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Rescue Plan’s State and Local Funds Helping Families, Communities

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With the nation’s recovery still fragile and new COVID-19 variants on the rise, the American Rescue Plan’s $350 billion in Fiscal Recovery Funds is giving states, localities, U.S. territories, and tribal governments critical support in responding to the health emergency, bolstering the economy, and moving toward a stronger, more just nation. CBPP’s review of state budget documents finds that the funds are helping to keep workers in their jobs and help others find new jobs, improve broadband and water infrastructure, keep people in their homes, and much more.

The Rescue Plan passed in March, and Treasury Department rules governing the funds came out in May (after many states had ended their regular legislative sessions). Since then, 25 states have already allocated some or all of the funds now available, and 14 other states are considering a spending plan or will hold special sessions this year.

States are using these funds for a wide variety of purposes, as Congress intended. The pandemic and its harmful effects on families and communities require a multi-faceted response. Among the most popular investments are strengthening the ability of schools and colleges to educate children during the health emergency, improving workforce development systems, bolstering emergency housing relief, strengthening mental health services, and investing in broadband in areas with limited or no internet access.

To be sure, some states are largely failing to use Fiscal Recovery Funds to help the people most harmed by the pandemic and its economic impacts. Florida, for example, hasn’t allocated any of the funds to rental assistance or other income support for families, according to the National Conference of State Legislatures’ (NCSL) tracking system. By far Florida’s largest single allocation to date — $2 billion of $5.4 billion allocated according to NCSL — is for highway projects and port operations, with no sign that these investments will be targeted to communities most affected by the pandemic.

Still, examples abound of fund uses that help people harmed by the health emergency and help build toward an equitable recovery:

  • California will devote $4.88 billion to housing and homelessness programs. It’s also using Fiscal Recovery Funds to revamp and improve its youth mental health system, among other uses.
  • Colorado will invest $25 million in workforce skills training and $98.5 million in a new fund to promote affordable housing and homeownership.
  • Connecticut will use $40 million for college scholarships for low-income students and $13 million to help retain students in community colleges.
  • Illinois allocated $52 million for alternatives to policing and $27 million to support services for immigrants, such as grants and legal assistance.
  • Indiana allocated $250 million to improve access to high-speed internet in rural areas and $50 million to improve mental health services.
  • Louisiana will use $10 million to provide small grants to nonprofits affected by the pandemic.
  • Maryland devoted $46 million to maintain enhanced benefits for families receiving Temporary Assistance for Needy Families cash assistance and individuals receiving temporary disability benefits.
  • New Jersey will spend $100 million for child care workforce development and facilities.
  • Utah devoted $17 million to create a food bank in the Navajo Nation and an underserved county.
  • Vermont allocated $15 million to improve heating, ventilation, and air conditioning systems in public schools.

While state revenues generally came in better than feared early in the pandemic, today they remain down in most states. In 40 states, revenues for the last fiscal year and the current year were below levels forecasted before the pandemic, according to the National Association of State Budget Officers. The Fiscal Recovery Funds are helping avoid cuts in key government services such as education or health care.

The funds are also helping states and localities add back hundreds of thousands of jobs in education, health care, and other public services. States and localities laid off 1.5 million workers last spring after the pandemic hit. Thanks in part to the Fiscal Recovery Funds, they’ve restored 365,000 jobs since February. Still, they remain 1 million jobs below pre-pandemic levels. The Fiscal Recovery Funds will continue to help states and localities hire these workers back.

And states and localities are using the funds to help people and businesses harmed by the pandemic’s economic impact, as the examples above show. After aid from the Rescue Plan started reaching people, the share of adults having difficulty paying rent and other household expenses dropped almost immediately. But hardships due to the pandemic remain widespread, and states and localities are on the front lines in responding.

The funds will prove even more important in the months to come. The pandemic hit many families and children hard and recovering will take time; many children lost a year of schooling, mental health problems skyrocketed, and many people lost loved ones and jobs. The Rescue Plan rightly gives states, localities, U.S. territories, and tribal governments three years (until the end of 2024) to spend the Fiscal Recovery Funds. That is in contrast to the federal aid provided to states after the Great Recession, which was too small and ended too soon, causing a longer and deeper recession. Policymakers learned from that and, this time, took the bold action that the moment required.

The Fiscal Recovery Funds and other elements of the Rescue Plan not only constitute an extraordinary federal policy response to the COVID-19 pandemic and its severe hardships, but also create a historic opportunity to begin undoing the nation’s longstanding racial and economic inequities, which the pandemic both highlighted and worsened.