American Rescue Plan Act: 2 Years Later

Since Congress enacted the American Rescue Plan in March 2021, the Rescue Plan and other major federal aid have made the COVID-19 recession the shortest on record and bolstered a strong economic recovery. It included aid to reduce the extreme hardship many people and businesses faced. In addition to providing targeted aid for child care, eviction prevention, schools, and other services, it included $350 billion in Fiscal Recovery Funds (FRF) for states, localities, tribal nations, and U.S. Territories to address pandemic-related budget gaps and to help people and businesses hit hardest.

With the help of the Rescue Plan and other major federal relief bills, the unemployment rate, which peaked at 14.8 percent in April 2020, decreased to 3.6 percent in February 2023. And the expanded federal Child Tax Credit was the main driver behind a 46 percent decrease in child poverty across all racial and ethnic groups from 2020 to 2021. On the state level, FRF funded investments in education, economic relief and development, and support for housing, nutrition, and cash assistance programs.

According to the Department of Treasury’s American Rescue Plan two-year anniversary report, nearly all State and Local Fiscal Recovery Funds have been dispersed to each state, local, tribal, and territorial government to support their pandemic recovery. To date, state and local lawmakers have budgeted billions in funding for public health projects, housing-related purposes, workforce support, small business support, and critical infrastructure investments.

As of early December 2022, states have made substantial progress:

• Forty states, Washington, D.C., and three U.S. Territories (Guam, Northern Mariana Islands, and Puerto Rico) used the funds for education initiatives. Delaware provided $154 million to strengthen its community colleges and state universities. New Jersey funded an extra year of special education for anyone who aged out of special education services during the pandemic.
• Forty-six states, D.C., and all the territories invested in economic relief and development, with eight states appropriating one-fourth or more of their FRF allocations to date for economic development initiatives. Wisconsin devoted more than half of its FRF allocated to date to economic development, a total of more than $1 billion, including $642 million in business grants and $130 million for workforce development. Massachusetts used almost $360 million in FRF to strengthen its public and private/nonprofit health care and human services workforce.
• Forty-three states, D.C., and all the territories invested in economic security by providing housing, cash, and food assistance to help people afford the basics and to build longer-term stability. New Jersey allocated $40 million to fill COVID-19-induced funding gaps in affordable housing and community development projects, and California appropriated over $1.8 billion to create children’s savings accounts. Washington State devoted over $1 billion to housing assistance, $157 million for food assistance, and $340 million to create a fund for residents who immigrated to the U.S. and are excluded from federally funded public benefit programs because of their immigration status.

Congress’ 2023 omnibus appropriations bill expanded the ways state and local governments can use their FRF. The most relevant policy change, because it would provide increased flexibility, allows state and local governments to use FRF for emergency relief from natural disasters and certain transportation infrastructure projects or Community Development Block Grant projects, which support housing and other community development purposes. These newly eligible uses can only supplement other sources of funding, they cannot replace them.

The Rescue Plan’s funding for states and localities, along with the changes in last year’s omnibus appropriations bill, mean more can be done to address K-12 education, environmental justice, and income security — and governments should spend these funds in equitable ways.