Capitol Hill turned some heads this week when congressional leaders released the text of their $1.5 trillion “omnibus” bill to fund government operations.
In order to finance new federal investments in COVID-19 protection and mitigation (such as vaccines, antiviral medications, and tests), the bill proposed to recoup as-yet unspent pandemic relief money from states. In particular, the bill would have reclaimed more than $7 billion in flexible fiscal recovery funds from the American Rescue Plan (ARP) Act that 30 states had not yet fully obligated. Democrats objected to the move, causing party leaders to ultimately remove the new COVID-19 relief provisions from the bill.
The tempest, while short-lived, points to a larger narrative issue around relief funds that Washington provided to states, counties, and cities. March 11 marks the one-year anniversary of ARP’s passage, and many states are enjoying budget surpluses thanks to the bill—but some federal legislators are now questioning whether these places really needed the money, especially if they haven’t spent the dollars yet.
However, just because the dollars are not out the door everywhere doesn’t mean they’re not still needed, or that state and local governments aren’t largely using them in ways that Congress intended. Data from our Local Government ARPA Investment Tracker (a joint effort with the National League of Cities and National Association of Counties), which reflects early spending decisions among 152 large cities and counties around the country, paints a broader and more nuanced picture.
Cities and counties are using ARP funds for the purposes Congress intended
Congress gave states, counties, and cities four basic options for how they could use ARP’s $350 billion in flexible fiscal aid to address the impacts of the COVID-19 pandemic: 1) responding to the public health and economic impacts of the crisis; 2) providing premium pay to essential workers; 3) investing in water, sewer, and broadband infrastructure; and 4) replacing lost government revenue. The Treasury Department’s regulations implementing the program provide more detail on eligible ways recipient governments could put the dollars to work.
Our analysis of the early data from local governments, outlined in plans they submitted to Treasury at the end of last summer, revealed a broad distribution of spending across eligible activities. The most frequent use of dollars was for government operations: hiring back laid-off workers, restoring service levels that had been cut, and improving public facilities and technology—consistent with the Act’s objective to protect public sector capacity. Beyond those uses, cities and counties divided their efforts nearly evenly among other eligible uses, including responding to the public health crisis, expanding affordable housing, investing in qualified infrastructure, and providing direct aid and economic and workforce development to negatively impacted households, businesses, and communities.
Of course, the odd state trying to use ARP funds to build prisons or a city using them to improve infrastructure around a golf course make for easy targets. But these exceptions should not obscure the hard work happening around the country to fulfill the Act’s promise.
Cities and counties have been smart to proceed deliberately in spending ARP money
By threatening to rescind ARP allocations, Congress implied that if recipients haven’t obligated the money yet, they must not really need it. But that view is at odds with smart and reasonable approaches for budgeting the dollars.
As of the end of summer 2021, the 152 cities and counties in our Tracker had collectively budgeted nearly half (48%) of their total flexible recovery fund allocation. While there was a great deal of variation in that percentage across individual jurisdictions, that overall commitment reflected the fact that cities and counties received only half their total funds in May 2021, with the second half slated to arrive in May 2022. There are at least three reasons cities and counties have been wise to avoid committing all their resources immediately.
First, the near-term and long-term impacts of the pandemic have been unclear to date. Cities and counties that didn’t commit all of their resources upfront were arguably better able to respond to the negative economic and health impacts of the virus’s Delta and Omicron waves in the fall and winter of 2021/22. In addition, the downstream impacts of greater remote work on local tax bases remain uncertain; some cities and counties may experience a longer-term revenue blow that flexible funds could temporarily soften.
Second, in keeping with the Biden-Harris administration’s executive order, many cities and counties are eager to advance equity in how they deploy their ARP dollars. That commitment requires authentically engaging with local communities to identify priorities and strategies, redesigning outmoded delivery systems, and measuring/tracking investment activities and results. Smart models are emerging that combine a deliberate focus on equity with the urgency to respond to acute community needs.
Third, forward-looking cities and counties recognize that while significant in scale, ARP funds are a one-time opportunity. As a result, many local leaders are focusing on leveraging the funds for longer-term, more transformative impact. This could involve braiding the dollars with local private funding, funding from surrounding regional jurisdictions, or major new federal investments like those in the bipartisan infrastructure bill. Whatever the play, it makes sense to put in the extra coordination time to achieve sustainable outcomes.
We should trust local leaders to deliver on the American Rescue Plan’s promise
The decisions that city and county leaders have made thus far with ARP dollars should give us confidence that they are helping meet the goals of the Act, and give us pause before making any future attempts to reclaim those funds. With the certainty provided by Treasury’s final rules, the acute effects of the pandemic receding, and a second major tranche of ARP funding arriving imminently, the next few months will constitute a significant proving ground for federally backed, locally led efforts to ensure a robust, equitable, and sustainable economic recovery.