This Week in Federal Funding

Route Fifty's This Week in Federal Funding newsletter provides weekly updates on what's happening with the pandemic-era aid dollars the federal government is sending to states and localities. The newsletter goes out on Tuesdays and Route Fifty Today subscribers receive it automatically. If you don't subscribe to Route Fifty Today and would like to receive This Week in Federal Funding, you can sign up for it here.

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Welcome to Route Fifty’s This Week in Federal Funding! I’m Senior Editor Bill Lucia.

From R50 this week: Our columnists Katherine Barrett and Richard Greene offer a five-step guide to spending American Rescue Plan Act funding. We have coverage of a court ruling that came ahead of the holiday weekend, where a federal judge sided with Ohio in the state’s challenge against ARPA’s restrictions on using state aid to offset tax cuts. Kate Queram reports on how states and localities can use recovery funds to partner with nonprofits. And we have an analysis from The Pew Charitable Trusts that looks at the significance of ARPA funding for different states’ budgets.

What we’re watching: The states. A new fiscal year began for 46 of them on July 1. Fiscal 2022 arrives as the nation appears to be on a path to recovery. It’s a sharp contrast to the start of the last budget cycle, which came only about three-and-half months after the Covid-19 crisis began to grip the U.S., creating huge uncertainty for states’ finances. Many states saw stronger than anticipated tax revenues over the past year. And governors and lawmakers now face a more welcome challenge figuring out how to spend an unprecedented $195 billion in ARPA aid. 

So how are states handling their shares of that funding so far?

“We've seen a number of governors release broad plans on how to use the funds … then more specifics will be ironed out as we continue to move through this year,” says Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers. “I think this is going to be a multiyear process for governors and legislatures to determine where the funds should be spent.”

(Keep in mind that the deadline to put the state and local recovery money to use isn’t until December 2024 and Treasury hasn’t finalized the rules for the program yet.)

“We've also seen legislatures more involved this time around than what we saw last year with the CARES Act,” Sigritz added, referring to the earlier relief law that provided $139 billion for states and larger-sized cities and counties. “This time around, legislatures in a number of states are trying to have more say.” (The National Conference of State Legislatures has a rundown here of some measures state lawmakers have pursued in recent months, seeking to rein in the governors’ emergency spending powers with federal recovery funds.)

Some states are moving ahead with specific plans for the cash.

Take Ohio for example. Last Tuesday, Gov. Mike DeWine signed a bill to invest $2.2 billion in ARPA funds. The state’s total direct recovery fund allotment under the law is about $5.4 billion. It’s also receiving about $843 million to distribute to smaller “non-entitlement units'' of local government. With the legislation DeWine signed, Ohio’s plan is to use about $1.5 billion to repay a loan from the federal government that it—like other states—took on to cover unemployment obligations during the pandemic. Lt. Gov. Jon Husted emphasized that, were it not for the relief funds, tax hikes would have likely been imminent for businesses in the state to pay back the borrowed money. “To do that, it was going to take an increase in their unemployment taxes of 50%, 100% and 150% in successive years,” he said.

Other states are taking similar steps repaying unemployment loans. "I'd say that's an area where, in some states, there's been early agreement,” said Sigritz. In Maryland, for instance, Gov. Larry Hogan and legislators earlier this year settled on an ARPA blueprint that calls for using $1.1 billion of the money to shore up the state’s unemployment insurance trust fund.

Back in Ohio, the state is planning to put a sizable chunk—$250 million—of the ARPA funds toward water and sewer infrastructure. "This is a significant amount of money, but we have a huge, huge problem,” said DeWine, a Republican. "We've got sewage systems that are failing and we don't have the money to deal with that,” he added, noting problems with drinking water in some communities as well. "This quarter of a billion dollars is gonna get us started.”

The bill DeWine signed also calls for spending $84 million on a pediatric behavioral health initiative. Another $422 million of the $2.2 billion is for smaller localities in the state.

Providing financial assistance for businesses especially hard hit by the pandemic is another way states can spend the money. In Wisconsin, Gov. Tony Evers said the week before last that the state would provide about $140 million in grants to the tourism and entertainment sector. This includes $75 million for lodging, $11.3 million for movie theaters and $10 million for live venues. There’s money for minor league sports teams, summer camps and other organizations as well.

For an overview of some of the earlier ARPA spending plans that emerged, you can check out Sigritz’s recent roundup here.

That’s it for this week. In the meantime, if you have news tips or feedback on what we should be covering, if you want to share your community’s story, or if you just want to say hello, please email us at: editor@routefifty.com. Thanks for reading!

This week's federal funds stories from Route Fifty:

• A Five-Step Guide to Spending the American Rescue Plan Money

• Judge Sides With Ohio in Fight Against ARPA Tax Cut Restrictions

• How Governments can Leverage Federal Funds to Partner With Local Nonprofits

• Federal Rescue Funds Provide 'Critical Breathing Room' in Era of Tight Budgets

For last week's edition, with updates on the Treasury Department's ARPA guidance, click here.