Deciding How to Use $41B in Remaining State ARPA Aid

Eighteen months after President Biden signed the American Rescue Plan Act into law, states have already decided how to spend at least 80% of the $195 billion they are spending on direct Covid-19 relief, according to a new study from the Center on Budget have received the law Political Priorities.

But while 14 states have appropriated all or most of the money and another 18 have agreed how more than 80% should be used, as of August 31, $41 billion in state financial recovery funds were still available. The question now is how states will spend that money, Michael Leachman, vice president for fiscal policy at the left-leaning think tank, said in an interview.

The economy and the pandemic recovery have changed significantly since states pondered how to spend the huge infusion of federal money. Given those shifts, they should use the remaining aid in different ways, Leachman said.

Congress and the Biden administration gave states a lot of leeway in deciding what to do with the flood of federal funds. Most — 15% of the money — was used to replenish revenue lost in the early days of the pandemic, the Center on Budget and Policy Priorities study said.

That makes sense, the group said. Using APRA funds to replace lost revenue “appears to have enabled states to avoid further layoffs and spending cuts and to begin restoring jobs and services lost after the outbreak of the pandemic,” states in the report.

Revenue replacement is the most flexible option states have had for using the money, compared to other, more prescriptive categories of eligible expenditure under the law — such as paying for broadband or water infrastructure projects or covering public health expenses.

But now, Leachman said, government budgets are in better shape than they were in the depths of the pandemic, with many running surpluses. “There is less need for that than there was initially when the pandemic caused revenue losses,” he said of states replacing lost revenue.

Another area where the group believes states should not spend aid is in support of trust funds for the unemployed. According to the study, 27 states have used ARPA funds to do this, with $18 billion, or 11% of the money, dedicated to this purpose.

At the height of the Covid-19 outbreak, states were paying billions of dollars in unemployment claims, with some taking out loans from the federal government to cover costs. In order to keep funds solvent even after large amounts have been paid out during economic downturns, states often levy taxes on companies. ARPA help offered a way to avoid this.

But the Center on Budget and Policy Priorities argues that’s not the best use of the money.

The report notes how little funding has gone into improving government unemployment insurance systems. Many of the systems rely on outdated technology and have been overwhelmed by the flood of damage during the pandemic while at the same time falling victim to a multi-billion dollar scam.

Delaware, Nevada, New Jersey, South Dakota, Tennessee, Virginia and Washington spent $329 million to modernize their unemployment system technology, the report said.

State and local ARPA spending has also been criticized by the right. House Republicans have questioned whether states and localities spent the money on things really needed to respond and recover from the pandemic. Jason Smith of Missouri, the top Republican on the House Budget Committee, has called some of the spending a “ridiculous waste”.

Republicans have pointed to a number of examples they deem questionable, from hiring social media influencers to promote the taste of Alaskan fish to facilitating parking or access to restrooms on South beaches Carolina, or Trying to Bring World Cup Soccer to New Jersey.

Leachman believes states should use the remaining ARPA funds to deal with the ongoing impact of the pandemic, including the strain on health care systems, household finances and local economies, as well as the impact on students and the mental health of many Americans.

States have already allocated significant amounts of money to programs that deal with these types of problems.

For example, according to the study, 14% of the budget went to human services. Forty states, the District of Columbia and all territories have allocated funds for this purpose. For example, according to the report, California is investing $530 million to expand access to mental health and substance abuse services and $100 million to overhaul youth mental health services.

Colorado has committed over $138 million for affordable housing, while Utah has spent $90 million of its ARPA dollars supporting a new psychiatric facility at the University of Utah.

45 states have used the aid for economic development. Overall, 11% of states’ ARPA dollars went to economic development, including $100 million that New Jersey is spending on improving child care.

And a significant portion of the funding, 10%, has gone to healthcare.

In addition, 9% are committed to improving water and sanitation infrastructure, 7% to education, and another 7% to expanding broadband, the report said.

Three percent of the dollars went to the criminal justice system, including paying bonuses to public safety workers, improving prison training, and funding police reform initiatives. Alabama spent $400 million, or 18% of its ARPA dollars, on building two new prisons.

Still, there are needs the money could help with, Leachman said.

“It’s important that states focus on investments for hard-hit communities that not only help communities recover from the pandemic now, but empower them to be stronger in the future,” Leachman said, referencing on health care, housing, mental health and education.