Buried in the $1.9 trillion stimulus package that Congress passed in March is a little-known amendment, proposed by Senate Majority Leader Chuck Schumer, D-N.Y., and backed by 13 of his colleagues in the Democratic caucus, that rerouted billions of dollars meant for economic recovery for small towns. The obscure change altered five words and could strip more than a quarter of the recovery funding from 23 states, including Schumer’s New York.
The American Rescue Plan Act of 2021 included $19.53 billion to distribute to local governments serving small cities and towns of populations of about 50,000 or less, known in government jargon as “non-entitlement units,” or NEUs. In the House’s version of the bill, every NEU in every state would have received the same amount per resident, about $178 per person.
But the Senate version doesn’t allocate aid based on NEU populations. Instead, it instructs the Treasury Department to allocate funding based on states’ “non-metro populations” — a designation that overlaps with NEUs but is not synonymous. First identified by the data consulting firm Civilytics, the change in terminology established a new aid formula that shifted $5 billion, or 25 percent of the total program, creating sharp disparities depending on how states classify their communities.
According to Civilytics researchers Jared Knowles and Hannah Miller, in states that have large populations living in unincorporated areas — places outside the bounds of local or municipal jurisdiction, governed only at the county, state, and federal levels — local governments will now receive much higher per capita funding than those in states without them.
In states like California, Maryland, Georgia, and Virginia, where there are large unincorporated populations, residents in small towns stand to get hundreds of dollars more per person. But in the unincorporated areas themselves, with no local governments to allocate funding, residents are effectively barred from receiving federal aid.
Roughly a quarter of the U.S. population lives in unincorporated areas that would be disqualified from the funding, according to Civilytics’s analysis of Census data. That’s not just in tiny rural towns; over 1 million residents live in unincorporated parts of Miami-Dade County, for example, and more than 65 percent of Los Angeles County is unincorporated.
In Nevada, the 1,327,951 residents in unincorporated areas quadrupled the amount of federal aid the state will receive under the new formula. Nevada’s small towns could get over $1,300 per resident now — but unincorporated populations will get none.
Many states will receive far less.
Seven states — including New York, Massachusetts, and Rhode Island — have virtually no residents living in unincorporated areas. In another nine — including Michigan, Pennsylvania, Minnesota, Ohio, and Wisconsin — the proportion is 1 percent or less. Small-town residents within all these states are now set to receive about $104 per person in American Rescue Plan aid.
Had the federal government kept the House’s funding formula, Pennsylvania would have received almost $689 million more in aid, and New York and Ohio would have also received over $500 million more. Sixteen states in total would have gotten about 70 percent more federal aid for their small-town economic recoveries under the House version. By contrast, Nevada, Maryland, and Virginia are getting more than four times as much thanks to the Senate amendment.
A Democratic aide familiar with the amendment’s crafting said the senators worked with the Biden administration to draft the change. According to the aide, it was driven by desires to get federal funds out more quickly, as well as to reflect the different ways states classify small towns and cities and how their populations may overlap.
“Our goal was to get the money out directly to these small communities in as efficient a way as possible,” the aide said. “Treasury, states, and local communities are working together to make sure that state and local governments are getting their fair share.” The Treasury Department is accepting public comment on the distribution of state and local stimulus funding until July 16.
Knowles and Miller told The Intercept that they don’t think many jurisdictions realize that they’re being shortchanged. Many local governments have less research capacity to crunch the numbers than larger metropolitan cities, and they believe that the Treasury Department published its information in nontransparent and obfuscatory ways.
The Intercept reached out to all 14 senators who sponsored the amendment, asking them if they were aware that the legislative change would have this effect and if they believed that the Senate’s formula was better than the House’s version. Democratic Sens. Schumer; Tom Carper of Delaware; Brian Schatz of Hawaii; Ben Cardin of Maryland; Gary Peters and Debbie Stabenow of Michigan; Jon Tester of Montana; Sherrod Brown of Ohio; Ron Wyden of Oregon; and Maria Cantwell and Patty Murray of Washington as well as independent Sen. Bernie Sanders of Vermont all did not return requests for comment.
Robert Julien, a spokesperson for Sen. Bob Menendez, D-N.J., declined to comment. Jay Tilton, a spokesperson for Sen. Patrick Leahy, D-Vt., chair of the Senate Appropriations Committee, referred questions to the Senate Finance Committee. Tilton did not answer questions regarding Leahy’s role in the amendment that carries his name.
A Democratic aide on the Senate Finance Committee suggested that their changes from the House version “were largely reflective of the interests of senators in representing whole states, including smaller and more rural states, versus districts.” But the Senate amendment for small-town aid doesn’t benefit states more than districts; it just alters which states benefit more than others. The aide did not answer follow-up questions.
Given the rush to pass the stimulus bill, it is possible that no one analyzed the numbers to see how the language would impact individual states. Indeed, Schumer’s amendment deprives his own state of $541 million in federal aid, a reduction of over 40 percent from the House’s version. The senators from Michigan, New Jersey, and Ohio who sponsored the amendment also shifted hundreds of millions in funding away from their states.
Senate sources said the change came at the behest of officials at the Treasury Department and the Department of Housing and Urban Development. The thinking, they said, was that the shift to “non-metro” populations could provide a more expedient way to distribute funds than using NEUs, because the former is used in other programs like HUD’s Community Development Block Grant. But that doesn’t explain why the Treasury Department then published guidance restricting which NEUs could receive funds, taking flexibility away from states that could otherwise have directed some money to unincorporated areas.
A spokesperson for the Treasury Department defended its allocations, saying in an email that the agency distributed funds “according to the plain meaning of the specific requirements” set forth in the American Rescue Plan. The spokesperson did not acknowledge the agency’s role in helping craft the amendment.
“It is clear under the statute that the local governments referred to as non-entitlement units of local government (NEUs) do not include all unincorporated areas,” the spokesperson said. “Treasury worked with the Census Bureau to provide guidance to states as to the universe of eligible NEUs. Of course, each state and county may assist unincorporated areas within its borders using its share of the $195.3 billion and $65.1 billion provided to states and counties, respectively.”
In Maryland, where NEUs will now receive close to $1,000 per resident, the Senate amendment resulted in an additional $433 million in aid, a 450 percent increase compared to the allocation under the House version.
“It’s great for [Maryland small towns], they’re going to get a lot of money,” said Marc Nicole, deputy secretary at the Maryland Department of Budget and Management. “I’m going to say some of them are going to do a great job [with the funding] and will have really good ideas, and for some of them, it’s going to overwhelm them. We have one municipality that has a population of 15. They’re going to get like $14,000. I don’t know that I’d have a problem spending $14,000, but they may not know what to do.”
Like all states, Maryland recently received the first half of its allotted funds and will have 30 days to distribute the dollars to local governments. The second installment comes next year.
Michael Wallace, the legislative director at the advocacy group National League of Cities, described the American Rescue Plan as a “major victory” for local governments of all sizes and a “critical lifeline” for small cities. But “there is still more work to be done,” he told The Intercept. “NLC will continue to work to ensure that fair and tested funding formulas are included in future economic recovery legislation so that small municipalities everywhere can receive the funding they need to rebuild and support their residents.”
Civilytics researchers believe that there still may be ways to rectify the funding formula for a more equitable distribution of aid to small towns.
Virginia Department of Planning and Budget Director Dan Timberlake said he could not offer any comment on alternative funding proposals or on any outside organization’s analysis. “I don’t recall ever seeing any allocations other than the final ones,” he said. Virginia’s funding for small towns and cities increased 482.6 percent because of the amendment.
“I think what happened is cities and towns probably lobbied Congress and said, ‘Hey we’re having problems too, and you haven’t given us our fair share,’ and I assume Congress then allocated more to municipal governments, which is good for them,” Nicole said. He acknowledged that his state — whose senior senator, Cardin, sponsored the amendment — “did better” than others given their large number of residents in unincorporated areas.
With the Treasury Department’s public comment period open until July 16, the Civilytics researchers believe that there still may be ways to rectify the funding formula for a more equitable distribution of aid to small towns.
“The remedy could either come from Congress changing the formula for the second aid payment to adjust for the first, or Treasury could soften the issue by allowing states the flexibility to distribute funds to unincorporated populations in their borders as well,” said Knowles, the researcher.
To do so, though, some lawmakers may have to consider whether they consciously or unwittingly excluded 78 million Americans from the pot of recovery aid.
This content originally appeared on The Intercept and was authored by Rachel M. Cohen.