WASHINGTON — The Biden administration has backed down from its threat to withhold pandemic aid money from Arizona after accusing the state earlier this year of misusing funds to undermine school mask mandates.
A spokesman for Arizona Governor Doug Ducey, a Republican, confirmed the state received its second payment of about $2.1 billion last month.
The retreat comes amid renewed focus on the $1.9 trillion relief package Democrats passed last year, which has been blamed for helping fuel rapid inflation and sparking concerns about whether some of the money had been misused.
Arizona received $4.2 billion as part of its share of $350 billion earmarked for states and cities to help replace revenue lost during the pandemic, support health initiatives and invest in projects water, sewer and broadband infrastructure. Arizona received its first $2.1 billion payout in 2021, but the Treasury Department, concerned that the state was using the funds to undermine public health efforts, officials warned. Arizona that it could recoup $173 million it previously awarded or withhold the second tranche of funds. .
Dayanara Ramirez, a Treasury spokeswoman, declined to explain why the funds were released after the department threatened to withhold them.
“Treasury does not comment on issues in its compliance process,” Ms. Ramirez said.
Treasury said the funds were disbursed through the standard process the Office of Recovery Programs has in place to make second tranche payments.
The dispute over funds began after Arizona’s Republican-controlled legislature banned school mask mandates in 2021, but some school districts have imposed them anyway. Last August, Mr. Ducey announced that he was rolling out two education programs designed to undermine those requirements.
One of the programs, which received $163 million in federal funds, provided up to $1,800 in additional funding per student in public and charter schools that were compliant with “all state laws” and open to in-person instruction. Schools that required masks would not be eligible.
A separate $10 million program funded vouchers worth up to $7,000 to help poor families move out of districts that require face coverings or impose other Covid-related “constraints”.
The Treasury first warned Arizona about its use of the funds last October, saying they were undermining the law and public health guidelines. In January, the Treasury threatened to begin the process of recovering funds if the programs were not redesigned within 60 days. The Treasury also warned in January that it may not release the second payment because it believed Arizona had misused part of the first tranche of what is known as state and local fiscal stimulus funds ( SLFRF).
“Treasury may also withhold funds from the second tranche of funds from the State of Arizona SLFRF until the Treasury receives information confirming that the issues described above have been properly addressed,” wrote Kathleen B. Victorino, head of the Office of Treasury Recovery Programs.
But Arizona went ahead with the programs anyway, and Mr. Ducey sued the Biden administration to block any effort to recover pandemic relief money.
“The Biden administration is trying to hold funds appropriated by Congress hostage and trying to bully Arizona into complying with this takeover decision,” Ducey said at the time.
The Biden administration has asked for the case to be dropped. In a May legal filing, Justice Department lawyers argued that Mr. Ducey had no right to sue because the Treasury Department had not actually attempted to recover the money.
“The Treasury has not initiated any enforcement proceedings to recover the misappropriated funds from Arizona, so there is no imminent injury,” they wrote, adding that the Treasury letters are not actions. agency finals.
Lawyers representing Arizona did not respond to requests for comment on their next steps in the lawsuit.
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The Arizona case is one of many hurdles the Treasury Department has faced in disbursing and overseeing the stimulus fund.
A $4 billion debt relief package for black farmers and other ‘socially disadvantaged’ farmers that was part of the relief legislation has been frozen following lawsuits by groups of white farmers who wondered if the government could provide race-based debt relief.
A Treasury Department rule that states cannot use pandemic relief money to subsidize tax cuts has also been stalled in the legal system after several states filed lawsuits arguing that the rule violated their sovereignty. Four states have received injunctions preventing the Treasury Department from enforcing the regulation.
Many other states have found workarounds and about three dozen have passed tax cuts this year, thanks in part to surpluses that have been bloated by relief funds.
The Biden administration continues to roll out US bailout money more than a year after it was signed into law. On Thursday, the Treasury Department announced it was giving Kansas, Maine, Maryland and Minnesota more than $350 million from a capital projects fund to expand broadband access.
With Mr. Biden’s social safety net and climate spending proposals still stalled in Congress, the Biden administration has encouraged states and cities to use their pandemic relief money to invest in climate change initiatives. housing and workforce development, which would advance the administration’s equity agenda.
However, despite the large amount of stimulus money the Treasury oversees, the department itself lacks funds to run some of the programs. He asks for permission to redirect administrative funds from other programs in order to have more resources to oversee public and local funds.
“While state and local funds have enormous long-term potential to improve equity, the Treasury faces a shortage of funds to administer this program – which is why we have urged Congress to take action that would allow to address this issue and support the continued success of these programs,” Wally Adeyemo, Deputy Treasury Secretary, said at an Urban Institute-sponsored event this week.