When President Biden signed the $1.9 trillion American Rescue Plan into law last March, he funded federal programs designed to address the ongoing COVID-19 pandemic and provided a third round of stimulus to Americans. But the bill also provided $350 billion in aid sent directly to states, counties and local governments to spend as they saw fit.
It was an almost unprecedented amount of money. According to an analysis from The Pew Charitable Trusts, states received aid equivalent to anywhere from 4.9 percent (Wisconsin) to 22.7 percent (Wyoming) of their spending in the previous fiscal year. Most states have a legal obligation to balance their budgets, which means unexpected surpluses like this are rare. But combined with previous coronavirus response bills and spending packages, the federal government has now spent almost $5 trillion addressing the pandemic, money that will flow through communities over the next decade and change the funding landscape in states and cities across the country.
States are awash with cash.
It’s not clear yet where all this money will go — states have an enormous amount of leeway as to how they’ll spend it and until 2026 to do so. (In total, $155 billion went out to states in 2021, with the rest due to be distributed later this year.) Most states have used the windfall of cash to address the budget problems caused by the economic downturn following the pandemic and to address the inequities thrown into sharp relief during the past two years. But while there are broad commonalities in how states have spent the money, it’s also true that how relief from the pandemic is defined varies widely — not necessarily across partisan lines but in ways that are still shaped by local conditions and ideology.
These differences are more apparent after drilling down past broad categories of funding. In Oklahoma, for example, Gov. Kevin Stitt ended the enhanced unemployment benefits available to many workers during the pandemic, and used some of Oklahoma’s American Rescue Plan money last spring for $1,200 bonuses to the first 20,000 workers who stopped collecting unemployment and started working full time.
Other states combined back-to-work bonuses with broader workforce development packages that included bonus pay for essential workers who’d worked through the pandemic and job retraining programs. Meanwhile, Vermont used $4 million of its recovery plan money to provide free classes at state colleges to workers who wanted to change careers, and Washington state used almost $169 million to help pay for its paid leave program. While there are variations from state to state, they will determine the recovery landscape for millions of Americans.
The fact that there is so much federal money flowing doesn’t change local politics, said Ed Lazere of the Center on Budget and Policy Priorities, a think tank that has been tracking and analyzing how states are allocating their relief money. “In many cases it is shaped by what the values of the policymakers were beforehand.”
Still, there are broad trends in how states are spending the money: Almost every state that has allocated money so far has spent some on broadband, water and sewer infrastructure, which was one of the big spending categories determined by Congress.1
So far, 22 states have allocated over $7 billion toward broadband, or about 9 percent of their total disbursements from the federal government. Within states, this has meant a mix of new programs, funding for existing programs and expansion of broadband services to more rural areas where the lack of access to reliable, fast internet made it harder for some children to attend virtual school during lockdowns.
Infrastructure has also been a big priority for states like Florida, which is spending money on highways and other transportation projects that had been long-planned but unfinished. Lazere said some of the need for infrastructure goes all the way back to the Great Recession, which began in 2007, and the long, slow recovery that followed. “These were areas of need that had not been addressed, [for which] there hadn’t been a dedicated state or federal funding source, so the rescue plan gave them the opportunity to tackle these problems that had been around for a long time,” he said.
Additionally, because the funds are a large, one-time payment, with no expectation that they’ll continue into the future, it encourages spending on infrastructure.
“It really starts with states doing that analysis, to be able to know what’s affordable over the long-term and what’s not,” said Josh Goodman, who is part of The Pew Charitable Trusts’s state fiscal health project.
But because the categories in which states are allowed to spend the money are so expansive, and the money is given without many strings attached, the kinds of projects states plan to spend the money on also reveals local political priorities and political philosophies. Broadly, states are allowed to replace revenue lost during the pandemic, and how local lawmakers define those challenges and decide how to address them varies widely.
In Alabama, $400 million will be used for building two new prisons. New correctional facilities for the state had been one of Gov. Kay Ivey’s priorities; in 2019, she announced plans for three prisons that were ultimately scrapped. But the state has been under a court order to improve mental health care in its prisons since 2017, and advocates of the new law say using the recovery funds to build a new prison will address those problems, as well as overcrowding and inadequate staffing. They also say the new facilities will improve the overall health care and mental health care available to incarcerated individuals.
The proposal passed in a special legislative session in September. In the state House, the vote passed along party lines, with Republicans all in favor and most Democrats against, but in the state Senate it received broader support and only one Democrat voted against it. The House Democrats’ objections, along with criminal justice reform advocates in the state, are that building a new prison absent other reforms won’t solve the criminal justice system’s problems, and that the funds could have been spent on more urgent needs revealed by the pandemic.
Two dozen Alabama groups sent a letter to the U.S. House Financial Services Committee asking for an investigation of Alabama’s use of the funds for building the prisons. “Building more prisons is a gross misuse of funds that were sent to help the people of Alabama, not punish them,” JaTaune Bosby, executive director of the ACLU of Alabama, said in the letter. But the state has argued the use falls within guidelines, and has plans to move quickly on construction. In a special session last month, the state also moved to allocate most of the rest of the funds to water and sewer infrastructure, broadband, and unemployment insurance tax breaks for businesses.
In more liberal states and localities, lawmakers are pursuing new financial assistance programs for local families. One idea that has picked up steam is funding guaranteed income pilot programs, with eligible residents receiving between $500 and $1,000 in cash assistance monthly. Support for these programs has been growing across the ideological spectrum, especially in the last few years.
Madeline Neighly, who directs the guaranteed income program at the Economic Security Project, said there are currently over 60 cities involved in planning guaranteed income projects, using a mix of public funds from the American Rescue Plan and private funds. (Some programs were already in the works, and the ARPA funds are just a new potential revenue source.) And the state of California will itself spend $35 million launching guaranteed income programs statewide over the next five years. The money was allocated when Gov. Gavin Newsom signed the state budget into law last summer.
Neighly said the previous pandemic relief bills helped build awareness and increased interest in launching such projects. “We saw the power of cash during the pandemic,” she said. “We saw it with the stimulus checks and the expanded child [tax] credit.” She said guaranteed income could work in concert with many of the other programs states are launching to rebuild their economies.
The impact this money will have will become even more apparent as the funds work their way into communities and start touching individual lives. Overall, though, the unprecedented amount of money is an opportunity for states to reimagine and reinvent their local economies, which could mark an important shift after two years of responding to emergencies.
For Lazere, the biggest takeaway is that states are all using the money, and will continue to do so as the next payments are dispersed this year. So far, no states have rejected the money outright. “What we’re hoping for and looking for is not just states plugging this money into budget holes, but actually deliberately using it to strengthen public health and the ongoing economic impact of the pandemic,” he said. “We are looking for states to use the money in ways that really set them up for a robust recovery.”