How States Can Best Use Federal Fiscal Recovery Funds: Lessons From State Choices So Far

Most states have started using their share of the $195 billion Fiscal Recovery Funds (FRF), created under the federal American Rescue Plan to help states and localities address the pandemic’s harmful effects. Many states are using their share of the Fiscal Recovery Funds constructively: to offset declines in their revenue collections, to address the health, economic, and fiscal impacts of the pandemic, and to start new long-term investments to address racial and economic inequities.Our review of these spending decisions shows that many states are using these funds constructively: to offset declines in their revenue collections, to address the health, economic, and fiscal impacts of the pandemic, and to start new long-term investments to address racial and economic inequities. Decisions in some states are not constructive. All offer important lessons for how states should use the remaining $90 billion of these funds, which will be critical both to addressing the pandemic’s ongoing damage and to putting states’ economies on a path toward a strong recovery.

Figure 1

States are making substantial progress in using FRF, our review shows. As of early November 2021, some 39 states, the District of Columbia, and Puerto Rico have appropriated $105 billion. (See Figure 1.) That is 53 percent of the full $198 billion set aside for them, and 68 percent of the $155 billion distributed to them in 2021 (the rest will be in 2022). Among states that have allocated funds, the median state has committed 53 percent of its full allocation. Of the 11 states that have not — often because funds became available after (or very late in) their legislative session — most are expected to begin making spending decisions next year, as part of their budget process. States have until the end of 2024 to fully obligate their FRF, and until 2026 to complete their spending.

States have tremendous flexibility over how they use FRF. The most substantial use of these funds to date has been to replace state revenues that fell below projected levels as the pandemic pushed state budgets out of balance. This use has been important, because states must balance their budgets every year, even during economic downturns when demands for social services rise and revenue collections decline, for instance through lower sales tax and income tax collections. The FRF used to replace state revenues helped sustain state funding for schools, health care, and other services and avoided deep cuts to these services during the pandemic, including by minimizing layoffs for teachers and other public employees.

Beyond that, many states have used FRF to respond directly to the impacts of the pandemic, including for public health or other health care services; food, housing, and other social services; assistance to businesses and workers and other investments in economic development; investments in K-12 and higher education; and expanded access to high-speed internet, key for remote learning. Several states are using FRF to address not just the immediate harms of the pandemic but also long-standing gaps in state services. California, for example, is revamping its youth mental health system. Other states are making transformative investments in affordable housing, mental health services, aid to immigrants excluded from public benefits, and more.

Unfortunately, some states have used the funds for initiatives that do not address the pandemic, the resulting hardships people are experiencing, or the underlying racial and economic inequities the pandemic has made so apparent. Alabama, for example, devoted nearly one-fifth of its funds to build new prisons. Some states used FRF to rebuild their unemployment insurance (UI) trust funds — rather than refilling them gradually in future years through modest employer taxes. A handful of states are using FRF for highway construction or other capital projects unrelated to the pandemic.

States have appropriated a substantial share of their Fiscal Recovery Funds, but more than $90 billion remains, including $40 billion that the U.S. Treasury Department will distribute in 2022 to the states receiving FRF in two tranches. That means most states still face important decisions over how to use these flexible funds. They should prioritize investments that will help residents who continue to struggle, support a robust recovery, and reduce long-standing racial and economic inequities in education, employment, housing, and health care that the pandemic has exacerbated. Spending funds in ways that fail to serve these purposes could slow state recoveries and would be a lost opportunity to create more equitable state services.

Purposes of FRF Include Responding to Pandemic, Preventing Service Cuts

The pandemic continues to devastate public health and the financial security of many U.S. residents, key sectors of the economy, and the education system. Racial inequities have widened as Black, Latino, and Native American residents bear the brunt of the job losses and illness and death.[2] These outcomes reflect wealth and income disparities, inadequate access to health care, and racial discrimination built into the health system and labor market.

The American Rescue Plan, adopted in March 2021, included an array of aid to reduce the extreme hardship many people and businesses faced. In addition to targeted aid for child care, eviction prevention, and other services, the Rescue Plan provided $350 billion in State and Local Fiscal Recovery Funds for states, localities, tribal nations, and U.S. territories. These jurisdictions have flexibility to use the funds over several years to address pandemic-related budget gaps and to help people and businesses hit hardest.

This analysis focuses on states’ $195 billion in FRF, distributed based on each state’s share of unemployed people and with a minimum allotment of $500 million per state. (See box, “Fiscal Recovery Funds for Localities and Tribal Nations,” for resources detailing these jurisdictions’ use of FRF.) States with especially high increases in unemployment during the pandemic received all of their FRF funds in one allotment. Others received half of their funding in spring 2021 and the other half will come in 2022. States have until December 31, 2024 to obligate all of the funds and until 2026 to complete spending them. Appendix Table 1 shows states’ allocation in 2021 and total funding per capita. Note that because all states were guaranteed $500 million, smaller states generally received more per capita than other states.

The Rescue Plan provides that states and other governments may spend these funds to:

  • respond to the pandemic and its negative health and economic impacts;
  • provide bonus pay to essential workers;
  • prevent cuts in public services caused by pandemic-induced revenue losses and avoid additional cuts; and
  • invest in water, sewer, or broadband infrastructure.

States may not use the funds to offset tax cuts above a certain size (although this has been challenged in court), to support public employee pensions, or to pay off existing debts.

Fiscal Recovery Funds for Localities and Tribal Nations

In addition to the $195 billion for states and the District of Columbia, the Rescue Plan provided $65 billion in Fiscal Recovery Funds to counties, $45.6 billion to larger cities, $19.5 billion to smaller cities, $20 billion to tribal nations, and $4.5 billion to U.S. territories, to be spent in the same way that states can spend theirs. While this analysis focuses on state spending decisions in part because of the sheer volume of counties, cities, tribal nations, and territories, other organizations are tracking FRF spending decisions at these other levels. For example, see the National League of Cities “COVID-19: Local Action Tracker “a and the National Association of Counties’ county-level funding list.b

All jurisdictions must report on expenditure of their FRF resources as described below:

  • All local governments, tribal governments, and territories must report on FRF expenditures by October 31, 2021 and then every quarter or annually after that, depending on their size;
  • Counties, cities, and territories with populations over 250,000 people must submit annual “Recovery Plan and Performance” reports. 

In addition, all local governments, territories, and tribal governments must describe how their planned or current use of funds incorporates written, oral, and other forms of input that capture diverse feedback from constituents, community-based organizations, and the communities themselves.c

a National League of Cities, “COVID-19: Local Action Tracker,” https://www.nlc.org/resource/covid-19-local-action-tracker/.

b National Association of Counties, “County Responses to the COVID-19 Pandemic: State and Local Coronavirus Fiscal Recovery Funds,” https://www.naco.org/resources/featured/state-and-local-coronavirus-fiscal-recovery-funds.

c See U.S. Treasury Department, “Compliance and Reporting Guidance: State and Local Fiscal Recovery Funds,” November 5, 2021, https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

Treasury Encourages States to Use FRF to Address Racial and Economic Inequities

Guidance from the U.S. Treasury Department, which is administering the Fiscal Recovery Funds, explicitly encourages states and localities to help people most affected by the pandemic and to address racial and economic inequities that predate, but worsened in, the pandemic.4 Specifically, Treasury’s guidance:

  • Encourages states to focus on households “most disproportionately impacted by the pandemic;”
  • Promotes using funds for “a strong, inclusive, and equitable recovery, especially uses with long-term benefits for health and economic outcomes;”
  • Allows a broad array of spending targeted on people with low incomes or in low-income communities; and
  • Allows spending that reduces health inequities across racial and economic groups.

Beyond that, the federal guidance notes that some of the pandemic’s impacts may be long lasting — and thus may require investments for an extended period to be successful. For instance, the guidance notes that many children whose schooling was disrupted during the pandemic will experience long-term learning losses that diminish their prospects. The pandemic’s impacts on mental and physical health, children’s cognitive functioning, and the employability of adults who lost jobs during the crisis may also be long lasting, it notes.

Most States Have Started Allocating Fiscal Recovery Funds

As of November 15, 2021, some 39 states, D.C., and Puerto Rico have appropriated $105 billion of these funds. This is 53 percent of the $198 billion FRF provided to them — and 68 percent of the $155 billion distributed to them in 2021 (the remainder will be distributed in 2022). In addition, American Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands have appropriated $1 billion of FRF collectively.

States Are Using Their Fiscal Recovery Funds

Share of total state Fiscal Recovery Funds appropriated (excludes funds granted to local governments)

Note: The American Rescue Plan gave states $197.8 billion in Fiscal Recovery Funds to combat the effects of the COVID-19 pandemic.

Source: CBPP analysis

As noted above, states, localities, territories, and tribal governments have until December 31, 2024 to obligate these funds, or as many as three more budget cycles. The actions to date show that states are actively using this money as a vital source of funding in the pandemic. Some states allocated funds for the end of fiscal year 2021 (which ended June 30, 2021 in most states) while most allocated for 2022 and a few (especially those with biennial budgets) also allocated for 2023. In nearly every state, the legislature is involved in allocating FRF resources, either by including them as part of an annual or supplemental budget, or through legislative fiscal committees authorized to spend the money. In a handful of states, the governor has control over the allocation decisions.[3]

Of the states that have started appropriating FRF:

  • Four — California, Indiana, Maine, and Montana — have appropriated all of their FRF resources;
  • Ten states have appropriated more than 80 percent or more (including those that have allocated 100 percent);
  • Five states have appropriated 60 to 80 percent;
  • Ten have appropriated 40 to 60 percent;
  • Eight have appropriated 20 to 40 percent; and
  • Seven have allotted up to 2 percent. (See first interactive graphic and Appendix Table 2 for details.)

Among states that have started appropriating their FRF resources, the median state has allocated 53 percent of its full allocation.

Eleven states have not allocated any FRF funds as of October 2021. In most of those states, policymakers have indicated that they will start appropriating funds in a special legislative session in the fall of 2021 or as part of their 2022 budget and legislative cycle. See Appendix Table 3 for details on the next step in FRF allocations in all states.

Tracking States’ Spending Choices With Fiscal Recovery Funds

As noted, the Rescue Plan gave states substantial flexibility over the use of funds, and spending choices to date reflect that. (See second interactive and Appendix II for details on some states’ choices.)

How States Are Investing Their Fiscal Recovery Funds

 

Note: The American Rescue Plan gave states $197.8 billion in Fiscal Recovery Funds to combat the effects of the COVID-19 pandemic.

Source: CBPP analysis

How States Are Investing Their Fiscal Recovery Funds

 

Note: The American Rescue Plan gave states $197.8 billion in Fiscal Recovery Funds to combat the effects of the COVID-19 pandemic.

Source: CBPP analysis

  • Replacing lost revenue (23 percent of funds nationally). The largest single use of FRF allocated to date has been to replace revenue losses caused by the pandemic. Nine states have used FRF as a general revenues source in this way.[4]
  • Unemployment insurance (15 percent). Nineteen states have used FRF to shore up their UI trust fund or in some cases, to improve their UI system.
  • Human services (14 percent). Human services programs receiving funds include cash aid, housing, food assistance, and social services. Twenty-two states have devoted funds to this purpose.
  • Economic development, accounting for 10 percent of FRF appropriations, includes aid to businesses, support for targeted industries, and job training and other workforce development services. Thirty states have used FRF funds for economic development.
  • Broadband (8 percent). Nineteen states have allocated FRF to expanding access to high-speed internet.
  • Health care (8 percent). Thirty states have spent FRF funds on public health interventions, mental health services, supports for health care organizations, and other health care.
  • Water and sewer infrastructure (5 percent). Eighteen states have devoted FRF funds to this.
  • Education (5 percent). This excludes targeted education relief funds in the Rescue Plan. It includes K-12 funding supports and higher education investments in colleges and universities, as well as direct aid to students. Twenty-four states have devoted FRF funds to education.
  • Other infrastructure (4 percent). Transportation especially has received FRF in this area. Fifteen states have allocated FRF for this purpose.
  • Criminal justice (1 percent). This includes premium pay for public safety workers, education and training programs for people who are incarcerated, and investments in policing alternatives such as violence interrupters: community-based groups that work to mediate disputes that could otherwise lead to violence. Alabama stands out at the only state to use FRF funds to date for prison construction. It has devoted $400 million (18 percent of its total FRF resources) to build two new prisons.

Some States Making the Most of FRF to Meet Intended Goals, Others Are Not

CBPP’s analysis of state allocations of their FRF funds reveals three broad ways that states are using FRF. Two of these are highly consistent with the goals of the American Rescue Plan — to fight the COVID-19 virus, help people harmed by its health and economic effects, and support a strong recovery — but the third area is not:

  • Replacing lost revenue. Many states are using FRF as a core funding source in their budget, supporting services and avoiding budget cuts that they otherwise would have had to make because their own revenue collections have fallen below projected levels.
  • Proactive investments to address harms of the pandemic. This includes both short- and long-term investments that address economic and racial inequities.
  • Unrelated expenditures. Some states are using FRF for services or capital construction projects that are largely unrelated to the pandemic or to promoting an equitable recovery. While the Rescue Plan may legally allow these uses, they are inconsistent with its spirit and with the spirit of the Treasury Department’s guidance on using the funds, particularly its encouragement that states prioritize reducing inequities and supporting communities that the pandemic has most harmed.[5]

Using FRF for Revenue Replacement Was a Reasonable Short-Term Action

As noted, the largest single use of FRF by states to date has been to address the loss of state revenue in the pandemic. States must balance their budgets every year, and they face challenges in economic downturns when tax and other revenue collections tend to fall and the demand for social services increases. Federal aid to states thus helps avoid painful cuts in state-funded services in an economic downturn, which otherwise would add to its hardships. During and after the Great Recession, federal aid to states was much less than was required to make up for state revenue losses, and ended too soon.[6] As a result, states and localities continued laying off workers and cutting back spending, slowing the nation’s economic recovery.[7]

This is why one of the stated purposes of the FRF is to replace revenues that fell below projected levels because of the pandemic. The Treasury guidance provided a formula for states to calculate how much their revenues have fallen from otherwise expected levels, and then allows states to use that amount of FRF as a revenue replacement. When states use FRF to replace lost revenue, they can direct those funds to any program or service, other than those the Rescue Plan explicitly prohibit.

It makes sense that states used FRF this year to replace lost revenue. State revenues fell dramatically in 2020, and while they have recovered somewhat since then (in large part due to federal relief efforts that kept residents and businesses afloat), the pandemic has hurt state revenue collections. In 40 states, revenues for fiscal years 2020 and 2021 combined were below levels forecasted before the pandemic, according to the National Association of State Budget Officers.[8] Beyond that, the Rescue Plan’s spring 2021 adoption was late in many states’ legislative cycles — and in some states after the cycles had ended — giving policymakers little time to consider nuanced spending of their FRF funds. Using the funds to replace lost revenue was a straightforward way to use funds quickly and in ways that supported state economies.

The states using a substantial share of FRF funds in this way include Alaska, California, Connecticut, Maryland, Minnesota, New York, Pennsylvania, and Washington. These uses add up to $18 billion, or 23 percent of state uses of FRF money to date.

In addition, some states have used FRF to create a fund that their governors have discretion to use to meet demands caused by the pandemic. Colorado created a $300 million fund that the governor can use for any allowable purpose, in any state department, and Minnesota created a $500 million COVID-19 response fund to allocate to state agencies as needed. Illinois set aside $258 million for this purpose, and New Jersey set aside $200 million. Wisconsin set aside $525 million for “pandemic response and government operations.”

Using FRF to replace lost revenue appears to have allowed states to avoid further layoffs and spending cuts and to begin restoring jobs and services lost after the pandemic hit. At the start of the pandemic, states cut public employment sharply, by nearly 1.5 million in April and May 2021. Beyond the job losses themselves this undoubtedly had a serious impact on access to key services for residents. With help from federal funds, states have undone some of those cuts. As of September 2021, state and local governments added some 660,000 jobs, offsetting about half of the early-pandemic cuts. And state and local employment may grow further as fiscal year 2022 continues.

At the same time, using FRF to replace lost revenue typically means that funds are being used for services that existed prior to the pandemic, up to the level of need projected before the pandemic hit. This use, therefore, may not help much to address the unexpected economic and health impacts of the pandemic or to reduce the racial and economic inequities that have made the pandemic’s impacts particularly harsh in certain communities. As states enter their 2022 legislative sessions with more stable finances and more time to consider how to use FRF, they should target investments that respond to the pandemic and reduce long-standing structural inequities.

States Are Using FRF Funds to Promote Economic and Racial Equity

Many states are directing a portion of their Fiscal Recovery Funds to helping residents hit hardest by the pandemic’s economic and health effects. In addition, several states are using their FRF to jumpstart initiatives to address long-standing racial and economic inequities in access to health care, housing, nutritious and adequate diets, and education and other public services. These investments will help states fully address the health and economic impacts of the pandemic and support a more equitable future.

Examples of state uses of FRF in this way include the following:

  • Housing assistance and eviction protection. Connecticut is devoting some of its FRF to legal assistance for residents facing eviction, and Washington provided $400 million to cover past rent due for residents who face eviction.
  • Food assistance. Utah allocated $17 million to establish two food banks, including one in the Navajo Nation, and Oregon devoted $14 million to support emergency food supplies.
  • 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 made a number of appropriations to assist immigrants, including direct cash assistance and support for immigration welcome services.
  • Education. New Jersey provided $600 million over the next three years to offer an additional year of schooling to special education students who otherwise would age out.[9] Connecticut allocated $20 million to provide tutors to support students whose literacy progress was affected by the pandemic.

Beyond these short-term investments, several states are using FRF to address long-standing gaps in some services, such as in mental health, which people of color have faced barriers in accessing.[10] Other states are trying new approaches to addressing long-standing inequities in the criminal legal system, such as by investing in alternatives to policing. Shifting to policing alternatives can reduce unnecessary police stops that too often escalate and result in arrests and incarceration that disproportionately target people of color and communities that have been marginalized.[11] All of these states are reforming systems to deliver services, expanding staff to provide services, and adding funds to existing programs.

While it is not clear whether states will continue all of these initiatives when the relief funds run out, the systemic nature of these changes suggests that many states will look for ways to maintain services with their own funds. Certainly, the long-term impact of these changes will depend on their continuation beyond the availability of FRF.

Here are a few examples of states making these kinds of transformative investments:

  • California is investing $530 million to expand access to behavioral health services and $100 million to revamp its approach to youth mental health services. The state also committed $1.8 billion to create new child savings accounts, which will set aside funds for every child from birth through 18 that can then be invested in education, homeownership, and other economic opportunities.
  • Maryland used $480 million to fund its groundbreaking Blueprint for Education Reform, an initiative created pre-pandemic that called for billions of new investments in education over several years, with a focus on addressing racial and economic disparities in education. Until recently, the state’s policymakers had not devoted many resources to the Blueprint, which means the federal funds will help launch this important initiative.
  • Colorado committed over $130 million to affordable housing, mostly by distributing funds to localities to build affordable housing.
  • Illinois is investing $52 million to support alternatives to policing, particularly by supporting expansion of violence interruption services.
  • Utah devoted $90 million to support a new mental health facility at the University of Utah.
  • New Jersey provided $100 million to its Child Care Revitalization Fund to fund facility improvements, employee supports, and workforce development programming.
  • Virginia devoted $77 million to raise salaries for direct care staff at state behavioral health facilities and intellectual disability training centers. Direct care staff typically are low-paid workers and are disproportionately women of color.

Public Engagement and Reporting on Use of FRF

The Rescue Plan includes important reporting and public engagement requirements to help residents and organizational stakeholders influence the use of FRF and follow the outcomes of state spending decisions. The requirements include the following:

Recovery Plan Performance Report

Every state had to submit a “Recovery Plan Performance Report” by August 31, 2021, and then every year by July 31 until all of its funds are expended. States must post the reports on a public-facing, state-hosted website and also submit them to the U.S. Treasury Department. (In addition, the National Association of State Budget Officers has posted all of the first-round state reports.) These reports include the following:

  • Use of funds. Amounts dedicated to public health response, amelioration of negative economic impacts, support for disproportionately affected communities, premium pay, water/sewer and broadband infrastructure, and replacement of lost state revenue;
  • Impact on equity. How each investment will promote equity;
  • Community engagement. How the state engaged residents to get input on their recovery plan;
  • Labor practice. How the state used FRF to create good job opportunities;
  • Use of evidence. How the state used evidence to make spending decisions;
  • Project list. A list of projects funded with FRF;
  • Performance indicators. How many people or businesses were helped, and levels of services provided; and
  • Expenses. Actual expenditures for projects in the recovery plan report.

Expenditure Reports

In addition, states must submit quarterly reports on actual expenditure of FRF resources. This reporting allows stakeholders to track progress in implementing the approved projects. The quarterly reports must list:

  • Project name.
  • Total expenditures for each project in the quarter, all expenditures to date, and what fraction of the project has been completed.
  • Whether the project targets an economically disadvantaged community.
  • Expenditure details by project, including payroll, premium pay, assistance to households, assistance to businesses, and details of infrastructure projects. States must report both dollars expended and the level of services provided (for example, the number of households helped or miles of high-speed internet fiber installed).

States Not Making the Most of Their FRF

Some states have used the flexibility of the Fiscal Recovery Funds to spend resources in ways that don’t respond directly to the pandemic and its harmful impacts, and others that don’t help build a stronger pandemic recovery or address racial and economic inequities. While allowable under FRF rule, the following choices states have made are not making the most of the opportunity the FRF provide to support an equitable recovery from the pandemic.

  • Rebuilding UI trust funds without expanding benefits or improving systems. Seventeen states used FRF to put over $15 billion into their unemployment insurance trust funds.[12] Filling up the trust funds does not address UI’s programmatic shortcomings, including low benefits and outdated IT. Of the $15 billion states devoted to UI, only $216 million (in Nevada, New Jersey, Tennessee, and Virginia) was for modernizing unemployment insurance IT and other systemic changes to improve program operations.

    States do not need to use FRF to restore depleted trust funds; there is already a system in place for that. UI trust funds are designed to raise revenue through employer taxes during good times to pay for worker benefits during hard times, and employer tax rates are adjusted automatically when trust fund balances are inadequate. Trust fund balances also will improve as unemployment falls and as business taxes gradually replenish trust funds over the next few years. While modest tax increases may be required as the economy recovers, states can design these tax increases to protect small employers still struggling in a difficult economy and to take effect once the economy is on firmer footing (as it already is in many states). Because replenishing trust funds largely serves to provide a tax cut for businesses, using FRF to replenish UI trust funds should be a low priority. Relying on these existing funding systems, rather than FRF, would help preserve FRF for more immediate needs and to address structural inequities.

  • Capital construction unrelated to pandemic relief. Alabama devoted $400 million of its FRF allocation — nearly 20 percent — to building two new prisons. Florida devoted $2 billion of its FRF funds — 23 percent — to highway construction. Other states, including Colorado, Louisiana, and Washington, also devoted a large share of their FRF allocations to transportation projects.

State Tax Cuts Weaken Impact of Fiscal Recovery Funds

The American Rescue Plan prevents states from making deep tax cuts by reducing federal relief to states that cut taxes deeply, although this is being challenged in court. Despite this, policymakers in a number of states, including Arizona and Ohio, are considering tax cuts that would limit their long-term opportunities for investment. And leaders in other states have proposed dramatic changes to their tax systems, including proposals to eliminate the income tax in Mississippi, Arkansas, and West Virginia.

Even when states are not directly using FRF to cut taxes, tax cuts are relevant to the successful use of FRF because they limit a state’s ability to make investments, for example in education and health care, that help people struggling because of the pandemic, reduce structural inequities, and promote a strong economy. Cutting taxes now would have a serious opportunity cost, reducing states’ ability to address these challenges and leading to long-term harm on the economy and the communities that the pandemic has most affected. To the extent states considering tax cuts are also making strategic investments to support their pandemic recovery, tax cuts would limit states’ ability to maintain those investments.

How States Can Make the Most of Remaining Fiscal Recovery Funds

State budget choices over the next several years will be critical to addressing the suffering caused by the pandemic and to putting states’ economies on a path toward a strong recovery. A substantial share of the Fiscal Recovery Funds has been allocated, but more than $90 billion remains, meaning important decisions remain over the use of these funds in most states. As states consider their decisions, mostly in the next legislative sessions in 2022, the experiences of the past year offer the following lessons on how to use FRF to support residents and businesses still struggling, and to build a strong recovery that benefits everyone:

  • There’s less need for states to use FRF to replace revenue. As states enter next year’s budget season (for fiscal year 2023), most will be in much stronger fiscal shape than they were last season, and all of them have had time to consider the best ways to spend relief funds. While some states still face worse-than-expected revenue collections and may need to use some of the FRF to prevent cuts to services, the improving fiscal situation should mean that states can use smaller shares of their remaining allocations for revenue replacement. That would make more room for addressing COVID-19-induced hardships and reducing racial and economic inequities.
  • States should not use FRF to replenish their UI trust funds. State trust fund balances will improve as state economies grow and more people return to work, since UI is funded with taxes that employers pay on behalf of each employee. And states can strengthen trust funds through modest increases in employer tax rates as the economy improves. Devoting FRF to UI trust funds should thus be a low priority and will not result in any expansion of unemployment services.
  • States should prioritize investments that will help residents who continue to struggle and that will support a robust and equitable recovery. Many states are using FRF to support pandemic relief and a number are addressing long-standing challenges such as lack of affordable housing and inadequate access to mental health services. These investments hold the most promise for creating a strong recovery and addressing systemic economic and racial inequities. By contrast, using FRF for services unrelated to pandemic recovery — such as highway or prison construction — ignores the needs of people facing immediate hardships, neglects the opportunity the FRF provides to address structural inequalities, and runs the risk of slowing down the state’s recovery from the pandemic.
  • States should sharply limit tax cutting. Tax cuts that benefit wealthy people and profitable corporations undercut the FRF’s opportunity. Even if targeted elsewhere, tax cuts that hinder a state’s ability to provide strong schools, high-quality health care, and other needed services are also harmful. States may wish to adopt or expand tax credits targeted to low-income people, such as earned income tax credits, to supplement their investments in people and communities hardest hit by the pandemic. But they should generally avoid tax cuts at this time of great need and historic opportunity for new, transformative investments.
APPENDIX TABLE 1
Fiscal Recovery Funds by State
State or Territory Total FRF (millions) Portion Received in 2021 (millions) State Population Amount per Capita
Alabama $2,120 $1,060 4,921,532 $431
Alaska $1,012 $506 731,158 $1,384
Arizona $4,183 $2,091 7,421,401 $564
Arkansas $1,573 $787 3,030,522 $519
California $27,017 $27,017 39,368,078 $686
Colorado $3,829 $3,829 5,807,719 $659
Connecticut $2,812 $2,812 3,557,006 $791
Delaware $925 $925 986,809 $937
District of Columbia $1,802 $1,802 712,816 $2,529
Florida $8,817 $4,408 21,733,312 $406
Georgia $4,854 $2,427 10,710,017 $453
Hawai’i $1,642 $1,642 1,407,006 $1,167
Idaho $1,094 $547 1,826,913 $599
Illinois $8,128 $8,128 12,587,530 $646
Indiana $3,072 $1,536 6,754,953 $455
Iowa $1,481 $740 3,163,561 $468
Kansas $1,584 $792 2,913,805 $544
Kentucky $2,183 $1,092 4,477,251 $488
Louisiana $3,011 $3,011 4,645,318 $648
Maine $997 $499 1,350,141 $739
Maryland $3,717 $3,717 6,055,802 $614
Massachusetts $5,286 $5,286 6,893,574 $767
Michigan $6,540 $3,270 9,966,555 $656
Minnesota $2,833 $1,417 5,657,342 $501
Mississippi $1,806 $903 2,966,786 $609
Missouri $2,685 $1,343 6,151,548 $437
Montana $906 $453 1,080,577 $839
Nebraska $1,040 $520 1,937,552 $537
Nevada $2,739 $2,739 3,138,259 $873
New Hampshire $995 $497 1,366,275 $728
New Jersey $6,245 $6,245 8,882,371 $703
New Mexico $1,752 $1,752 2,106,319 $832
New York $12,745 $12,745 19,336,776 $659
North Carolina $5,439 $2,720 10,600,823 $513
North Dakota $1,008 $1,008 765,309 $1,316
Ohio $5,368 $2,684 11,693,217 $459
Oklahoma $1,870 $935 3,980,783 $470
Oregon $2,648 $2,648 4,241,507 $624
Pennsylvania $7,291 $7,291 12,783,254 $570
Puerto Rico $2,470 $2,470 3,159,343 $782
Rhode Island $1,131 $1,131 1,057,125 $1,070
South Carolina $2,499 $1,249 5,218,040 $479
South Dakota $974 $487 892,717 $1,092
Tennessee $3,726 $1,863 6,886,834 $541
Texas $15,814 $15,814 29,360,759 $539
Utah $1,378 $689 3,249,879 $424
Vermont $1,049 $525 623,347 $1,683
Virginia $4,294 $2,147 8,590,563 $500
Washington $4,428 $2,214 7,693,612 $576
West Virginia $1,356 $678 1,784,787 $759
Wisconsin $2,533 $1,267 5,832,655 $434
Wyoming $1,068 $534 582,328 $1,835
Total $197,770 $154,891 N/A N/A

Source: U.S Treasury Department and U.S. Census Bureau.

APPENDIX TABLE 2
State Appropriation of Fiscal Recovery Funds as of November 15, 2021
State or Territory Total FRF (millions) Received in 2021 (millions) Total Appropriations So Far, 2021 (millions) Appropriations as % of FRF Received in 2021 Appropriations as % of Total FRF received
Alabama $2,120 $1,060 $400 38% 19%
Alaska $1,012 $506 $507 100% 50%
Arizona $4,183 $2,091 $1,396 67% 33%
Arkansas $1,573 $787 $0 0% 0%
California $27,017 $27,017 $27,017 100% 100%
Colorado $3,829 $3,829 $1,245 33% 33%
Connecticut $2,812 $2,812 $2,609 93% 93%
Delaware $925 $925 $228 25% 25%
District of Columbia $1,802 $1,802 $1,506 84% 84%
Florida $8,817 $4,408 $5,346 121% 61%
Georgia $4,854 $2,427 $0 0% 0%
Hawai’i $1,642 $1,642 $1,363 83% 83%
Idaho $1,094 $547 $50 9% 5%
Illinois $8,128 $8,128 $2,819 35% 35%
Indiana $3,072 $1,536 $3,116 203% 101%
Iowa $1,481 $740 $468 63% 32%
Kansas $1,584 $792 $250 32% 16%
Kentucky $2,183 $1,092 $1,168 107% 53%
Louisiana $3,011 $3,011 $1,600 53% 53%
Maine $997 $499 $997 200% 100%
Maryland $3,717 $3,717 $2,171 58% 58%
Massachusetts $5,286 $5,286 $380 7% 7%
Michigan $6,540 $3,270 $779 24% 12%
Minnesota $2,833 $1,417 $1,683 119% 59%
Mississippi $1,806 $903 $0 0% 0%
Missouri $2,685 $1,343 $0 0% 0%
Montana $906 $453 $907 200% 100%
Nebraska $1,040 $520 $0 0% 0%
Nevada $2,739 $2,739 $653 24% 24%
New Hampshire $995 $497 $194 39% 19%
New Jersey $6,245 $6,245 $2,551 41% 41%
New Mexico $1,752 $1,752 $676 39% 39%
New York $12,745 $12,745 $6,000 47% 47%
North Carolina $5,439 $2,720 $0 0% 0%
North Dakota $1,008 $1,008 $0 0% 0%
Ohio $5,368 $2,684 $1,834 68% 34%
Oklahoma $1,870 $935 $24 3% 1%
Oregon $2,648 $2,648 $1,980 75% 75%
Pennsylvania $7,291 $7,291 $4,600 63% 63%
Puerto Rico $2,470 $2,470 $2,045 83% 83%
Rhode Island $1,131 $1,131 $0 0% 0%
South Carolina $2,499 $1,250 $0 0% 0%
South Dakota $974 $487 $0 0% 0%
Tennessee $3,726 $1,863 $3,231 173% 87%
Texas $15,814 $15,814 $13,315 84% 84%
Utah $1,378 $689 $571 83% 41%
Vermont $1,049 $525 $606 116% 58%
Virginia $4,294 $2,147 $3,533 165% 82%
Washington $4,428 $2,214 $3,139 142% 71%
West Virginia $1,355 $678 $0 0% 0%
Wisconsin $2,533 $1,267 $1,564 124% 62%
Wyoming $1,068 $534 $624 117% 58%
Total $197,770 $154,891 $105,146 68% 53%

Source: CBPP analysis

APPENDIX TABLE 3
States’ Remaining FRF, Spending Authority Information, and Timing of Next Decisions
State or Territory Remaining FRF (millions) Spending Authority Anticipated Next Spending Decisions  
Alabama* $1,720 Legislature 2022 Session  
Alaska* $505 Legislature 2022 Sessiona  
American Samoa $0 Governor N/A  
Arizona* $2,786 Governor Unclear  
Arkansas* $1,573 Governor, with input from appointed commission Unclear  
California $0 Legislature N/A  
Colorado $2,583 Legislature 2022 Session  
Connecticut $204 Legislature 2022 Session  
Delaware $697 Governor Ongoing  
District of Columbia $297 Legislature 2022 Session  
Florida* $3,470 Legislature 2022 Session  
Georgia* $4,854 Governorb Early 2022  
Guam $554 Legislature Unclear  
Hawai’i $278 Legislature 2022 Session  
Idaho* $1,044 Legislature 2022 Session  
Illinois $5,309 Legislature 2022 Session  
Indiana* $0 Legislature N/A  
Iowa* $1,013 Governor Unclearf  
Kansas* $1,334 Governor, With Input From Task Force Unclear  
Kentucky* $1,015 Legislature 2022 Session  
Louisiana $1,411 Legislature 2022 Session  
Maine* $0 Legislature N/A  
Maryland $1,546 Legislature 2022 Session  
Massachusetts $5,096 Legislature Late 2021  
Michigan* $5,761 Legislature 2022 Session  
Minnesota* $1,150 Legislature Early 2022 Session  
Mississippi* $1,806 Legislature 2022 Session  
Missouri* $2,685 Legislature 2022 Session  
Montana* $0 Legislature N/A  
Nebraska* $1,040 Governor 2022  
Nevada $2,086 Legislative Committee Nov. 2021  
New Hampshire* $801 Legislative Committee Unclear  
New Jersey $3,694 Legislature 2022 Session  
New Mexico $1,075 Governor 2022 Session  
New York $6,745 Legislature 2022 Session  
North Carolina* $5,439 Legislature Fall 2021  
North Dakota $1,008 Legislature Nov. 2021 Special Session  
Northern Mariana Islands $344 Governor & Lt. Governor Unclear  
Ohio* $3,534 Legislature Unclear  
Oklahoma* $1,846 Legislative Joint Committee on Pandemic Relief Funding Working Groups Started Reviewing Proposals Oct. 2021  
Oregon $668 Legislature Uncleare  
Pennsylvania $2,691 Legislature Uncleare  
Puerto Rico $425 Governor Unclear  
Rhode Island $1,131 Legislature Fall 2021  
South Carolina* $2,499 Legislature / Task Force Fall 2021 Special Session  
South Dakota* $974 Legislature Unclear  
Tennessee* $494 Governor-Appointed Commissionc December 2021  
Texas $15,814 Governor 2023 Session  
Utah* $807 Legislature 2022 Sessiond  
Vermont* $443 Legislature 2022 Session  
Virginia* $761 Legislature 2022 Session  
Virgin Islands $0 Governor N/A  
Washington* $1,288 Legislature 2022 Session  
West Virginia* $1,355 Legislature 2022 Session  
Wisconsin* $969 Governor Uncleare  
Wyoming* $444 Legislature 2022 Session  
Total $106,278 N/A N/A  

Source: CBPP analysis

*These states received half of their Fiscal Recovery Funds in 2021.

  1. This state has held special sessions in 2021 with the agenda to appropriate FRF but has been occupied with other legislative matters.
  2. The state is accepting applications from state agencies, local governments, and nonprofit organizations in a competitive grant process.
  3. The commission has made recommendations and is seeking input before approving allocations.
  4. This will be under a fiscal year 2022 supplemental budget and a 2023 budget recommendation by the governor.
  5. This state has restricted remaining funds for future use.
  6. The governor made some allocations in fall 2021.

Appendix II: A Deeper Dive into State Spending Choices

This section highlights spending categories that some states that have prioritized. It shows any category that has received FRF in at least ten states and representing at least 5 percent of spending nationally. The Appendix provides notable examples of state allocations for each listed category. The percentages listed in this Appendix represent the share of a given state’s FRF allocated to date for that specific purpose.

Human Services

Twenty-two states have used FRF to support human services programs, with three states devoting 30 percent or more of their allocations to date to this purpose.

California: Of its $27 billion total, California devoted $4.9 billion to homelessness services, $2 billion to help residents pay utility or water bills, $1.8 billion to create child savings accounts, and $450 million for affordable housing programs.

New Jersey’s human services spending was largely on funds to help keep residents in their homes, with $500 million in rental relief and $250 million in utility assistance for low-income residents.

Washington State devoted $800 million to housing assistance, with a mixture of short-term pandemic relief and new, long-term affordable housing programs. The state also used $340 million to create a fund for immigrant residents excluded from public benefit programs, and roughly $100 million for food assistance.

Economic Development

Thirty states have devoted FRF to economic development, with five states appropriating one-fourth or more of their FRF allocations to date for various economic development initiatives.

Wisconsin devoted half of its FRF allocated to date to economic development, a total of $805 million, including $645 million in grants to businesses and $130 million for workforce development.

Indiana allocated 26 percent of its funds to economic development, a total of $817 million, including $731 million in regional economic development grants and $75 million for workforce development.

Alaska is devoting $171 million of FRF (34 percent of allocations to date) to support the tourist and seafood industries, to help nonprofits that struggled in the pandemic, and to support cities that were especially hard hit by the pandemic.

Illinois approved a wide variety of economic development investments, including direct grants to businesses, support for main street corridors, and workforce development programs.

Maine has allocated $345 million of FRF (34 percent of its allotment) to economic development.

Broadband

Nineteen states have invested in improving access to high-speed internet, with a handful of states devoting a large share of their current FRF allocations to this purpose.

Indiana allocated $1.4 billion (43 percent of its FRF funds) to improve broadband access, with a focus on rural areas.

Kentucky devoted $300 million to broadband initiatives, 26 percent of its FRF allocations to date.

Montana allocated $275 million to communications improvements, with a focus on broadband. That equals 30 percent of its FRF funds.

Tennessee devoted $500 million (27 percent of its FRF appropriations so far) to broadband initiatives.

Health

Most states allocating FRF funds have devoted some to health services — including directly supporting the public health response to the pandemic, supporting hard-hit health providers, and addressing gaps in mental health services. But these health expenditures are a relatively small share of states’ FRF in many states.

Health expenditures represent a large share of FRF allocations to date in a handful of states.

Illinois used $413 million, or 15 percent of its FRF allocations to date, for health services, including supports for long-term care institutions and hospitals and investments to strengthen access to mental health and substance use services.

New Jersey invested $450 million (18 percent of its FRF allocations) in three regional health centers to improve their emergency preparedness.

Utah devoted $90 million (26 percent) to support a mental health facility at the University of Utah and invested other funds to address the pandemic, such as vaccine outreach.

Education

Twenty-four states have devoted FRF to various education initiatives, including both K-12 and higher education. The investments include funds to help K-12 students recover lost ground in the pandemic, financial aid to help students attend college, and funds for higher education institutions.

Maryland is using FRF to advance its ambitious Blueprint for Education reform, a multi-year effort (enacted pre-pandemic) to improve education funding in the state, with a special focus on equity. The state also invested funds to improve HVAC in schools and support a healthy return to classrooms. Twenty-six percent of Maryland’s FRF allocation to date has gone to education, a total of $561 million.

Nevada devoted $200 million to schools to assist students whose literacy skill development was affected by the pandemic. Overall education funding reflected 34 percent of Nevada’s FRF appropriations through August 2021.

New Jersey funded an extra year of special education for anyone who aged out of special education services due to the pandemic[13] and also created a $180 million fund for schools and businesses to upgrade HVAC and water systems. New Jersey committed 27 percent of its FRF funds to education initiatives.[14]

Water and Sewer

Eighteen states have included water or sewer projects in their FRF spending.

Kentucky allocated $250 million to drinking water and wastewater projects, or 21 percent of its fiscal recovery funds.

Louisiana allocated $300 million (19 percent) to water system maintenance.

Montana committed half of its FRF, or $409 million, to water projects.

Tennessee devoted $1.35 billion (42 percent of FRF allocations to date) to water and sewer maintenance and improvement.

End Notes

[1] The author thanks colleagues Julian Legendre, Iris Hinh, and Maria Perez, who gathered and organized much of the data on state allocation of Fiscal Recovery Funds highlighted in this report.

[2] The Centers for Disease Control and Prevention (CDC) notes that “racial and ethnic minority groups” are “more at risk of getting sick and dying of COVID-19” as a result of health inequities. See CDC, “Health Equity Consideration and Racial and Ethnic Minority Groups,” updated April 19, 2021, https://www.cdc.gov/coronavirus/2019-ncov/community/health-equity/race-ethnicity.html. A 2021 survey found that Black and Hispanic residents were more likely than white residents to experience a job loss in their household and to know someone who contracted COVID-19. See Aaron Morrison, Kat Stafford, and Emily Swanson, “AP-NORC Poll: People of color bear COVID-19’s economic brunt,” AP, March 12, 2021, https://apnews.com/article/ap-norc-poll-people-of-color-covid-19-economy-421f0582650c02a42508fb46aa461a7b.

[3] As shown in Appendix Table 3, allocation of FRF in some states is controlled entirely by the governor, such as in Arizona. In some other states, such as Arkansas and Tennessee, the governor has created a special task force or committee to guide decisions. And in some states, such as Nevada and New Hampshire, spending decisions are made by a legislative fiscal committee.

[4] FRF rules allow states to spend FRF in an amount equal to the revenue decline they experienced in the pandemic. Funds used under this provision can be spent on any government purpose. Many states have taken advantage of this provision, in most cases by allocating funds for specific purposes that might not be eligible under FRF rules, such as Florida using FRF for highway construction. Those specific state allocations are not included here but instead in the category of spending they fall under. The states counted here are those that used FRF as a general revenue source in their budget, without allocating it to any specific purpose.

[5] Treasury’s interim final rule, as well as the final rule when it is released, can be found here: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds#main-content.

[6] Elizabeth McNichol, “Out of Balance: Cuts in Services Have Been States’ Primary Response to Budget Gaps, Harming the Nation’s Economy,” CBPP, April 18, 2012, https://www.cbpp.org/research/out-of-balance.

[7] Michael Leachman and Erica Williams, “States Can Learn From Great Recession, Adopt Forward-Looking, Antiracist Policies,” CBPP, February 11, 2021, https://www.cbpp.org/research/state-budget-and-tax/states-can-learn-from-great-recession-adopt-forward-looking.

[8] National Association of State Budget Officers, “The Fiscal Survey of States,” Spring 2021, https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Fiscal%20Survey/NASBO_Spring_2021_Fiscal_Survey_of_States_S.pdf..

[9] Eligibility for K-12 special education services ends at age 21 under federal law.

[10] Jennifer Sullivan, Miriam Pearsall, and Anna Bailey, “To Improve Behavioral Health, First Close the Medicaid Coverage Gap,” CBPP, October 4, 2021, https://www.cbpp.org/research/health/to-improve-behavioral-health-start-by-closing-the-medicaid-coverage-gap.

[11] Ed Lazere, “Using Federal Relief Funds to Invest in Non-Police Approaches to Public Safety,” CBPP, November 21, 2021, https://www.cbpp.org/research/state-budget-and-tax/using-federal-relief-funds-to-invest-in-non-police-approaches-to.

[12] The states are Arizona, Connecticut, Hawai’i, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Michigan, Nevada, New Mexico, Ohio, Texas, Utah, Virginia, and Washington.

[13] As noted above, federal eligibility for special education services ends at age 21.

[14] This assumes half of the $180 million HVAC money for schools and businesses will go to schools.