How States and Localities Can Use Data to Spend Federal Funds Wisely

The $1.2 trillion Infrastructure Investment and Jobs Act will deliver the nation’s largest investment in roads, bridges, clean water, broadband, electric vehicles and rail in more than half a century. Now, state, city and county policymakers will have to decide how to prioritize, allocate and monitor the effectiveness of these infrastructure investments.

The challenges that state and local leaders face in managing this influx of federal funds are considerable and elicit many questions like: How will lawmakers allocate the record $1.2 trillion investment? What guidelines and requirements will accompany these new resources? How do states make sure that these funds are directed in equitable and inclusive ways? And how can states approach these decisions in ways that deliver long-term fiscal responsibility and benefits—even when the money runs out?

For many years, The Pew Charitable Trusts has worked with state leaders on developing best practices for spending taxpayer dollars prudently, maintaining balanced budgets, investing in evidence-based policies, and planning for and mitigating other fiscal risks. Through our experience, we’ve learned a great deal about how states can use data and evidence to spend funds wisely. These experiences offer valuable and replicable lessons for state policymakers as they make decisions about the incoming infrastructure funds.

One macro lesson is the importance of applying evidence when considering how to fund specific programs. For example, research shows that one of the best flood prevention methods are nature-based solutions like wetlands or living shorelines that use rocks, sand, oyster shells or vegetation to absorb excess water and stabilize coastlines. 

Last year, South Carolina Gov. Henry McMaster signed into law the Disaster Relief and Resilience Act, which created programs to fund such flood-risk reduction projects statewide. As state officials and legislators now consider how to allocate the billions of federal dollars that will support local flood preparedness, they can benefit from the experience of South Carolina and other states as they prepare to maximize the investment of our taxpayer dollars.

Another example can be found in efforts to build out broadband networks and narrow the digital divide. The Infrastructure Investment and Jobs Act sets aside $65 billion to expand broadband access and equity throughout the U.S., complementing funds from the Coronavirus Aid, Relief, and Economic Security Act and American Rescue Plan Act . As states assess their broadband needs and shape strategies for using federal dollars, they should look to Minnesota as a guide. Minnesota has taken a robust, multifaceted approach to broadband expansion. The Office of Broadband Development that oversees connectivity efforts manages the state’s broadband mapping program, which collects and updates data from providers annually to offer a clearer picture of access in the state. These data inform decisions about infrastructure grants from the state’s Border-to-Border Broadband Development Grant Program, which funds the expansion of broadband service to areas that are unserved or underserved. 

Although each state’s approach will vary based on local factors, Minnesota’s experience shows that data—along with dedicated staff, community input and a focus on future-ready technology—are essential to closing service gaps and building connections that will last.

Using evidence can also help states strengthen their budget choices. To ensure that the state invests taxpayer funds in effective projects, Colorado’s Office of State Planning and Budgeting specifies that agencies use evidence in their budget requests for changes to program funding. The state created a distinct framework called the evidence continuum that encourages innovation and expands the use of evaluation to understand whether programs work by using standardized criteria for the quality of the research and data used to verify effectiveness. 

This year, Colorado took a further step by enacting a bipartisan bill that requires agencies and the OSPB to use consistent definitions of evidence-based programs. ARPA authorized $195 billion in flexible funding for states to use for various services and capacity-building efforts, such as “data analysis, targeted consumer outreach, improvements to data or technology infrastructure, and impact evaluations.” Colorado’s increased capacity for evidence-based decision-making enables it to make quick decisions about how to spend federal funds to support program evaluation and more general evidence-based policymaking goals.

Other Considerations

Another important step that states can take is to consider future fiscal risks as they allocate current dollars. As we learned with the Great Recession and most recently with the pandemic-driven recession, taking a longer-term perspective on budgets can help state lawmakers prepare for economic shocks. Importantly, states can help local leaders prepare as well. In California, the state auditor is using data to identify communities at risk of experiencing financial distress and has created an online dashboard that shows the fiscal health ranking for more than 470 cities throughout the state.

By using the dashboard with its indicators related to local reserves, pension obligations, debt and other factors, state officials can help detect trouble early and, as necessary, intervene to support local governments before distress becomes a crisis.

Overall, the past two years have shown what can happen when government systems are unprepared. By applying relief funds to policies that demonstrate their effectiveness through data, and strengthening systems that support evidence-based policymaking, states can leverage today’s investment into solid returns for the future, whatever challenges it may bring.