What Fun! Spending $4.3 Billion in “Free” Money!

Manna from heaven

by James A. Bacon

Before departing for the private sector, former Secretary of Finance Aubrey Layne outlined his thinking for the disposition of $4.3 billion in federal COVID-helicopter money: The funds are a one-time windfall. Spend them on one-time projects. Do not use the money to fund programmatic expansions that will make an ongoing claim on future tax dollars.

In recent days, the Governor’s Office has been issuing press releases on how Governor Ralph Northam proposes to allocate the manna from heaven, technically known as the American Rescue Plan. To a significant degree, the Governor is hewing to what might be called the Layne Doctrine. Here are the ten announcements he has made so far, listed in the order in which he made them:

  • $304 million to Virginia’s 190 towns to help deal with the COVID-19 pandemic.
  • $353 million to boost recovery among Virginia’s small businesses and industries hardest hit by the COVID-19 epidemic.
  • $700 million to expedite the deployment of last-mile broadband infrastructure to under-served areas and close the digital divide.
  • $500 million to upgrade HVAC systems in public schools to improve ventilation and air quality.
  • $412 million to improve drinking water, wastewater, and stormwater infrastructure.
  • $936 million to replenish the Unemployment Insurance Trust Fund and accelerate upgrades to the Virginia Employment Commission.
  • $0.6 million in inaugural round of Virginia Food Access Investment fund grants to create “economic opportunities and healthy neighborhoods in historically marginalized communities.”
  • $331 million to strengthen Virginia’s Behavioral Health System by aiding state mental health hospitals, strengthening community-based services, and increasing support for substance abuse programs.
  • $111 million to increase financial aid for low- and moderate-income undergraduate students.
  • $114 million in hazard pay and compensation for public safety officials, $35 million to address COVID-19 in correction facilities, and $17 million for crime reduction and prevention.

By my reckoning, that amounts to $3.6 billion. We can expect one or two more announcements, but this list accounts for about 84% of the spending. So, let’s take a closer look.

One-time spending initiatives

Unemployment Insurance Trust Fund. The biggest expenditure ($936 million) will go to replenishing the Unemployment Insurance Trust Fund, which had been depleted by massive COVID-related layoffs. This is fully justifiable. Not to say that layoffs wouldn’t have occurred without government-enforced lockdown, but emergency mandates indisputably aggravated the economic downturn and slowed the recovery. Many companies were effectively compelled by government action to lay off workers, and it is manifestly unjust to replenish the trust fund by raising required contributions. Refilling the trust fund is not only the right thing to do from an ethical perspective, it will help the private sector recover and, thereby, stimulate job growth.

Broadband deployment. The second biggest allocation ($700 million) is to advance deployment of high-speed Internet access, primarily in rural areas. That represents a massive increase over the $124 million in broadband grants handed out since 2018. The press release provides few details on what criteria will be used to allocate the funds. If the past is any guide, the state will be looking for private-sector, municipal or nonprofit groups to partner with. We can expect a lot of people to cobble together a lot of proposals to grab a piece of the action, and Northam has signaled his desire to shovel money out of the door quickly. Whether the funds will be spent cost-effectively remains to be seen.

School air quality. The third biggest chunk of helicopter money ($500 million) will be used to improve ventilation and air quality in schools. Layne had suggested a go-big-or-go-home approach of addressing once and for all the problem of decrepit, aging schools, but the Governor has taken a narrow-bore approach on the grounds that better ventilation systems will do a better job of dispersing air and decreasing the risk of airborne illnesses including COVID-19. To receive funds, however, local governments will have to match the state dollars one-to-one using their own COVID helicopter dollars. The governing principle here is that local governments with skin in the game will be more judicious in the projects they push for.

Clean water. Another $412 million will be dedicated to clean water projects. This initiative distributes money as follows; $186.5 million for wastewater treatment and nutrient removal, $125 for combined sewer overflow projects in Richmond, Alexandria and Lynchburg, and $100 million to assist small and disadvantaged communities. For this analysis, I am assuming that these are one-time capital expenditures, but the press release does not say so explicitly.

Aid for towns. Team Northam wants to give Virginia’s towns $304 million to cover COVID-19 and other healthcare expenses, address economic impacts caused by the health emergency, replace lost revenue, provide premium pay for essential workers, and invest in water, sewer and broadband infrastructure. These would come from a tranche of federal funding in addition to that $6.6 in federal aid to the state, county and city governments.

Small business. This initiative will put $250 million into the existing Rebuild VA economic recovery fund, $50 million for Virginia Tourism Corporation initiatives, and $53 million for other programs such as the Industrial Revitalization Fund and the Virginia Main Street program. As long as the grants are clearly understood to be a one-time thing, this should not create new programs that turn into long-term spending constituencies.

Ongoing spending initiatives

Public safety. The $114 million that Northam proposes to boost public safety contains some elements that could increase pressure for ongoing spending. Eleven million dollars goes to “address critical staff shortages at local and regional jails and sheriffs departments,” including medical contractors, cafeteria and janitorial workers and other support staff. Another $62 million will go towards “hazard pay” for public safety officials, which Northam touts as a way to recruit and retain law enforcement. That sounds like an ongoing commitment. Personally, I support the higher pay, but let’s be honest about what this is — using one-time helicopter dollars to fund an ongoing increase in compensation.

Financial aid. This proposal would designate $111 million to financial aid for low- and moderate-income undergraduate students at public and private colleges, which will supplement another $833 million made available through the Higher Education Emergency Relief Fund III. This is a programmatic expansion pure and simple. Once put into place, any reductions in future years will be criticized as “cuts” to financial aid programs. Another drawback is that the open-ended subsidy for lower-income students makes it easier for colleges and universities to increase their charges with impunity. This is as much a subsidy of the higher-ed status quo as it is of lower-income students.

Behavioral health. This initiative will commit $331 million in federal  funding to bolster Virginia’s behavioral health system, including targeted investments to “alleviate pressure on state mental health hospitals, strengthen community-based services, and increase support for substance abuse and prevention programs.” The press release states explicitly that the plan solidifies the Commonwealth’s “ongoing commitment” to increasing access to community-based services. It includes $200 million for staffing at state facilities, and $45 million for staff bonuses. The state will commit another $154 million in state dollars for salary adjustments in the next two-year budget.

All things considered, it could be worse. There’s nothing for taxpayers, of course, but ongoing tax relief should come from ongoing tax revenues… which shouldn’t be a problem with Virginia’s massive budget surplus this year. Maybe $500 million or so will go to ongoing salaries and programs, which will become embedded in future budgets. That ain’t chump change. But given the political complexion of Richmond these days, I thank myself for small favors.

Likewise, when you’re doling out billions of dollars in “free” money, this is not a bad list of priorities. I could quibble with a lot of details, but all the problems Northam is trying to address are real.

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30 responses to “What Fun! Spending $4.3 Billion in “Free” Money!”

  1. James Regimbal Avatar
    James Regimbal

    The $304 million is not coming from the state $4.3 bil. ARP Rescue Funds, but is rather coming from the $2.9 bil. allocation for Local Relief funds to towns.

    1. Thanks for the correction. I have updated the post.

    2. Stephen Haner Avatar
      Stephen Haner

      Yes, the accounting will get confused in a couple of ways. And today the word is they want to hold some back (yes, please) to see what joy 2022 brings….

      The Assembly needs to look closely at items that create an ongoing budget commitment. You can’t look at higher pay for a group of employees, for example, without realizing that will have to keep going. The tuition assistance as well.

      The amount for the unemployment trust fund could be higher, and the Assembly may be asked to boost it, but that is not something Northam needed to do and it should be applauded. I wrote a while back about the Tech prof who had shown with research that good interior air circulation is the best COVID defense. Beyond that, this just looks like a routine spending bill with a bunch of citizen (er, voter) groups being satisfied.

      Watch for goodies and gotcha’s in the language. Sneaky stuff. Watch for example to see if a language provision overturns the law requiring 5-day in person schools. Been hearing that whisper….

      Late update: Here is the actual bill, posted this PM:

      1. WayneS Avatar

        And today the word is they want to hold some back (yes, please) to see what joy 2022 brings….

        That’s good news. I hope they follow though on it.

      2. James Wyatt Whitehead Avatar
        James Wyatt Whitehead

        Lord have mercy the waste that will be voted on. We need the Ty D Bol man now. Only hero to save the day.

  2. LarrytheG Avatar

    re: ” Likewise, when you’re doling out billions of dollars in “free” money, this is not a bad list of priorities. I could quibble with a lot of details, but all the problems Northam is trying to address are real.”

    I’m shocked, SHOCKED!

    Surely there must be SOME alternative Conservative/Libertarian view if we HAVE to take the money! (other than don’t take it)!

    AND not a single pejorative or name call…, no blackface, no “leftist” or SJW, lord lord!

    The real point of the “free money” is to goose the economy, and while they do want the money to actually look like it goes for good things – getting it into the economy is the main thing – AND it Will surely “create” jobs – even if temporary.

    Of COURSE, we’ll pay it all back after the economy recovers, right?

    1. WayneS Avatar

      Please give it a rest. Please?

      1. LarrytheG Avatar

        what? go sit down fool.

  3. Sara Elizabeth Carter Avatar
    Sara Elizabeth Carter

    The money given to towns was not a state decision or benefit. The federal government directly distributed money to most cities and all counties, but ‘non-entitlement units’ had their money distributed through the sate. The Governor’s release would lead one to believe that it was a state allocation, but in this case, the state is the pass-through entity for the ARPA money that was designated for the individual localities.

    1. Sara Elizabeth Carter Avatar
      Sara Elizabeth Carter

      After I clicked post, I see Jim R. beat me to this point…

  4. DJRippert Avatar

    “$700 million to expedite the deployment of last-mile broadband infrastructure to under-served areas and close the digital divide.”

    That will accomplish nothing. Well, it will line the pockets of special interest players who are pals with the political class. If McAuliffe loses I expect to see TerryCom pop up or maybe NAH, LLC will start a networking subsidiary.

    I’d love to hear the experiences of some other state where “free” or subsidized broadband made a measurable difference in anything.

    1. LarrytheG Avatar

      It did for rural electricity and phone, no? And in Virginia all those rural secondary roads that then allowed electricity and phone to be provided. If we can string power lines to virtually every home on a state road, why not broadband?

      1. Brian Leeper Avatar
        Brian Leeper

        A significant portion of secondary power distribution in rural areas in Virginia does not even make use of VDOT right-of-way.

        Apparently, Virginia roads meander too much and are rarely the shortest point from A to B.

        1. LarrytheG Avatar


          so maybe not subsidized and each customer not on Va road has to pay for access or is it “included” and everyone shares that cost?

          1. Brian Leeper Avatar
            Brian Leeper

            Before the lines were installed the utility likely asked for, and received, an easement from the property owner desiring service. You want the electricity, they want an easement. Don’t want to give them an easement? Then you don’t want electricity.

          2. LarrytheG Avatar

            no matter how far?

          3. Brian Leeper Avatar
            Brian Leeper

            With NOVEC, as long as the line is overhead there is no distance limit and they provide it “free”. If you want it buried they will charge you the additional cost of the burial installation. Prior to them getting power installed to my new house they asked for an easement (only for buried lines) across my front yard. Which I gave them. I suppose I could have told them no. And then used solar panels or something. They did charge me for running a buried line from the nearest pole to a transformer and then buried from that to my house.

          4. LarrytheG Avatar

            so for the non-buried runs, no matter how long a run – everyone helps pay for it – sorta like a subsidy for rural?

            Bacon is always saying “pay your own location costs and Haner is worried about everyone paying for those who can’t pay their bills but here it looks like those with long runs are also subsidized. Right?

            Folks who live in apartments pay for those who live in the country?

          5. Brian Leeper Avatar
            Brian Leeper

            Keep in mind that a primary line which is extended to serve one customer now may well be extended to serve another customer, or multiple customers, in the future as additional development occurs.

            That’s part of the reason they want an easement. That gives them the ability to extend that line further to reach future customers.

            Even those folks who live in apartments in the city now may well be served by a line running through an easement that was gifted to the power company by a rural customer decades before.

          6. LarrytheG Avatar

            yep – but out in the country where houses are farther apart and cable internet not profitable? Ergo, the subsidies in the stimulus program?

          7. Brian Leeper Avatar
            Brian Leeper

            You can live without cable internet a lot easier than you can live without electricity.

          8. LarrytheG Avatar

            You can, but the point was the cost of extending cable internet and electricity into rural areas and who pays that extra cost. With cable internet – it’s all on the customer, with electricity, it appears that extra cost is subsidized by all customers.

            What if cable internet was done like electricity when extending into rural and all cable internet customers would help share the cost of the longer run distances in rural like electricity looks to be?

          9. Brian Leeper Avatar
            Brian Leeper

            As a matter of fact, while NOVEC charged me to extend service from the nearest pole, Comcast never charged me a dime.

          10. LarrytheG Avatar

            yep – do you live in the “country” where Comcast does not offer service at all and is the focus of government subsidies to extend internet?

            so you don’t agree that electricity is subsidized to those out in the rural places? right?

          11. Brian Leeper Avatar
            Brian Leeper

            My house is on a well and septic system. If that makes it “country” then it is.

            As far as electric subsidies, NOVEC has gotten RUS loans in the past and is still paying them off.

            I am unaware of NOVEC having gotten government “grants” (which do not need to be paid back) for the purpose of building electric distribution infrastructure.

          12. LarrytheG Avatar

            more along the lines of “density”. In the “country”, there might be 50 houses in a mile where-as in a dense area, 5, 10, 20 times as many, so one mile of cable serves 50 in the “country” and 500 in a urbanized place.

            That’s the essential argument of the cable providers – that there are not enough hookups per mile to make it profitable.

            I think when the rural electrification program came along way back when, it was a similar type issue but the government stepped in to essentially subsidize rural electrification.


            And now the Feds are stepping in to wire the internet to rural.

      2. DJRippert Avatar

        No, not really. Have rural counties in Virginia grown in population over the last 100 years? Have they become economically self-sufficient? If so, why do they needs subsidies for broadband?

  5. WayneS Avatar

    Spend [the funds] on one-time projects. Do not use the money to fund programmatic expansions that will make an ongoing claim on future tax dollars.

    That is a hard thing for politicians to do. Requests for additional funds from all the various agencies can be alluring and hard to deny. All told it looks like less than 15% of the “helicopter” funds have been committed to items which will necessitate increases to the Commonwealth’s ongoing financial commitments.

    While ideally the percentage should be zero, we are dealing with politicians, here. They have done a lot better than I expected from the Northam Administration, and I give them credit for avoiding overly vast expansions of ongoing programs.

  6. John Martin Avatar
    John Martin

    ” all the problems Northam is trying to address are real.” yep

  7. Dick Hall-Sizemore Avatar
    Dick Hall-Sizemore

    I am backing off from my comments to an earlier post. It looks as if the GA money committees are not going to get into the Governor’s recommendations. From the wording in the Governor’s news releases, it is obvious that he has been coordinating his recommendations with the Democratic leaders in both houses. That close coordination has been confirmed with me by others. According to today’s RTD, there is talk about the House approving the introduced bill on Monday, the first day of the session. The skids are greased.

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