THE WISCONSIN POLICY FORUM: How will federal funds be spent?

By Wisconsin Policy Forum.com On Aug. 13, Wisconsin’s voters will be asked whether the state’s constitution should be amended to limit the ability of Gov. Tony Evers and his successors to allocate federal funds, and instead require additional action by the Legislature before those funds can be spent.

Here we examine what prompted these amendments and what are some of the potential consequences if they are approved.

Reasons for the amendment Wisconsin legislators say they advanced these amendments in response to the governor’s role in allocating tens of billions in federal pandemic relief funding.

Much of that funding was in turn passed on to private employers, municipalities, counties and school districts. Billions more passed through programs such as unemployment insurance and Medicaid, as funding and eligibility for these programs were substantially expanded through federal action.

However, more than $4.4 billion went directly to the state through the Coronavirus Relief Fund and the state and local Fiscal Recovery Funds. Evers had broad discretion over the use of these funds, within certain federal limits and reporting requirements.

Data from the Legislative Fiscal Bureau show as of 2023 the state dedicated hundreds of millions from these funds to providing aids to local governments and school districts, grants to small businesses, reimbursements to state agencies for costs incurred related to pandemic response and COVID-19 testing, plus millions more for other purposes.

OneotherunusualaspectoftheCOVID-19 Relief Fund and Recovery Fund monies is that they were advanced to the state, before costs were incurred, rather than paid out later as a reimbursement for money that the state had already spent.

Concerns about this process from lawmakers center around the limited role that the Legislature played under existing state law in accepting and allocating federal funds distributed for COVID-19 relief. For their part, legislators maintain they should have greater legal authority to determine how any federal funds are spent and are putting forward the current referendum to ensure that happens in the future.

In a previous instance of massive federal relief spending – the 2009 American Recovery and Reinvestment Act – the Legislature and Gov. Jim Doyle enacted temporary changes in state law to ensure lawmakers could review the use of the emergency federal funds. However, they did not seek a change to the Constitution.

In this case, legislation was passed in 2021 to modify the existing process by requiring state agencies to submit plans for any COVID-19 related aid for passive review, but it was vetoed by the governor. Notably, because this latest proposal to grant more power to the Legislature is being advanced as a constitutional amendment, it does not require action by the governor.

As required for any constitutional amendment, the referendum language was approved by both houses of the Legislature in 2022 during the previous legislative session and again this year and now goes to voters. If they approve it in August, the proposals would become part of the state Constitution.

Constitutional questions The referendum asks for voter approval on two separate questions. They read as follows: Questionone:“Delegationofappropriation power. Shall Section 35 (1) of Article IV of the Constitution be created to provide that the Legislature may not delegate its sole power to determine how moneys shall be appropriated?'

Question two: “Allocation of federal moneys. Shall Section 35 (2) of Article IV of the Constitution be created to prohibit the governor from allocating any federal moneys the governor accepts on behalf of the state without the approval of the Legislature by joint resolution or as provided by legislative rule?”

At the most basic level, approving these two questions would require that lawmakers take action before the state allocates federal funds. The second question also would require that the Legislature act to approve allocations of federal monies not through the passage of a bill, but through a joint resolution or legislative rule that does not require the governor’s signature.

Depending on how the Legislature implements this rule, the change could mean that future governors would play a smaller role in approving the use of federal funds than the governor currently plays in approving the use of state tax funds.

Because of the broad language included in the amendment, it likely will impact far more than just cases of emergency influxes of federal funds that are similar to the pandemic. However, the full impact of the amendments will be highly dependent on how they are interpreted by the Legislature and the courts.

Existing federal funds procedure Before we discuss the impact and potential pros and cons of the amendment, it’s important to explain how federal aid is spent. All federal funds are distributed through existing line items in the state budget known as appropriations.

These line items include estimates for the amount that the state expects to receive for that specific purpose.

The appropriations are associated with programs described in state statutes within existing state agencies. Generally, when the state receives federal funds, they come with more restrictions than did some of the federal pandemic aid.

Often, the aid estimates change, either because Congress appropriates more or less money than expected, other states return unspent funds that are then redistributed, or state agencies apply for and receive competitive grants. Sometimes, the state also gets additional federal funds in response to disasters such as tornados or floods.

State law creates a process for when agencies end up receiving more from the federal government than they expect. The agency submits a request to the State Budget Office, part of the Department of Administration.

These requests are then reviewed to ensure they meet state and federal requirements. Once approved, the amount

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agencies are allowed to spend for that specific purpose is adjusted in the state’s accounting system. The State Budget Office approves many of these transactions each year. It’s worth noting that for many other types of state funding the amount of money appropriated can also be adjusted, subject to the specific language of those appropriations. This process may also be impacted by the constitutional amendments, depending again on the interpretation of the Legislature and courts.

There are a number of exceptions; however, in which the Legislature’s budget writing committee does have the authority to review agency changes to federal funds. For example, when the amount of federal funds received by the Departments of Transportation, Justice or Public Instruction differ by more than 5% from expectations, the agency must submit a plan to the Joint Finance Committee addressing the funding changes. Through this process, the Legislature was able to weigh in on some COVID-19 relief funding received by the Department of Public Instruction.

The substantial federal funds received by the University of Wisconsin System are subject to a different process, and university officials say the constitutional amendment should not impact their ability to receive their funds.

According to the National Association of State Budget Officers, Wisconsin’s overall process for accepting federal funds is similar to that of 40 other states, where the governor can generally accept funds without legislative input. Many states, including Wisconsin, also have conditions detailing when legislative input is needed, however.

Potential amendment benefits Though it was an unusual series of events, Evers was able under current law to decide how billions of dollars of pandemic aid were spent. Supporters of the amendment argue this authority resulted in too much power being concentrated in a single elected official and branch of government.

The amendments on the ballot in August would require greater involvement of legislators in deciding how federal funds would be spent, and for that reason their supporters argue they would make such decisions more representative of voters’ desires.

Having a process in which elected lawmakers must consider the use of federal funds and then take a public vote on them could also lead in some cases to greater deliberation and transparency.

Potential complications The proposed amendment could also create future difficulties for the state. For example, it could disrupt the typical process for adjusting the expected amount of federal funding to match the actual grant or payment.

If the two ballot questions are approved, the current process might be replaced by some new approach that the Legislature has yet to define but that might require a vote by lawmakers in both houses. Such a change might delay the approval process substantially, particularly at times when the Legislature is not in session.

The amendments also might introduce delays in deploying emergency federal funds in the event of a natural disaster or other crises. In an extreme case, delays in allocating federal funds could lead the state to lose them.

Potentially, the Legislature could create through its rulemaking process a system for approving the allocation of federal funds that would not require all lawmakers to vote on every change to the amounts and uses. However, these rules could be created without any consultation with the governor, potentially excluding the executive branch from making decisions about state spending in a similar way to how some argue the Legislative branch is currently excluded.

Finally, if state officials and voters in the future were to become unhappy with the impacts of the constitutional changes and wished to make corrections, they would need at least two years to do so because of the need to pass a new constitutional amendment.

Conclusion Supporters of the proposed amendments have identified important questions about whether a single statewide elected official should be able to decide how billions of dollars in federal emergency aid should be spent.

The changes they propose would prevent a recurrence of the unusual series of events that transpired as a result of COVID-19, but those changes might also affect the more routine approval and use of federal funds within the state’s current system.

So far, the news media has devoted relatively little coverage to this admittedly obscure and technical issue, which will likely confuse many voters when they find it on their August ballots. Because of the broad nature of the language included in the amendments, their ultimate impact on the state’s allocation of federal funds is uncertain. Nevertheless, these questions could have significant consequences for the state in the years to come. We hope this brief leaves voters better informed when they cast their votes in August.