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States Should Spend Recovery Funds Equitably as Second Round of Aid Rolls In

Many states are using the American Rescue Plan’s flexible federal aid to build an inclusive recovery by addressing the long-standing health, economic, and fiscal inequities exacerbated by the pandemic. As states receive the rest of their State and Local Fiscal Recovery Funds (FRF) this spring, state lawmakers should look to the best practices to date across the nation to use the remaining funds to help people in the communities most harmed by the pandemic to recover and thrive.

The Rescue Plan provided $198 billion in flexible fiscal aid to states, the District of Columbia, and Puerto Rico to be spent over several years to address pandemic-related revenue shortfalls and help those disproportionately harmed by COVID-19 and its wake. (Local governments received another $130.2 billion, and the U.S. Territories of American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands received $2.0 billion.)

Under the Rescue Plan, the 20 states with the largest increases in unemployment through early 2021 received all of their FRF in one allotment in spring 2021, while the rest received half of their funding then and will receive the second half this spring (see map). In total, states, D.C., and Puerto Rico received $155 billion in 2021 and will receive $43 billion in 2022. They have until December 31, 2024, to obligate all of the funds and until December 31, 2026 to finish spending them (see second graphic).

As of March 2022, 48 states, the District of Columbia, and Puerto Rico have appropriated $125 billion. Collectively, the other U.S. Territories (American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands) have appropriated $1.2 billion of FRF. California, Indiana, Maine, Montana, North Carolina, and Washington State have appropriated all or nearly all of their full allocations.

Although the U.S. unemployment rate continues to fall, unemployment has not returned to pre-pandemic levels for women and Black and Hispanic/Latino workers. And despite making up 31 percent of the U.S. population, Black and Latino people collectively represent more than 60 percent of people experiencing homelessness and more than 50 percent of people in low-income renter households who pay over half of their income for rent and utilities.

States can use the $73 billion in remaining funds to address the pandemic’s ongoing fallout. They should concentrate on mitigating the pandemic’s disproportionate harm to low-income people and communities of color and to seeding transformative, long-term policies that address structural social and economic injustices.

The Rescue Plan gave states several years to use Fiscal Recovery Funds with the understanding that the recovery from the pandemic would be uneven, there likely would be unanticipated needs, and a full and inclusive recovery may take several years. The following are examples of how states are using their flexible aid to support a robust and equitable recovery:

  • Housing assistance and eviction protection: Massachusetts invested $387 million in a wide range of housing assistance efforts, including supporting homeownership, homeless shelter repairs, and rental housing development. Arizona appropriated $50 million to preserve 500 existing affordable housing units and to build 600 transitional housing units that will serve up to 2,000 people experiencing homelessness annually.
  • Access to healthy foods: The District of Columbia spent $58 million for a Food Access Fund to address inequitable access to fresh, healthy, and affordable food in the most food-insecure communities. Virginia spent $15 million toward the expansion of food access and health care partnerships, developing a shelf-stable food program, and purchasing food from local farmers for the Farm to Family Food Box Program.
  • Early childhood education and care: Michigan spent $121 million on its Great Start Readiness Program, a state-funded preschool program for 4-year-olds in foster care, experiencing homelessness, from households with low incomes, and those with disabilities. Minnesota allocated $20 million for Child Care Stabilization Grants to providers. Connecticut spent $8 million to help registered nurses and community health workers connect families with local health services, provide prenatal and postpartum visits, and support maternal health and early child development.
  • Public and mental health services: Texas allocated $113 million to the Texas Child Mental Health Care Consortium to expand mental health initiatives for children, pregnant women, and women who are up to one year postpartum. Washington State spent $35 million for health care for the uninsured. Colorado invested $2 million for community mental health center school-based clinicians and prevention specialists for school-aged children and families.
  • Immigrant assistance: Washington State allocated $340 million to provide financial support to immigrants affected by the pandemic, many of whom were ineligible to receive other public benefits. Illinois spent $14 million to immigrants through direct cash assistance and support for immigrant integration services.
  • Higher education: California appropriated $250 million for emergency aid to community college students. North Carolina used $31.5 million to expand outreach and advising to community college students from households with low or moderate incomes and to provide need-based grants to cover up to two years of tuition and fees for graduating high school students through the Longleaf Commitment Grant program.

Policymakers can also enhance their FRF spending choices by better engaging their local communities — something encouraged by the Rescue Plan’s federal guidance. Potential strategies to bolster transparency and public engagement include conducting community surveys, seeking feedback from local advocacy groups, and increasing transparency in spending decisions. For example, Massachusetts and Minnesota created websites with updated FRF allocations. Many states have made some effort to solicit public input, but engagement has often been limited.

Between the lessons available from other states and firsthand expertise of their own communities, states can draw on a wealth of knowledge to inform the use of remaining federal funds and to continue building a shared, more equitable future.