Biden administration threatens to take back Covid funds from Arizona over schools’ anti-mask policies

US First Lady Jill Biden speaks to people during a COVID-19 vaccine site tour at Isaac Middle School in Phoenix, Arizona, June 30, 2021.

Carolyn Kaster | Pool | Reuters

On Friday, the Biden administration threatened to cancel millions of dollars in federal coronavirus aid to Arizona, accusing the state of using it to undermine efforts to contain the spread of the virus.

In a letter, the Treasury Department said Republican Governor Doug Ducey’s office has 60 days to either replace two federally subsidized public school programs totaling $173 million or redirect the money to “appropriate uses.”

The letter said the programs impose conditions that prevent compliance with wearing masks in schools and contradict the Centers for Disease Control and Prevention’s guidelines on how to reduce Covid transmission.

The Treasury said the Biden administration could withdraw that stimulus money and withhold a second tranche of pandemic relief funds if Arizona did not comply or comply with the Treasury’s demands.

Ducey’s office did not immediately respond to CNBC’s request for comment on the letter.

The federal funds in the dispute come from the Coronavirus State and Local Financial Recovery Funds program, or SLFRF, which is a $350 billion part of the multitrillion-dollar Covid relief package called the American Recovery Plan, which President Joe Biden signed into law last year.

The Treasury said in a letter to Ducey’s Office of Strategic Planning and Budgeting that the funds were intended to “mitigate the financial impacts from the COVID-19 public health emergency, including supporting efforts to contain the spread of the virus.”

But Arizona’s two school programs are using federal money to “impose conditions for joining or accepting a service that undermines efforts to contain the spread of COVID-19 and deters compliance with evidence-based solutions to halt the spread of COVID-19.” said the letter.

The Treasury wrote, for example, that the $163 million Education Plus-Up Grant Program only allows funding to schools that do not enforce mask requirements.

The other program, totaling $10 million, provides grant money to help families remove their children from schools deemed to impose “unnecessary closures and school guidelines.”

The Treasury’s letter stated that this program is “open to families only if the student’s current or previous school requires the use of face coverings.”

The latest letter, sent by Kathleen Victorino, Deputy Director of Compliance at the Department of Treasury Recovery Programs, follows months of back and forth between the Biden administration and the Grand Canyon State.

In October, the Treasury Department asked Arizona to explain how it would solve the problems identified in the two school programs.

The state responded a month later, detailing its rationale for the anti-mask conditions, but “did not disclose any plans to fix the issues identified,” Victorino wrote.

With the highly contagious omicron variant causing an unprecedented increase in cases, the latest challenge to Covid safety rules is coming. The US Supreme Court on Thursday blocked the implementation of the Biden administration’s rule that employees at large companies should be vaccinated or have weekly tests, but the Supreme Court left the vaccine mandate for healthcare workers intact.

But disagreements precede omicron. Last year, Arizona’s Republic-controlled legislature sought to pass provisions banning mask guidelines and other Covid safety measures. In November, the state Supreme Court ruled that these measures were deemed illegal.

Tom Franck of CNBC contributed to this report.

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