State and local governments have made transformative investments with American Rescue Plan recovery funds in 2022: A tighter focus on working families and children will have the greatest impact going forward

An earlier version of this post reported that large cities and counties had only budgeted 50% of their allocated funds. However, this number is misleading as only 50% of SLFRF funds for local governments were disbursed in 2021. This post has been edited to show that 83% of the received funds had been budgeted.

As most states wrap up their legislative sessions, we can assess expenditures of State and Local Fiscal Recovery Funds (SLFRF), appropriated by the American Rescue Plan Act (ARPA), so far this year. Many state and local governments have used ARPA funds to make transformative investments to support an equitable recovery, while others have used the funds in ways that will do much less to stimulate the economy, enhance racial equity, or support low-wage workers and their families. State and local governments still have considerable remaining ARPA resources to spend, and ample opportunity to use them effectively.

By now, nearly all of the $350 billion in ARPA funds has been disbursed by the federal government to the states; some entities got all their funds at one time in 2021, but most had half their funds withheld to 2022. According to the National Council of State Legislatures, states and territories have so far appropriated $133 billion of the $199.8 billion allocated to them for SLFRF. Below the state level, it’s not possible to know exactly how much of the approximately $150 billion allocated to cities, counties, and tribal governments has been spent, since those reports are not publicly available. However, the largest cities and counties are required to file reports on SLFRF funds, and as of the end of 2021, 83% of the money they received in the first tranche of funding has been budgeted, according to an analysis by the Treasury Department. (This does not mean all budgeted funds have already been spent.)

State and local governments have made changes to unemployment insurance, some better than others

One of the most common uses of SLFRF dollars by states, unfortunately, has been to replenish unemployment insurance (UI) trust funds. NCSL estimates that at least 21 states have put at least $16.2 billion—about 12% of the dollars allocated so far—into trust funds to pay off debt accumulated during the pandemic. This is a poor decision, one that has little impact on economic growth and effectively amounts to a tax cut for businesses.

However, ARPA funds can also be used to make equitable improvements to UI. A prime example of this is Colorado, which included $600 million in ARPA funds to strengthen the state’s UI system. Some funds were used to replenish the state UI trust fund, but the bill also addressed UI coverage gaps and significantly expanded access to benefits for workers historically excluded from the UI system. Highlights of the bill include:

  • Removing the one-week waiting period for receiving benefits once the state’s UI trust fund balance recovers.
  • Ending forced repayments of benefit overpayments (not obtained through fraud) if the recipient is living in poverty, or if the overpayment was the result of erroneous information provided by the state.
  • Making individuals eligible for payments regardless of immigration status.

Colorado is not the only state that has used ARPA funds to improve UI systems. Washington allocated $31.3 million in SLFRF funds to, among other things, “promote equitable access to the unemployment insurance system,” including translation of UI documents into the state’s 10 most frequently spoken languages, and an upgrade to IT systems to make the system more accessible.

Tennessee allocated $61 million to upgrade its UI systems to meet federal “timeliness standards” to make sure benefit claims are processed more quickly. As a 2020 report by the National Employment Law Project and The Century Foundation noted, upgrading the quality of UI systems is not just a technical question. Older UI systems reinforce institutional racism by limiting access to Black and Brown workers by imposing technical burdens and providing incomplete information to applicants, and through biased algorithms that “result in different outcomes based on protected attributes, including race.”

Premium pay

Premium pay for essential workers is an opportunity to support low-wage workers who have been exposed to great hazards during the pandemic. In 2022, many governments have enacted premium pay programs. Minnesota instituted a $500 million frontline worker pay program for both public- and private-sector employees, becoming one of the few governments, along with Puerto Rico and the city of Oxnard, California, to explicitly include private-sector workers in premium pay plans. Delaware allocated $31.7 million in premium pay for employees of state operations, including mental health facilities and prisons that operate around the clock. Lexington County, South Carolina, made premium payments to all eligible public employees ranging from $2,015 to $4,900 in 2022, in addition to payments made in 2021. In Kalamazoo, Michigan, essential workers will get $3 more per hour up to a maximum of $7,500 in premium pay.

Housing protections

The final rule for SLFRF was released in January, and it expanded the opportunities to use these funds to address inequities in housing. Many state and local governments have done so. In May, the Detroit City Council unanimously approved a right to legal counsel for tenants facing eviction, funding it for the first three years with ARPA funds. Given that Black individuals make up less than 20% of renters but more than 32% of evictions, tenant protection advances racial equity, and the presence of legal counsel significantly reduces the rate of eviction, especially for low-income renters.

Similarly, Johnson County, Iowa, will provide tenant legal representation with $337,500 in ARPA funds. Minnesota will make $109 million available to assist homeowners at risk of foreclosure due to economic disruption. Vermont, Delaware, Arizona, Michigan, South Dakota, and other states have allocated funds to build low-income housing. Denver will spend $10.8 million to build affordable housing and acquire more congregate shelter space. These improvements are sorely needed, but it is important to note that they will not come close to rectifying the nation’s current shortfall of 3.8 million housing units. More must be done.

Public health and worker protections

As the latest waves of the Omicron variant continue to sweep the country, some state and local governments have also prioritized the use of ARPA funds to promote public health and fight the pandemic. Washington, D.C., is setting a strong example: Free COVID testing and vaccinations are available in multiple sites across the city every day of the week, with ARPA funds playing an important role. The city of Boston used $93,000 of its SLFRF allocation to set up grocery delivery for SNAP (food stamp) recipients, a vital tool when COVID can make it difficult for people to leave home to get food.

There are many more examples of ARPA funds being used to protect working families. We will note just a few more here.

  • Johnson County, Iowa, and three cities in the county are supporting labor standards enforcement by granting money to the Center for Worker Justice of Eastern Iowa (one of EPI’s EARN in the Midwest grassroots partners) to hire a full-time community organizer assisting workers with wage theft claims.
  • Colorado is spending $18 million to increase the amount of cash assistance grants under Temporary Assistance to Needy Families (TANF) by 10%, with annual cost-of-living adjustments as well.
  • The city of San Jose, California, significantly increased the size of its wage theft oversight by hiring staff to enforce its Responsible Contractor Ordinance and using hiring incentives and higher starting wages to fill its 800-person shortfall in city employees.

A missed opportunity to rebuild the public sector

While many governments have used ARPA funds to hire public-sector workers, more needs to be done. State and local government payrolls are 3.2% below pre-pandemic levels. The $16.2 billion paid into UI trust funds would have gone a long way toward rebuilding a public sector that, even before the pandemic, never fully recovered from the 2008 recession.

A third of state and local government workers, and a disproportionately higher number of women, Black, and Latinx employees, are paid less than $20 an hour. With huge numbers of public employees considering leaving their jobs, critical public services are put at risk due to staffing shortages. State and local governments need to raise their employees’ wages to attract and retain the workforce they need. ARPA funds can serve to enable those wage increases for the next few years.

The challenge going forward: supporting children and families as federal funds disappear

There are still tens of billions of dollars of SLFRF yet to be spent. As was the case when those funds first reached state and local governments last year, the best uses of these funds are those that strengthen public goods and services, target the most vulnerable workers and households, and prioritize the needs of those most impacted by the public health crisis.

One of the more significant changes since 2021 is that many of the key supports put in place by the CARES Act of 2020 and ARPA in 2021 are now expired. The burden of these expirations has fallen heavily on working families with children. Guaranteed paid leave for people sick with COVID, or caring for family members with COVID, is now gone. The expanded unemployment benefits begun in 2020 and extended in 2021, which did so much to shore up economic demand and help working families stay afloat, are now behind us. The end of the eviction moratorium has disproportionately harmed Black renters, and disproportionately harmed families with children. The expansion of the Child Tax Credit, which helped more than 61 million children, has yet to be renewed.

SLFRF funds are not sufficient to completely fill in the gaps created by the expiration of these federal programs, but targeting relief to those affected by these changes is still important. For example:

  • Paid leave is known to improve maternal health, making it an important tool for addressing the disturbingly high rate of death for Black mothers. Expanding paid leave is allowed under U.S. Treasury rules for SLFRF and can be enacted at a state or local level.
  • The ongoing crisis in both child care and long-term care is in no small part being driven by the low wages paid in the industry. State governments could do more to raise wages for these workers. An added benefit is that investments in both child care and elder care would likely be a pain-free way to dampen inflation.
  • The expansions to unemployment benefits and TANF assistance in Colorado show the capacity of state governments to target improvements to vulnerable workers and children. Eventually, federal support will be needed to continue these programs.
  • The important steps taken in Detroit and elsewhere to keep families in their homes and reduce evictions can and should be supported by ARPA funds.
  • State and local governments also ought to look at Boston’s example and find ways to help combat food insecurity in families, especially with the looming expiration of the expanded school lunch program.

Investments of these kinds will fulfill the purposes of the American Rescue Plan Act, address the economic and public health impacts of the pandemic, build equity, and restore public services. Policymakers should make them a priority in the coming months.