This post originally appeared at https://www.badgerinstitute.org/wisconsin-surplus-safe-from-federal-clawback/

For a moment earlier this summer, there was a political and media panic that the federal government would “claw back” part of Wisconsin’s $7 billion budget surplus — which owes its existence in large part to pandemic-related federal aid.

Gov. Tony Evers warned that the state might have to send back some federal money it hadn’t spent yet. A few days later, as the bill neared passage, Democratic Congressman Mark Pocan said he was combing through the curiously named Fiscal Responsibility Act “line by line” to secure as much money for the state as he could.

In the end, the clawback is rather small. And in fact, Wisconsin doesn’t have to send back a single dime it has already received, budget experts told the Badger Institute.

“Clawback,” it turns out, is something of a misnomer. The provision applies only to funds that were “unobligated” as of June 3, the date the bill became law. And the concept of “obligating,” in turn, merely refers to the federal government sending or formally promising (e.g. through contracts) money to a recipient. Some federal agencies lost what’s known as “budget authority” to spend money in the future, but that’s it.

“Any funds already obligated to a recipient, like a state government, are not rescinded, even if the state has yet to obligate or spend those funds,” said Jeff Arkin, director of budget and intergovernmental issues for the U.S. Government Accountability Office.

In the greater scheme of things, the “clawback” story never involved significant dollars. The debt ceiling deal took back just $27 billion in budget authority, or .45% of the roughly $6 trillion in pandemic aid authorized by Congress nationwide. Most of that was in two mammoth spending bills, 2020’s Coronavirus Aid, Relief, and Economic Security (CARES) Act and 2021’s American Rescue Plan Act (ARPA).

The clawback panic was almost comical given the rosy financial situation of the states three years after the federal government declared COVID-19 a national emergency.

“States’ total financial cushion reached all-time highs at the start of the current budget year,” according to an analysis from the Pew Charitable Trusts, “building on record gains the year before.”

And even the $27 billion in budget authority doesn’t tell the whole story. Much of that money wouldn’t have been spent anyway; some pertained to programs that were already more or less concluded. The Congressional Budget Office estimated that actual spending would fall only about $11 billion over a ten-year budget window.

Further, much of the money was never going to be given to state governments to begin with. Highway funds are one exception — but at the last minute before the bill became law, many states were able to get the money available to them. Wisconsin managed to bring in $11.5 million in highway funds, Pocan told the Milwaukee Journal Sentinel at the time. Pocan’s staff declined an interview request from the Badger Institute.

“The only other funds that we believe were definitely destined for states are in the Department of Labor, and we have not seen [state-by-state] estimates for that,” said Marcia Howard, executive director of Federal Funds Information for States, a nonprofit that helps states manage federal money.

According to the CBO, about $1 billion in rescissions come from the Department of Labor’s State Unemployment Insurance and Employment Service Operations, which gives states grants to help administer their various unemployment programs. These rescissions were targeted to preserve funds that combat fraud and identity theft, according to the White House’s fact sheet.

The Wisconsin state government received roughly $2 billion in CARES Act funding and about $2.5 billion from ARPA’s State and Local Fiscal Recovery Fund. These figures do not, of course, include all the other pandemic aid Congress provided to individuals, businesses, schools, and local governments in Wisconsin.

So what has Wisconsin done with its billions in aid?

The state’s Department of Administration (DOA) has been unable to document how many spending decisions were made, as the Legislative Audit Bureau found last December while reviewing just a small share of the state’s pandemic funding.

In February, as the Badger Institute reported at the time, DOA officials testifying at a Joint Legislative Audit Committee hearing “acknowledged that many of the decisions about how to allocate money to state agencies and local governments were made in phone conversations and emails with Gov. Tony Evers and his staff that were not documented.”

The Badger Institute reached out to DOA repeatedly for comment on the issues discussed in this piece, and provided a list of questions, but the agency did not provide answers before press time.

When the Badger Institute reached out to the office of state Senator Eric Wimberger (R-Green Bay), co-chair of the Audit Committee, for an update, his staff pointed to several recent developments. For example, an Audit Bureau report in May revealed that, in some cases, Wisconsin’s Department of Health Services had awarded grants to health providers without properly verifying the applicants’ claims that they’d lost revenue during the pandemic.

If it’s unclear how spending decisions were made, however the DOA does provide the public some sense of who is getting how much, in the form of its Badger Bounceback website — which boasts that more than $8 billion has been allocated and more than $5 billion invested.

This includes more than just money given to the state itself. Most significantly, it includes $2.5 billion from the Education Stabilization Fund, a CARES Act program that funds schools but is administered in part through state governments.

The overall sum breaks down into $3.6 billion for education and child care, $1.7 billion for pandemic response and public health, and $1.6 billion for economic resilience (such as small-business grants), plus less than a billion apiece for the smaller categories of community building (such as the Neighborhood Investment Fund), household assistance, and broadband expansion. Users can also sort the spending by geography and see the amounts of specific grants.

The DOA provides a separate spreadsheet focused on the $4.5 billion the state itself received from CARES and ARPA, plus about $300 million from FEMA Public Assistance. With the exception of education, the large categories break down similarly.

This money benefited a wide array of causes and recipients. It bought personal protective equipment, increased pay for correctional workers, supported urban transit systems, aided low-income residents with their utility bills, helped build a community center and a psychiatric emergency facility for Milwaukee, and much more.

As of the end of March, the spreadsheet reports, less than $500 million had yet to be, at minimum, obligated to a recipient.

Wisconsin and every other state received massive amounts of pandemic aid. Federal money covered COVID losses, routine expenses, and new projects. If anything, the clawback non-story is more proof that, once created, a federal spending program can almost never be destroyed.

Robert VerBruggen is a fellow at the Manhattan Institute. He lives in Hobart, WI.

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