As part of an ongoing effort to account for state and federal stimulus funds coursing through the state’s coffers, a comptroller’s workgroup examined spending Wednesday by two state agencies that have paid out the greatest amount of pandemic relief: the departments of Commerce and Housing and Community Development.
“There’s no doubt that this aid was essential. And I continue to believe in many cases even more relief was called for,” said Comptroller Peter V.R. Franchot (D). “I also believe, however, that with so many taxpayer dollars being disbursed, it is both morally and fiscally prudent that we continue to evaluate these transactions to guard against waste, fraud and pandemic profiteering.”
Franchot formed the Workgroup on Pandemic Spending after the General Assembly required his office to provide a full accounting of stimulus spending, as well as a report on any fraud uncovered during his review.
Since March of 2020, the Commerce Department has released more than $435 million in targeted grants and loans to Maryland businesses and nonprofits, according to data presented Wednesday.
About $220 million was distributed through the Maryland Small Business Emergency Relief Grant and Loan Funds that were established by Gov. Lawrence J. Hogan Jr. (R) in March 2020.
Franchot expressed concern about how the department distributed those funds, particularly because Prince George’s County appeared to receive less money than other counties, despite being the state’s second most populous jurisdiction.
Montgomery County businesses received 2,646 grants for $26.2 million through the emergency grant program, compared to $12.5 million for 1,270 grants in Prince George’s County, Franchot pointed out.
He also questioned the distribution of grants to some industries that didn’t suffer dramatic job losses. The professional, scientific and technical service industries received 13 percent of all Commerce funds, though the industries accounted for only about 3 percent of job losses in Maryland, Franchot said.
By contrast, the food services sector received 17 percent of Commerce funds, but sustained nearly 33 percent of job losses.
Sarah Sheppard, director of education and workforce at the Department of Commerce, said the disparities were created in part because the first disbursements were made hurriedly at the height of business closures, while the approval process became more refined with time.
During the first round of emergency state grant and loan funding, the department was frantically reviewing tens of thousands of applications with a team of eight employees. Later in the grant process, there were more than 100 state employees from other departments volunteering to work for Commerce to review grant and loan applications.
The initial programs were also nearly immediately oversubscribed, Sheppard said, meaning some of the savviest applicants were able to secure all the funding. During later stimulus programs, the department worked to increase outreach to different types of businesses, and stimulus funds approved in the bipartisan RELIEF Act of 2021 included provisions to ensure geographic diversity.
Workgroup members asked Sheppard whether she would have changed things to make the process more equitable from the start.
Sheppard responded that the initial efforts were to get emergency funding to struggling businesses as quickly as possible, and, at that time, all businesses were suffering losses.
Sheppard added that such an intensive response is hopefully a once-in-a-lifetime event.
Bureau of Revenue Estimates Director Andrew Schaufele, a member of the workgroup, agreed. But, Schaufele added, there was still value in identifying what went right and what went wrong.
“I do think this is going to change the way that government forever responds to any kind of recession,” Schaufele said. “…I think this is going to be the new normal in response. So, I do think there’s a lot of value to digging into these.”
Asked about fraud, Sheppard said Commerce identified three businesses — one in 2020 and two in 2021— that appeared to submit falsified documentation, but the agency was not aware of any fraudulent payments made. Processing errors did lead to 56 businesses receiving duplicate checks and four receiving overpayments, Sheppard said.
Most of the erroneous checks have been returned, canceled or the businesses have agreed to repay them, she said.
Rental assistance funds now flowing
Maryland’s Department of Housing and Community Development has been allocated more than $1.78 billion in stimulus funding throughout the pandemic to help with rental and mortgage assistance, homelessness prevention programs and broadband internet expansion.
More than 70% of that funding was allocated through the federal American Rescue Plan Act which became law in March.
About $500 million is dedicated to rental assistance; roughly half was approved by the federal government in January and the state established an application process that opened in May.
Franchot expressed concern that some of the money directed to the state for rental assistance hasn’t been spent quickly enough. Of the $258 million included in the federal Consolidated Appropriations Act of 2021, only $286,000 has been expensed to date, according to spreadsheets presented by Robyne Chaconas, the Department of Housing and Community Development’s chief of staff.
Chaconas said that is a factual, but misleading, figure. Now that rental assistance applications opened up on May 15, the department expects to see those expenditures increase significantly, she said.
Chaconas also cautioned the panel that some dedicated stimulus funds will be spent faster than others: for example, some of the federal programs have much more flexible or longer-term guidelines, so state and local governments will draw down time-sensitive grants first, she said.
Agency representatives told the workgroup they would follow up with additional data that was requested but not immediately available Wednesday, including information about the number of businesses that failed after receiving stimulus funds, the results of grants intended to spur manufacturing of personal protective equipment, and how much rental assistance funding went to large landlords compared to smaller ones.
The workgroup is expected to meet again in about a month to discuss the state’s unemployment system.