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Whose Recovery? What ARPA Spending Data Can Tell Us About the Challenges Confronting State and Local Governments

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Amanda Kass, Philip Rocco & Molly Clark
July 8, 2022

State and local governments, on the front lines of responding to a variety of crises resulting from the pandemic, have been aided dramatically by The American Rescue Plan Act’s $350 billion State and Local Fiscal Recovery Funds (SLFRF) program, the largest one-time transfer of multipurpose intergovernmental aid in half a century. But the pace at which governments have allocated federal aid has caused some fiscal conservatives to suggest that money not spent is money not needed.

This perspective, however, ignores the political conflicts inherent in allocating multipurpose, one-time aid–especially in jurisdictions with longstanding unmet social and economic needs. Perhaps more importantly, it ignores the challenges governments face when attempting to develop new programs in response to emergent crises.

A clear-cut example of the potholes on the road between getting money and spending it can be found in efforts to combat gun violence. In June 2021, the Biden administration announced a comprehensive approach to address gun violence in the United States. One key strategy included investing in evidence-based community violence interventions (CVIs), strategies which rely on public, private and community stakeholders to prevent and disrupt cycles of violence and retaliation.

The White House emphasized that SLFRF money can be used for CVI strategies. The Treasury Department also made this explicit in its rules for the SLFRF program. In mid-May, the Biden administration re-emphasized the availability of this funding and encouraged governments to use it.

However, recently released Treasury data reveals that thus far, governments have allocated few SLFRF dollars to CVI. Of the $208 billion that 1,756 governments had available to spend thus far, our analysis indicates that as of December 31, 2021, governments reported they had directly obligated just $79 million to the CVI expenditure category. (Governments must assign a Treasury Department created expenditure category to SLFRF spending. Further analysis is needed to evaluate whether the spending governments coded with the CVI expenditure category is truly CVI.)

Our analysis also showed that governments had obligated 28 percent of all the funds they had available to spend by the end of 2021, indicating that overall, a fraction of the funds available had been spent. Of the SLFRF dollars they did spend, the bulk of it ($39 billion or 67 percent of total obligations) was used for revenue replacement and replenishing unemployment trust funds.

Clearly, the SLFRF spending trends thus far are not reflective of a lack of need but are tied to administrative challenges that can slow spending and public finance norms. In fact, our analysis showed that government planned spending on CVI was greater ($470 million) than what they were able to spend ($79 million) by the end of 2021.

The explanations aren’t complicated. Relatively few governments already operate or fund CVI programs. Starting a new program, no matter how vital, takes time. It should be no surprise that there has been a lag in governments’ use of SLFRF dollars for new initiatives like these. As such, we anticipate seeing greater spending on CVI as time goes on.

Another challenge to using SLFRF dollars for programs like CVI are the administrative requirements put into place by the Treasury. Using these federal dollars for all manner of programs and services requires governments to report to the Treasury Department how much of the money was used for “evidence-based interventions” and whether the program/service is “primarily serving disproportionately impacted communities.”

Reporting like that requires a trained staff and systems that allow entities to track the required information. For many governments, particularly smaller ones, building this capacity can take time. Additional reporting is also required if spending involves sub-awards, contracts, grants, loans or transfers that are $50,000 or more.

There are, in contrast, fewer reporting requirements for using SLFRF dollars for revenue replacement and spending does not have to be tied to COVID-19’s public health or economic effects. In its final guidance, the Treasury Department also simplified the revenue replacement category, allowing governments to claim up to $10 million for revenue replacement, without having to calculate actual revenue loss.

A final complication when using SLFRF dollars is that a tenet of public finance is that it’s unwise to use them for newly developed operational expenditures that will have to come out of the budget after SLFRF dollars stop flowing. The Government Finance Officers Association’s “Recommended Guiding Principles” for spending the SLFRF is built around that notion.

With that in mind, finance officers may advise against adopting new programs or spending that is recurring if there is not a revenue source identified to pay for new obligations when federal dollars run out. This principle of public finance poses a challenge to initiatives like CVI as these are long-term, ongoing programs and not one-time investments.

What, then, is the best use of SLFRF dollars? There is no single answer, and many localities have turned to their residents for council (a wise idea that’s also time consuming). The historic size of the SLFRF program and its flexibility means that the money can be deployed to tackle a range of societal challenges, including investing in CVI program. But accomplishing important work, even when the resources are there, isn’t an easy task. 

Author: Amanda Kass is the Associate Director of the Government Finance Research Center at the University of Illinois Chicago; Philip Rocco is an Associate Professor of Political Science at Marquette University and Molly Clark research assistant at the Government Finance Research Center

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