The Evolving Debate Over ARPA's State and Local Aid Program

President Biden's lead advisor on the American Rescue Plan Act, at a gathering of county officials in Denver this past week, rejected growing claims from congressional Republicans that there are significant problems with wasteful spending of the $350 billion in state and local aid provided under the pandemic relief law.

"I think that the criticisms are very shallow," White House American Rescue Plan Coordinator Gene Sperling said at a press conference during a National Association of Counties event.

But in his remarks to attendees at the NACo conference, Sperling also emphasized that counties should be looking for ways to spotlight successes with how they are using ARPA dollars, underscoring a debate that will stretch into the months, and likely years, to come over whether the $1.9 trillion relief package was a success.

"We gotta tell the story," Sperling said.

In Congress in recent weeks, GOP lawmakers like Rep. Jason Smith of Missouri, the top Republican on the House Budget Committee, have tried to frame the American Rescue Plan as a "boondoggle" and are compiling examples of what they characterize as spending under the law that is a "ridiculous waste."

There are obvious political motives behind this criticism, with Republicans taking shots at one of Biden's main legislative achievements and a law that stands in sharp contrast to the party's general preference for smaller government.

But if Republicans retake one or both chambers of Congress this fall, their skepticism towards ARPA could result in greater scrutiny on Capitol Hill of how the money is being used. And depending on how political disagreements over ARPA play out, it could influence whether money in future legislation is ever again directed to states and localities in a similar way.

The situation also reflects the difficulties ARPA supporters face when trying to communicate with the public about spending spread over multiple years, on programs many people are not familiar with, and doing so at time when many Americans are preoccupied with issues like high prices for gas and other goods.

Similar dynamics are shaping up around the infrastructure law Biden signed last year, with only 24% of likely 2022 voters even aware the $1.2 trillion package was approved, according to new polling.

'A Buffer'

Responding to a question about why he and others at the White House are still confident the size of ARPA's state and local aid program was appropriate and not too big, Sperling emphasized that the law was meant to do more than provide just funding for communities to deal with the immediate hit from Covid-19, which threatened to erode revenues, while simultaneously driving up costs due to response efforts and higher demand for government services.

"The goal wasn't just: What did somebody need to survive in 2021? It was: Would you have the ability to both get out of the crisis, to prevent layoffs and cutbacks and then be able to invest enough in the challenges that were exacerbated by the pandemic?"

State and local revenues through the pandemic ended up not getting hollowed out as badly as first expected. Budget officials and others have credited the trillions of dollars the federal government spent on stimulus and assistance programs for keeping consumer spending and incomes afloat and, in turn, bolstering tax collections.

The U.S. has entered a new economic chapter since the one defined by the depths the pandemic. Inflation is soaring, supply chains still haven't recovered from snarls caused by Covid-19, Russia's invasion of Ukraine has roiled energy markets and major companies are planning to slow hiring or cut workers as recession worries mount.

Sperling dismissed the idea that the state and local aid was adding to the nation's inflation woes, noting that rising prices are an issue worldwide. Instead, he suggested the money would provide a bulwark against looming economic stress. "The fact that you're in okay shape right now is a buffer, is going to either help prevent a recession or moderate if there's a downturn," he told county leaders.

Telling the Story

In addition to noting how $65 billion from the state and local aid package is going to the nation's roughly 3,000 county governments, Sperling highlighted how the law provides a timeline to spend the money that extends to 2026, giving them a long runway to strategize, plan and stand up programs.

That's in contrast to the earlier pandemic relief law, the CARES Act, which sent money only to states and larger-sized local jurisdictions and included a tighter timeframe for spending.

"This is the first program ever like this where funding went to virtually every county directly," Sperling reminded county officials at the NACo gathering. The line drew applause from a crowd that would prefer more federal dollars going straight to their local governments, rather than getting funneled down through states.

Sperling previously held top economic advisor jobs in the Obama and Clinton administrations and had a key role at the Treasury Department amid the fallout from 2008 financial crisis.

At the NACo conference, he referenced the sluggish recovery that dogged states and localities after that earlier downturn, weakening budgets, thinning the ranks of the public sector workforce, and putting a drag on the broader economy. Many experts have argued since then that more robust federal aid to states and localities during the Great Recession era would have helped to avoid these outcomes and that way of thinking left an obvious imprint on ARPA's design.

"I have no doubt that this is a fantastic model," Sperling said of ARPA's approach to delivering federal aid to local governments. "I see so much innovation, so many great things."

"Telling that story" about how the money is being used "is not just about making sure that you all get the credit you deserve or President Biden gets the credit he deserves," he added. "It's about showing that this model was successful and that this should be emulated."

Sperling cast some blame for more success stories not getting attention on the press, saying "the average political reporter" tends to only dive into ARPA-related issues when there are partisan flareups around the law. "DeSantis or Newsom, they have surpluses. ... If they have a surplus, I guess the whole program was too big," he quipped, referring to the high-profile governors of Florida and California.

"There's a whole lot of reporters out there who've decided you guys got too much money because California and Florida have surpluses," he added, arguing that the reason many states have seen budget surpluses in the past year or so has been because ARPA helped fuel strong economic growth.

NACo, during its meeting, distributed a 33-page booklet outlining how dozens of counties are using their ARPA dollars.

The report features examples from places like Buncombe County, North Carolina, which is spending recovery funds to support the development of over 200 affordable housing units, Leon County, Florida, which is using about $12 million to convert hundreds of septic tanks at risk of failing to a central sewer system and Tulsa County, Oklahoma, which is putting $790,000 towards job training programs.

Earlier this month, the White House held a summit focused on workforce-related spending under ARPA, which the Biden administration says now totals around $40 billion or more, with about $9 billion coming from the direct state and local aid program.

With so many jurisdictions receiving money—around 30,000 in total—Sperling did concede that examples of questionable spending are likely to emerge. "If you want to find something that wasn't perfect, I promise you you can find it in 30,000 anything," he said.

"This movie is still going," he added. "The more it plays out, the more you're going to see all these positive uses."