Charles Rex Arbogast/AP Photo
State Street in downtown Rockford, Illinois, where some of the money allocated from the American Rescue Plan has been put toward a new approach to addressing violent crime in a city that has struggled with violence for years, especially during the pandemic.
Build Back Better, President Biden’s signature legislation, would be the fifth large federal outlay since the $2.2 trillion CARES Act of March 2020, followed by the $900 billion COVID relief package in December 2020, the $1.9 trillion American Rescue Plan Act (ARPA) of March 2021, and the $1.2 trillion bipartisan infrastructure act passed in November (only $550 billion of which was new money). Even at the truncated BBB level of $1.8 trillion, those outlays over the past two years would total $8 trillion.
There are three main arguments against the additional spending. One is macroeconomic, that all this stimulus has supposedly contributed to inflation, a claim the Prospect has effectively refuted. The second is purely ideological; Republicans oppose social spending per se, and Joe Manchin is averse to America becoming an “entitlement society.”
But the third argument is worth a closer look. Almost a year after ARPA was enacted, nearly half the money is unspent, so why approve more? Government capacity is often the Achilles’ heel of progressive calls for greater outlays.
THE RIGHT HAS GONE TO TOWN with a misleading headline story. A recent letter by a group of Republican senators to the Education Department contends that “as of December 30, 2021, 86 percent of funding remains unspent by K-12 school districts and 36 percent remains unspent by colleges and universities.”
Of course, much of that is for physical improvements, which cannot be executed overnight. Still, the rest of the ARPA story is an instructive lesson on the challenge of timely and effective public spending.
ARPA included several funding streams. The priority idea was to get quick relief to suffering people via income supports, rental relief, and aid to frontline workers; to replenish state and local government coffers that have been hit by revenue shortfalls in the pandemic recession; and to reverse layoffs and reductions in services. ARPA also included funds to support longer-lasting physical upgrades to schools, and for state and local governments to support water and sewer systems and broadband.
Some of the money lent itself to fast, direct spending, though it was to be spent over the course of a year. The best examples are the Child Tax Credit, which put money directly into the pockets of parents with kids, up to $300 per month per child, covering 88 percent of the kids in America. Monthly checks or bank account transfers under the credit were up and running by July; the second half of that enhanced credit will go to families in their 2021 tax refunds. ARPA also provided one-time direct payments of $1,400 to adults and children, up to household incomes of $150,000.
By March 2021, the economy had lost nearly ten million jobs. ARPA’s direct payments were lifelines to suffering families. They accelerated the recovery and enhanced worker bargaining power. By year-end, unemployment had fallen to 3.9 percent, when it was forecast to only get to 6 percent.
The trickiest part of ARPA was the $350 billion allocated to state and local governments, plus the $123 billion in additional funds that went directly to public-school systems. At the peak of the COVID crisis, state and local governments had lost 1.4 million public workers, of which almost a million were teachers. These cuts came at a time when demands for public services were increasing.
Local governments faced a chicken-and-egg problem. They found themselves with a sudden infusion of funds, but with fewer public employees to decide how to spend it.
The Biden administration, having conferred with mayors and governors, sought to strike a balance between targeting and flexibility. The administration’s guidelines, issued in May 2021 and recently refined, encourage governments to replace laid-off workers—the public sector is still down some 900,000 employees—and authorizes hazard pay for frontline workers in health care, food service, education, and logistics.
Revised guidelines, issued last week in the form of a Treasury rule, make clear that funds can also be used for health insurance deductibles, co-pays, and premiums of needy households, whether or not those costs were the result of COVID.
In effect, much of the $350 billion, a huge sum, is available to state and local governments to spend pretty much as they wish. And their actual pattern of spending is exactly the sort of crazy quilt you would expect in a federal system.
At one extreme, the state of Alabama is using 20 percent of its ARPA funds, or $400 million, to build a new prison. Alabama currently ranks third in COVID deaths, so there were surely better uses for the money. By contrast, New York state creatively established a $2.1 billion Excluded Workers Fund to provide financial aid to workers who lost income but who weren’t eligible for other public assistance, typically due to immigration status.
In effect, much of the $350 billion, a huge sum, is available to state and local governments to spend pretty much as they wish.
At the city level, Boston’s new progressive mayor Michelle Wu has tapped ARPA funds to make many bus routes that serve low-income communities free. Kansas City uses ARPA funds to provide free legal counsel to all tenants facing eviction. Seattle is giving child care workers an additional $3,000 a year.
ARPA has also provided multiple laboratories of democracy. In Cincinnati, the city council invited proposals from community groups. The council was so overwhelmed with ideas that they had to schedule a meeting that ran four and a half hours, at which each group got just two minutes to summarize its proposal.
In Minnesota, the Democratic governor and the divided legislature have agreed in principle to spend $250 million on hardship pay for frontline workers. After several months of sparring, they haven’t yet agreed on how to allocate the money. The governor, Tim Walz, was able to use $50 million for retention and new-hire bonuses for short-staffed nursing homes.
In Washington state, progressive Democratic governor Jay Inslee used ARPA funds to bring back thousands of furloughed state workers. In Nevada, conservative Democratic governor Steve Sisolak made a similar pledge but failed to carry it out, preferring to bank a larger budget surplus.
The $46.5 billion rental assistance program (a little more than half of which was authorized by ARPA), designed to get money to people who owed back rent before eviction moratoria expired, got off to a very slow start, with only about 7 percent distributed in the first six months. That finally accelerated in the second half of the year, but not before the moratorium was struck down by the Supreme Court.
By comparison, getting much of the money to its intended uses under the $1.2 trillion bipartisan infrastructure law will be less onerous, because the majority of the money flows through well-established state transportation and construction agencies, which have familiar processes for receiving, processing, and allocating federal funds. However, the dramatic hike in funding, especially for broadband and replacing lead water pipes, where states have a lot of discretion, will present some of the same challenges.
Education is something of a special case. Teachers and their unions are frustrated because the COVID crisis cries out for both physical upgrades, such as better ventilation systems, and improved strategies for hybrid learning.
But normally, when a school system decides to upgrade its HVAC system, there is a lead time of two to three years. Specifications have to be designed, the budget must be approved, and the job has to be competitively bid. It’s not a project usually carried out on a crash basis, much less when building materials are scarce and everyone wants upgrades done in a hurry. Improving speed in an urgent crisis situation was not given sufficient attention, especially given the importance of ventilation for protection from COVID.
ARPA also authorizes funds to pay teachers. But there are tens of thousands of teacher jobs going begging, and teachers quitting in droves. The governor of Missouri, Republican Mike Parson, far from a progressive, has just called for a $10,000 annual raise for Missouri teachers, whose pay is 49th in the nation, increasing their base pay from $25,000 to $35,000. This has yet to be put into law.
All told, according to a tally by David Kamper of the Economic Policy Institute, “Almost half the dollars allocated to states in 2021 remain unspent, and the rest of the $350 billion will be coming soon. By leaving ARPA dollars unspent, state and local governments will not help end the pandemic, will not strengthen their states’ economies, and will not help address inequities.”
There is also the fungibility problem, as in “all money is fungible.” ARPA explicitly prohibits states from using ARPA funds on tax cuts. But there is nothing to prevent a Republican governor from using ARPA to replenish the state general fund, declaring a surplus, and then using the surplus to underwrite a tax cut. Some states have given business a disguised tax cut by using ARPA money to replenish state unemployment compensation fund reserves, thus sparing employers a future tax increase.
Thus is federalism in the era of COVID emergency federal aid—the good, the bad, and the ugly.
The charge that we don’t need Build Back Better because government is still having trouble shoveling out money under ARPA is a bum rap.
THE ARPA SAGA CALLS TO MIND several perennial arguments about how government should spend money. One has to do with the virtue of direct payments to individuals versus underwriting complex projects. ARPA demonstrates that direct payments usually win hands down: The money goes right out the door and helps people in need.
A second issue is federal versus state and local spending. FDR did not have to contend with states spending public relief money on dumb things, or taking forever to set up new systems to carry out new programs, because virtually all of the New Deal was direct federal spending. The WPA and other agencies were able to get federal projects up and running fast. For progressives, it became an article of faith to use federal outlays to bypass conservative state governments.
With direct federal spending, there is also no doubt who gets the credit. Social Security is forever a direct federal program, and a hugely popular one, irrevocably associated with FDR and progressive Democrats.
ARPA was a signature Biden program that helped tens of millions of American families and accelerated economic recovery faster than any industrialized nation. But if the Cincinnati City Council spends ARPA money creatively through community groups, how many locals credit President Biden?
FDR had it right. Since then, there has been backsliding. Medicaid is a patchwork. The Affordable Care Act is a public-private mess. The only unpopular part of Social Security is the disability program run by the states, many of which require applicants to run a gauntlet of barriers.
A third issue, which evokes a debate from the Nixon era, is whether the federal government should put out money through what were then called “categorical” outlays for specific purposes, or in the form of block grants or general revenue sharing to states and localities. Except in general recessions and fiscal emergencies, experience keeps making the case for categorical.
“ARPA was designed as a balance between emergency aid and planned improvements that take time,” says Rosa DeLauro, chair of the House Appropriations Committee. “Look at where federal money has gone in the past. It went overwhelmingly to the rich. This is a huge shift.”
The charge that we don’t need Build Back Better because government is still having trouble shoveling out money under ARPA is a bum rap. Build Back Better, unlike ARPA, is mainly a long-term investment program to fill the gaps in America’s patchwork system of social insurance, such as pre-kindergarten, child care, and nursing care. But for emergency spending, all levels of government should draw lessons from the ARPA experience.
This is all tricky and somewhat wonky stuff. If Biden wants greater public support for policies that plainly serve the public interest, he will need to get better at explaining and dramatizing them.
Correction: The New York state Excluded Workers Fund was in fact financed by state money, though the availability of ARPA funds for other state needs helped free state resources for programs such as this one.
