Maine state, county and local governments are distributing an unprecedented $4.5 billion in federal COVID-19 relief funding, but concern is building that the windfall will create enormous potential for waste and abuse.

The money is intended to help repair the severe economic damage wrought by the pandemic. If mishandled, though, the torrent of funding could saddle future taxpayers with the costs of maintaining programs established with a one-time influx of aid. Some critics worry that the money could be squandered or used to build up programs that won’t be able to sustain themselves.

The amount of aid is huge. The state’s share of ARPA funds, for example, is equal to roughly 25 percent of state government spending for an entire year, and the city of Portland will get an amount equal to about 23 percent of its current budget. Under the rules for ARPA allocations, county governments may receive up to 75 percent of their annual budgets.

It will cost state government $25.6 million just to administer the funds from the federal American Rescue Plan Act under spending plans approved by the Legislature and Gov. Janet Mills earlier this summer. That figure includes funds flowing to state government entities, direct aid earmarked for specific projects or organizations, and the funds the state will pass down to cities, towns and counties.

That spending covers the cost of dispensing, tracking and then reporting to federal officials on where the money went.

Of the total $4.5 billion, $500 million will be distributed to county and local governments. And oversight on how those dollars are spent will be largely left to local officials – county commissioners, city councilors and boards of selectmen – who are still trying to figure out how they can use the funding, while adhering to rules that are still being written.

“Our members are very cognizant of the restrictions on the uses of this funding and how important and unprecedented it is, and they are doing the groundwork to ensure every one of these federal dollars is spent wisely and appropriately,” said Kate Dufour, director of state and federal relations at the Maine Municipal Association.

Democratic legislative leaders and Mills have heralded the federal funds and their plans to spend them as a once-in-a-generation opportunity to transform Maine’s economic landscape. In addition to responding to the public health emergency created by COVID-19 and supporting businesses impacted by the pandemic, the federal funds also can be spent on water, sewer and broadband infrastructure.

Some critics, however, worry that the money could be squandered or used to build up programs that will be unable to sustain themselves in the future.

It’s not hard to find examples of fraud, misuse or wasted opportunities when government cash is flowing fast. For example, a recent report from a federal watchdog agency estimated that as many as 55,000 ineligible businesses may have received up to $7 billion in forgivable loans from an earlier COVID-19 relief package.

MAINE COUNTIES IN LINE FOR $260 MILLION

ARPA will provide $350 billion to state, county, city, municipal and tribal governments this year and next. Governments report to the U.S. Treasury Department how those dollars are spent. Maine’s 16 counties are expected to receive up to $260.7 million, while towns and cities are slated to receive up to $233.2 million, in amounts ranging from a few hundred dollars for unorganized territories with a handful of residents to $48.2 million for the city of Portland.

Jurisdictions that receive more than $5 million – a list that includes Portland, Bangor, Lewiston, Auburn, Biddeford and all but one county – will have to file quarterly reports, while towns and smaller counties will report annually. In Maine, the state and Cumberland County also will have to file annual “recovery plan performance reports” detailing the goals of the expenditures and key “performance indicators” to measure success.

It is unclear how much detail those reports – the first of which are due August 31 – will contain, or how the Treasury Department will vet tens of thousands of reports filed by states, communities and counties nationwide. Treasury’s most recent “compliance and reporting guidance” document is 35 pages long.

“There is every reason to believe Treasury won’t be a stickler, but there are basic requirements,” said Jared Walczak, the vice president of state projects at the Tax Foundation, a nonpartisan, nonprofit Washington, D.C., research center. “They might deny expenditures if they are clearly out of scope but in terms of scrutiny and oversight, Treasury just doesn’t have the capacity to engage that closely.”

Maine can’t use the money to offset revenue shortfalls caused by COVID-19 because the state – like many others – had a budget surplus, thanks to previous federal relief programs, such as the Coronavirus Aid, Relief and Economic Security Act. Walczak pointed out that spending deadlines under the CARES Act were extended by a year because states were struggling to find ways to spend the $150 billion in aid the law provided.

“It was clear that most states needed little, if any, additional assistance by the time ARPA came along,” Walczak said. He said state and local governments will need to avoid creating new long-term spending commitments.

“With this free money there will be a temptation to be extravagant, going after speculative projects and programs,” Walczak said. “But by doing so, it will be the state who will end up paying the piper in just a few years.”

‘FREE MONEY’ AND NEW FRIENDS

Kennebec County administrator Robert Devlin has pushed back against suggestions – or perceptions among those angling for a slice of the pie – that ARPA funding is “free money” that can be spent on anything.

“Getting $23 million, I have found all kinds of new friends,” Devlin said with a laugh. “My response to people has been: Read the law. It’s not as broad as people think it is.”

For instance, Devlin said the money can’t be used for road repairs or most other infrastructure except water and wastewater systems. But projects that seek to address problems caused or exacerbated by COVID-19 – such as mental health support services, substance use treatment programs, affordable housing and upgraded HVAC systems in the county jail or other buildings – would be eligible.

He and other county leaders are talking with municipal officials about partnering with them to meet their needs. Devlin also is setting up a formal application process to vet potential projects and help with paperwork on the back end.

“That is something that I don’t think people understand: This is federal money. It comes with a lot of hooks and a lot of procedures,” he said.

In Maine, the Department of Administrative and Financial Services will be responsible for dispensing the roughly $1 billion headed to the state’s coffers and acting as a pass-through agency for the $500 million earmarked for local and county governments. The department also will handle all compliance auditing and reporting of state expenditures but municipalities and counties will be responsible for filing their own reports.

The department expects to hire several limited-period positions and may contract with private consultants to oversee the state and federal reporting requirements on the funds, according to spokeswoman Kelsey Goldsmith. Goldsmith said DAFS had yet to determine the number of additional workers it may need to handle that work.

“This will include coordination, processing, tracking, reporting, reconciling, compliance, auditing, and program guidance monitoring and summarizing – as well as monitoring federal guidance and best practices throughout the period,” Goldsmith said in a statement. “Significant reporting will be needed to meet federal requirements, as well as consistent, transparent updates for the Maine Legislature and citizens.”

DAFS has published the names of recipients and amounts of previous COVID-19 relief grants as well as the amounts on a Bureau of Budget website. Goldsmith said the agency plans to publish comparable information about the ARPA funding on the web also.

PLANS FOR OVERSIGHT

Flaws in the underlying federal law have been the subject of conservative criticism. The Tax Foundation pointed out in March that ARPA appropriates more than $2 billion to county governments in New England that don’t actually exist and would be unable to even receive the funds.

The report by Walczak shows $691 million in funding was appropriated to counties in Connecticut, where there are no formal county governments, and another $942 million was earmarked for eight counties in Massachusetts that were formally disbanded in the 1990s.

While that is not the case for Maine, the issue highlights gaps in the law and how it may be managed and the funds it spends accounted for at the federal level.

State Sen. Cathy Breen, D-Falmouth, the Senate chair of the budget committee, said she expects public updates on how the funds are being used in January and again in April 2022.

“Part of our job is oversight of the executive branch,” Breen said. “There is a lot of money between the hefty revenues that we had that went into the budget and then almost $1 billion of ARPA money. I think it is just generally good practice that the legislative branch be in a position to see what the administration is doing with those funds.”

Breen said the Legislature is prepared to return to a special session as soon as this month if the Treasury Department disallows any parts of the ARPA spending plan passed by the Legislature.

“Everybody pretty much agreed that was appropriate,” Breen said. “If we learn in August that some of those things are black and white, not going to work or something is amiss, then a special session to fix it would be needed.”

Republicans who opposed the plan for spending the ARPA funds wanted to put more of the money toward what they saw as clearly allowable uses, including adding $20 million to the state’s unemployment trust fund.

Sen. Jeff Timberlake, R-Turner, the Senate’s minority leader, said Republicans erred during the legislative session by not pushing for a requirement that ARPA spending be subject to approval by two-thirds of the Legislature.

“It could have been done better,” Timberlake said of the legislative negotiations on the ARPA bill. “I don’t think the people of Maine got what they deserved.”

PREVIOUS ABUSE LESS THAN EXPECTED

Past experiences with federal stimulus packages offer reasons for concern about misuse of funds.

In 2009, as the Great Recession wracked the U.S. economy, the Obama administration created a Recovery Accountability and Transparency Board to track more than $800 billion in stimulus spending. A key part of the board’s work was Recovery.gov, a publicly available website that reported who received money, how it was spent, how many jobs were created or preserved, and other performance metrics.

There was fraud and abuse of that economic stimulus money, but much less than experts expected. In the end, the Recovery Accountability and Transparency Board reported more than 1,600 convictions, pleas or judgments yielding $157 million in returned or forfeited funds.

By comparison, more than $5 trillion has been authorized by Congress in response to the COVID-19 crisis. The CARES Act also created the Pandemic Response Accountability Committee that has a website, www.pandemicoversight.gov, where information on awards to “prime recipients” is tracked.

With so much money gushing out of the federal Treasury amid a deadly pandemic, it is inevitable that a portion will be misspent or stolen. And while many incidents won’t come to light for years – if they ever do – others have already prompted federal investigations and charges.

In January, the U.S. Small Business Administration’s Office of Inspector General determined that nearly 55,000 forgivable loans totaling roughly $7 billion were paid to potentially ineligible businesses through the Paycheck Protection Program. A subsequent investigation by the news organization ProPublica that examined just one of the thousands of financial institutions that processed PPP loans found the online lender sent $7 million to 378 fake businesses, many of them nonexistent farms.

As of March, the U.S. Department of Justice had charged 474 individuals with fraudulently obtaining or attempting to obtain more than $569 million in COVID-19-related funds.

A Colorado physician, for instance, was charged in April with allegedly stealing nearly $300,000 in COVID-19 relief funds intended for medical providers and, instead, spending some of it on travel and home improvements. In another case, federal investigators allege a Missouri medical clinic operator received or sought nearly $900,000 in reimbursement for thousands of COVID-19 tests that were already paid.

LULL GIVES TIME TO WEIGH OPTIONS

The 69-page Maine law that divvies up the federal cash among state departments is one of two bills passed into law that moves ARPA funds. The other law allows the state to accept and pass on the federal funds to local municipalities and tribal governments. Breen said oversight of how cities and towns spend ARPA funds will be a matter between them and U.S. Treasury.

And while some cites in Maine have the staff capacity to track and document the use of the funds, others will not.

Maine-based critics of the state’s ARPA law say the investments could cost taxpayers in the long run.

Jacob Posik, of the right-leaning Maine Policy Institute, said his organization is particularly concerned that federal funds meant to expand broadband access in rural Maine will be funneled out to create government-owned or quasi-municipal broadband utilities in places already served by high-speed internet.

“Government-owned networks put local taxpayers on the hook for future costs of maintaining the infrastructure,” Posik said. “These systems could be entirely obsolete in five, 10 or 20 years in terms of broadband delivery method. In our view, building out additional broadband infrastructure in areas already served is a wasteful use of broadband funds.”

He said investing the money inefficiently or on infrastructure like building out optic fiber networks that could be quickly surpassed by future technologies would also be wasteful. “If we invested billions in expanding DSL 20 years ago, we’d look pretty stupid today,” Posik said. “This sector is already innovating in ways we never could have predicted – think Starlink from SpaceX.”

But Dufour, with Maine Municipal Association, said municipal leaders are still waiting for final rules from Treasury on use and tracking of funds. In the meantime, they are exploring options and seeking feedback from citizens, with some communities establishing special subcommittees.

The Maine Municipal Association is strongly urging community leaders to consider collaborating and pooling their funding to tackle larger, regional issues such as affordable housing, substance use disorders or even telehealth access. For all but a few of the larger communities, funding is not expected to arrive until the fall.

And unlike earlier COVID-19-related stimulus programs, which had tight use-it-or-lose-it deadlines, governments have until 2024 to “obligate” funding and then a few more years to spend it.

“This lull or wait-and-see (period) is actually providing the time necessary to explore the opportunities and giving municipalities the time to discuss their priorities, not only among municipal officials but also among citizens,” Dufour said. “There is plenty of time and we have been telling municipalities from the get-go that you don’t need to spend this money right away.”

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