Connecting state and local government leaders
Billions in state and local aid from the American Rescue Plan Act have gone to combat the pandemic, but also to build monuments and fix state buildings. Republicans are increasingly questioning the need for all the funding and how it is being spent.
A year after President Biden signed the $1.9 trillion American Rescue Plan Act into law, states and localities have used their $350 billion share of direct aid to provide Covid-19 vaccines, give workers on the frontlines of the pandemic extra pay, and to boost local economies—as with the grants Fountain Inn, South Carolina gave businesses in its downtown to improve storefronts and put up more art.
But the massive relief package, passed by Congress along partisan lines and signed by Biden on March 11 last year, remains controversial.
The state and local aid has gone to a wide array of programs. Much of the spending has clear ties to public health and economic recovery. But not all of it on the surface seems to be related to the pandemic.
For instance, states have earmarked the money to build monuments, create museums, tear down at least one abandoned university dormitory, and to carry out construction on courthouse buildings, according to a National Conference of State Legislatures database.
Supporters of the package say the money that Congress sent to the states and thousands of local governments around the country was crucial to avoiding a worse economic crash during the pandemic, and for avoiding cuts to government services and public sector layoffs.
And the law and subsequent rule making granted states and localities a great deal of flexibility to use the money as they best see fit.
But the aid is increasingly drawing scrutiny from Republicans in Congress and others, who note that it’s not immediately known how billions of dollars are getting used, or how billions more will be spent in the months and years ahead.
This criticism has grown as more states report budget surpluses and as the GOP, during a midterm election year that will decide control of Congress, is seizing on the idea that the spending Democrats backed in the American Rescue Plan has contributed to a rising wave of inflation.
The controversy flared in the lead-up to Friday’s anniversary of the law's signing, as Senate Republicans pushed and briefly convinced House Democratic leaders to pay for new emergency coronavirus funding by taking back billions of dollars in ARPA aid from states.
To those heralding the package, ARPA has been instrumental in helping state and local governments weather the pandemic's economic fallout and for supporting their response to the health crisis.
Particularly for localities, the flood of federal dollars has helped soften the blow of lost tax revenue and other financial turbulence. Local governments still have fewer workers than before the pandemic, but many people familiar with the sector have argued that the losses would have been much worse without the federal money.
“It’s really helped get cities’ operations back in place,” said Lena Geraghty, the National League of Cities’ program director for urban innovation. Without it, “there would have been an even more significant reduction in service delivery,” she added. And a weaker local response to the pandemic could have meant even more Americans getting sick and fewer getting vaccinated against Covid-19.
Notably, cities continue to face economic and budget uncertainty due to the pandemic, especially as it remains unclear how downtowns that emptied as remote work took hold and tourism dropped will recover.
The White House and Democratic lawmakers continue to defend the importance of the aid.
“The emergency assistance for states and local jurisdictions is one of the critical measures of the American Rescue Plan,” said Gene Sperling, special advisor to President Biden and head of the administration’s implementation of the $1.9 trillion package.
It helped the nation’s economy recover more quickly than other countries, he said. And while billions in ARPA dollars have flowed to states’ coffers as their surpluses have grown, Sperling said it has put them in much better shape to deal with unknowns, like the emergence of another variant of the coronavirus.
U.S. Sen. Cory Booker, a New Jersey Democrat, this week told reporters that, one year in, ARPA “has been a resounding success.”
Many Republicans, though, believe that Democrats overdid it.
“I see our cities and towns are awash in more money than they’ve ever had. They’re able to do water projects and they’re able to do some broadband projects and that’s all good,” said Sen. Shelley Moore Capito, of West Virginia, the top Republican on the Senate Environment and Public Works Committee.
“But I think the final analysis is that the flooding of this money is what’s leading the 7.9% inflation index that we saw just today,” she added on Thursday.
Capito is also bothered that it’s unclear how all the money is being spent.
She joined 35 other Senate Republicans in signing a letter to Biden, frustrated that data made public by the Treasury Department does not offer a real-time, detailed view of how cities, states, schools and other entities are using the funds.
Indeed, the design of ARPA’s reporting requirements for governments mean that efforts to track how money is being budgeted rely currently on reports filed with the Treasury Department last August.
“Questions are mounting about where exactly the additional money has gone,” the GOP lawmakers said in their March 2 letter.
Capito said this week that Senate Republicans will likely try again to demand the federal government take back part of the ARPA dollars going to states when the Senate takes up a new emergency Covid spending bill pending in the House.
Spending So Far
In addition to the lag in monitoring how the money is being spent, assessing whether ARPA is achieving its goals is a work in progress.
The 152 cities and counties the National League of Cities, Brookings Metro and the National Association of Counties have been tracking have only decided what to do with 48.6% of their ARPA dollars. The last update to that data was in February.
The 41 cities being tracked had spent 60% of their money, but the 104 counties being monitored had only budgeted about a third of the money. (The other seven places in the database are combined city-county governments).
However, according to an update of the National Conference of State Legislatures’ ARPA database Thursday, based on the most current information about passed legislation and governors’ executive orders, states have allocated about three-quarters, or about $117 billion, of an initial $155.8 billion they have received.
That money does not include $39.4 billion in second round payments that will be made available in May to 30 states that had their allocations split into two equal parts under ARPA’s funding framework.
Different states have different processes for approving how the aid dollars are spent. In many cases this involves appropriations made by lawmakers, not just action by governors or agencies. Many state legislatures are holding sessions now where these spending decisions could be made. The timing of these sessions is one factor that helps explain why some states were slower to spend.
Despite the Republican complaints, the NCSL database does show that states have generally been steering relief dollars to areas like public health, economic relief programs, and workforce development.
But the NCSL database also includes examples that appear less directly linked to the way the Biden administration described the purpose of aid for states and localities in a fact sheet—“to ensure that they are in a position to keep front line public workers on the job and paid, while also effectively distributing the vaccine, scaling testing, reopening schools, and maintaining other vital services.”
Virginia, for example, is using $1.5 million of ARPA dollars to inform voters about new elections laws and to combat misinformation about Virginia elections. Another $3 million is going to support local efforts to expand early voting to include the adoption of Sunday voting.
The state is also spending $7 million of ARPA funds on cultural sites and other offerings focused on Black history, including $6 million for a monument to commemorate the 400th anniversary of the arrival of enslaved Africans at Fort Monroe.
Oregon is using upwards of $8 million on the replacement of two county courthouses and on renovations to the state’s Supreme Court building.
Maine is spending $8 million on publicly accessible electric vehicle chargers.
Even states run by Republican governors are using ARPA funds in ways that do not seem tightly related to rescuing the nation from the pandemic. For instance, Texas plans to spend $20 million on a site celebrating the 1836 signing of the state’s Declaration of Independence and lawmakers carved out another $25 million for a state preservation board to put towards maintenance and capital projects.
North Dakota, another solidly red state, is spending $150 million on grants to transport natural gas to the eastern part of the state.
The grants “will allow the state to replenish its lost revenues as a result of the economic development and workforce development that will occur with the installation of the proposed pipelines,” Karlene Fine, executive director of the state’s industrial commission, said via email.
The oil and gas industry in the U.S. did nosedive in 2020 after the pandemic struck, hurting the economies of states that depend on it.
Elsewhere, Tennessee opted to spend $68.3 million to modernize state technology. North Dakota also decided to reimburse county jails $4.8 million for holding prisoners who did not go to state prisons because of Covid. Hawaii is spending $105 million to upgrade its unemployment call centers. And Massachusetts is using $75 million to support sick leave for state workers.
While state governments initially appeared to be on a dire financial path at the start of the pandemic, their revenues didn’t drop as much as projected, explained Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers.
Tax revenues collected on income and capital gains remained healthy as many office employees switched to remote work and kept getting paid and as the stock market performed well. Online sales taxes also helped as Americans ventured out less and internet shopping boomed. Then ARPA aid fattened budgets even further.
In fiscal year 2019, states had a total of $121.6 billion in ending balances. In fiscal year 2021, this figure had shot up to $217.1 billion. The number of states with surpluses greater than 10% of their general fund expenditures rose from 35 in fiscal year 2020 to 46 in fiscal year 2021, according to NASBO.
California is projected to have a $31 billion surplus to allocate in 2022‑23 after being awarded $27 billion in ARPA funds. The state legislative analyst’s office last month said that the surplus could grow, noting that the “big three” taxes—personal income, sales, and corporation taxes—could bring in between another $6 billion and $23 billion in unanticipated revenue.
To Sperling, the White House advisor, the larger surpluses mean states are in a safer position than before the pandemic and compared to the years after the Great Recession when many states and localities endured a sluggish recovery.
“We’ve seen three unforeseen things already during the pandemic—delta, omicron and now a military conflict,” Sperling said.
The money could prove to be even more critical going forward with some economists warning Russia’s attack on Ukraine and rising energy prices could spark another recession in the next 12 to 18 months.
In the meantime, some states, flush with cash, are proposing to give money back to taxpayers. Republican Vermont Gov. Phil Scott last week proposed using $45 million of a surplus in the state’s education fund to give a $250 to $275 rebate to residents. And, this week, Democratic Maine legislators proposed giving a $1,500 tax rebate to households to help them deal with soaring utility bills.
‘Not Content Looking Backward’
Local government advocacy groups continue to stress the importance of the aid.
Larry Johnson, a commissioner in DeKalb County, Georgia and president of the National Association of Counties, in a statement described the money as “instrumental in our ability to respond to the pandemic, save lives, and strengthen local and national economies.”
At least 12.7% of the city and county ARPA money budgeted so far has been for housing programs, according to the NLC, Brookings and NACo database. Another 12.3% went to community aid (a category that covers expenses such as food aid and direct payments to households), 12.1% to infrastructure, and 10.5% to economic aid, the tracker shows.
A separate NLC database with information on how cities have confronted the pandemic with the use of ARPA funding, money from the earlier CARES Act, and their own revenues, shows that jurisdictions have invested in public health initiatives to limit the spread of the coronavirus, including vaccination programs.
Cities have also focused spending on preventing evictions, helping the homeless, and projects like upgrading parks, sewer systems, broadband and transit.
Fresno, California, for example, spent $40 million to make neighborhood improvements and $10 million to improve parks.
Some of the money has also gone to workforce initiatives. Like in Beaufort, South Carolina, where officials last month announced plans to give $1,500 bonuses to full-time “essential employees” who worked through the pandemic.
Examples of economic development spending can be found in places like Pflugerville, Texas, which allotted $1 million to aid small businesses and Galesburg, Illinois, which directed $250,000 annually for the next three years to programs meant to attract new businesses.
Debbie Cox Bultan, CEO of NewDEAL, a network of progressive state and local leaders, emphasized that members of her group are backing spending that is designed to address equity concerns.
“Leaders are not content looking backward to rebuild flawed systems of the past, but rather are taking advantage of a unique moment to build a better, more prosperous future,” she said in a statement.
A report the group issued this week gave examples like programs pushed by St. Louis Mayor Tishaura Jones, that will use $15 million to help residents struggling to pay for home repairs and another $23 million for rental assistance.
Replacing Lost Revenue
Many governments are using the aid to replace lost revenue and shore up general spending.
Cities and counties tracked by Brookings and the city and county associations have used the largest share of their ARPA dollars, 37.9%, on government operations, often making up for declines in revenue.
The same has been true for state governments. According to a NASBO analysis from last fall, states were planning to use about a third of their ARPA dollars to replace revenue—more than for any other eligible spending category.
Among the allowable uses of state and local ARPA aid, revenue replacement is notable because it provides recipients the greatest leeway with how to spend compared to other spending categories, which are restricted to areas like water and sewer projects and providing extra pay to certain workers.
In California, $7.3 billion has gone to replace revenue it lost, according to the NCSL database. Connecticut has replaced $1.2 billion in lost revenue. Minnesota has replaced $633 million.
States Defend Spending
Asked about ARPA expenditures that seemed more loosely tied to the pandemic, states pointed to how this spending has supported economic recovery and other goals that align with the spirit of the law.
In Virginia, Caroline Logan, spokeswoman for the Virginia Tourism Corporation, a state agency, made a case that the use of ARPA funding to increase awareness of Black history fits with the law’s goals.
In addition to the project recognizing where slaves landed in the state, Virginia is putting a combined $1.25 million towards a museum and other programs in Virginia Beach and Harrisonburg focused on African-American history and culture.
Logan noted that the decision to spend ARPA dollars on the projects was made by state lawmakers. But she said the projects would help address an $18.8 billion decline in tourism spending the state has suffered during the pandemic, which has translated to an $835 million loss in state and local tax revenue.
She also noted the equity aspects of the projects.
“Black travelers as a group have been overlooked and underserved in tourism,” she said. “Creating a more inclusive and equitable travel experience for Black travelers is not only the right thing to do, but it also represents a significant tourism and economic development opportunity for the state.”
Though Oregon is using most of its ARPA funds on a number of clearly pandemic-related purposes, it is allocating $3.5 million to replace a courthouse and another $5 million to renovate the state’s Supreme Court building. It is also giving Southern Oregon University $3.5 million to demolish a dilapidated dorm now being used for storage.
Todd Sprague, a spokesman for the Oregon Judicial Department, said the agency hadn’t asked for the money for the court buildings.
However, he said, the Supreme Court building is more than a century old and needs seismic and ventilation upgrades and other work. And the courthouse, he said, was built in 1956 and needs significant improvements to its fire safety, plumbing and electrical systems.
Sen. Elizabeth Hayward, the Democratic co-chair of the state’s joint House and Senate Ways and Means Committee, asked about the dormitory, noted that one of ARPA’s key aims was to help states address lost revenue.
“Since we would have spent state general fund dollars to demolish that building, it was certainly within the scope of ARPA,” Hayward said.
A university spokesman said the demolition will mean the state can avoid $12 million in deferred maintenance the building needs and can make the land available for future development.
Other state officials did not respond to inquiries asking to explain how projects they are funding relate to the pandemic.
Kery Murakami is a senior reporter for Route Fifty based in Washington, D.C.