered under agreements with subrecipients or governmental agencies – whether sheriff departments, community colleges, or local housing authorities – were not disadvantaged relative to those administered by contractors. 

Furthermore, the rule helped ensure that recipients could execute proper oversight and meet program requirements, including reporting and record retention, after the obligation deadline of December 31, 2024, wrote OMB.

Nearly all State and Local Fiscal Recovery Funds have been committed to projects. Res. 57 would create unnecessary uncertainty for recipients that are executing on projects, jeopardize important work underway, and inappropriately constrain Treasury’s ability to address ongoing implementation issues, the OMB statement concluded.

State and Local Fiscal Recovery Funds were initially authorized under the American Rescue Plan Act of 2021 to help state and local governments respond to the COVID-19 public health emergency.