Tom Williams/CQ Roll Call
Nancy Pelosi and Chuck Schumer display the American Rescue Plan Act during a bill enrollment ceremony on the West Front of the Capitol on Wednesday, March 10, 2021.
In March of last year, the American Rescue Plan put $350 billion toward a fiscal recovery fund for state and local governments. Lately, ARPA only seems to get media attention when the center-left complains that it funded tax cuts or set off inflation. Critics who say it was overkill grumble that it was “fighting the last war”—that ARPA overshot in its attempt to avoid the austerity of the Great Recession.
But ARPA is unrivaled in recent history as a flexible, open-ended public-funding package. A multipurpose fund available to tens of thousands of governments nationwide, ARPA is the largest broad-based aid transfer in 50 years, since the General Revenue Sharing program President Nixon enacted in 1972, which ended in 1986. ARPA is also bigger than its $150 billion predecessor, the CARES Act’s Coronavirus Relief Fund, which only went to larger state governments, cities, and counties. That makes it a great trove of information for researchers studying public investment.
Amanda Kass, the associate director of the Government Finance Research Center at the University of Illinois at Chicago, and Philip Rocco, a political scientist at Marquette University, have broken down expenditures by local governments. The Prospect interviewed the researchers about their findings as part of our Twitter Spaces series. The audio is embedded below.
Puncturing the popular belief that ARPA money was sprayed out indiscriminately, Kass and Rocco find that more than half of what has been delivered to state and local governments hasn’t yet been spent. Unspent money doesn’t imply unneeded money—it can indicate a lack of administrative capacity, workforce, materials shortages, or just caution about spending money over a four-year time horizon. Of the money that has gone out the door, some has gone to specific priorities like fixing lead pipes, while a large majority of smaller governments have spent the money on replacing lost revenue.
One frequent criticism of this recent revival of fiscal federalism is that it has just given Republican lawmakers like Ron DeSantis a cushion to pass tax cuts. The Florida governor has used about $200 million in federal aid to pay for a suspension of the gas tax. Yet that gas tax was planned, and DeSantis probably would have passed tax cuts anyway in an election year—making the ARPA fiscal recovery fund particularly important to prop up a sickly welfare state.
“By focusing on the tax cuts, you’re missing the flexibility of what it allows governments to do that aren’t tax cuts. A more narrowly tailored rule would have made that more difficult,” Rocco said. Also, he added, programs with stricter rules were proposed and failed.
“The idea that you were going to ring a program into ARPA that had 10 or 12 narrow categorial purposes that was going to satisfy these coalitions seems naïve, when the demand from the Big 7 state and local government associations was for flexible aid,” he said. Still, misuse of the federal funds rankles. Some states are using the money to pay off their unemployment insurance trust funds, which they borrowed from the government to fund previously. It’s history’s most roundabout debt cancellation—and also a tax cut for businesses, as otherwise they would pay for replenishing unemployment coffers.
Most small governments are using all their ARPA money on revenue replacement, Rocco and Kass found. That use is by design: The Treasury allowed governments to claim up to $10 million in revenue loss due to the pandemic without having to prove that figure. In its guidance, the Treasury even encouraged local governments to use that standard allowance, since it’s the least administratively burdensome way to use the money.
While flexibility was great for understaffed local governments, it also means that if states and cities are doing new and interesting things with their revenue replacement money, it usually isn’t reported at the project level, so it won’t show up in the data. That creates what the political scientist Suzanne Mettler has in other contexts called a “submerged state.”
In general, ARPA has flown under the radar—it doesn’t even have a logo. Obama’s 2009 American Recovery and Reinvestment Act (ARRA) at least had a symbol, which you can still see on buses. But ARPA’s low legibility has made it harder for the Biden administration to recoup its political investment.
“One challenge the Biden administration might have is telling an overarching story,” Rocco said. That said, “it’s not like the flexibility in the reporting requirements preempts Treasury from doing a little more research into local budgets. Look, just because they’re not reporting this stuff doesn’t mean you can’t go down and hoover up some data.”
“What is the political victory lap you want to take with this program? Do you want it to be about infrastructure? About COVID-19 response? About supporting decimated local governments?” Kass said. “There’s not one political story to tell from the program.”
Listen to David Dayen and Lee Harris’s conversation with Philip Rocco and Amanda Kass by clicking on the links below:
Part 1:
Part 2:
