Deciding How to Use $41B in Remaining State ARPA Aid

Eighteen months after President Biden signed the American Rescue Plan Act, states have already decided how to spend at least 80% of the $195 billion they received in direct Covid-19 aid from the law, according to a new study by the Center on Budget and Policy Priorities.

But while 14 states have appropriated all, or nearly all, of the money, and another 18 have settled on how to use more than 80%, there was still $41 billion in State Fiscal Recovery Funds available as of Aug. 31. The question now is how states will spend that money, Michael Leachman, the left-of-center think tank’s vice president for state fiscal policy, said in an interview. 

The economy and the pandemic recovery have changed significantly since states began figuring out how to spend the huge infusion of federal money. Given these shifts, they should use the aid that’s left in different ways, Leachman said.

Congress and the Biden administration gave states a great deal of latitude in deciding what to do with the flood of federal funding. The biggest chunk—15% of the money—has been used to replenish revenue states lost during the early days of the pandemic, the Center on Budget and Policy Priorities study says.

That made sense, according to the group. Using the APRA funds 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,’’ says the report. 

Revenue replacement is the most flexible option states had for using the money, compared to other more prescriptive categories of eligible spending under the law—like paying for broadband or water infrastructure projects, or covering public health expenses.

But now, Leachman said, state budgets are in better shape than they were in the depths of the pandemic, with many running surpluses. “There’s less need for that than there was initially when the pandemic was creating revenue loss,” he said of states replacing lost revenue.

Another area where the group believes states should not be spending the aid is shoring up unemployment trust funds. Twenty-seven states have used ARPA funds to do so, with $18 billion, or 11%, of the money going to that purpose, according to the study. 

States paid billions of dollars in unemployment claims at the height of Covid-19 outbreak, with some taking loans from the federal government to cover the cost. To keep the funds solvent after paying out large amounts during economic downturns, states often raise taxes on businesses. The ARPA aid offered a way to help avoid this.

But the Center on Budget and Policy Priorities argues this isn’t the best use of the money.

The report notes how little of the funding has gone to improve state unemployment insurance systems. Many of the systems rely on outdated technology and were overwhelmed by the flood of claims during the pandemic, while also falling victim to billions of dollars in fraud. 

Delaware, Nevada, New Jersey, South Dakota, Tennessee, Virginia and Washington did spend $329 million to modernize their unemployment system technology, the report says.

State and local ARPA spending has drawn criticism from the right as well. House Republicans have questioned whether states and localities have spent the money for things that were really needed for the pandemic response and recovery. Jason Smith of Missouri, the House Budget Committee’s top Republican, has described some of the spending as a “ridiculous waste.” 

Republicans have pointed to a number of examples they see as questionable, from hiring social media influencers to tout the tastiness of Alaskan fish, to making it easier to park or access bathrooms at South Carolina beaches, or trying to bring World Cup soccer to New Jersey.

In Leachman’s view, states should use the remaining ARPA funds to deal with the pandemic’s lingering effects, including the strain it put on health care systems, household finances and local economies, as well as the fallout for school students and the mental health of many Americans.

States have already directed substantial sums to programs addressing these types of issues.

For example, 14% of the funds, the study says, have gone for human services. Forty states, the District of Columbia, and all territories have devoted funds to this purpose. California, for example, is investing $530 million to expand access to mental health and substance abuse services and $100 million to revamp youth mental health services, according to the report. 

Colorado has committed over $138 million to affordable housing, while Utah spent $90 million of its ARPA dollars to support a new mental health facility at the University of Utah.

Forty-five states have used the aid for economic development. In all, 11% of states’ ARPA dollars have gone for economic development, including $100 million New Jersey is spending to improve child care. 

And a significant portion of the funding, 10%, has gone to health care. 

Additionally, 9% has gone for water and sewer infrastructure improvements, 7% for education and another 7% to expand broadband, the report said. 

Three percent of the dollars have gone toward criminal justice, including giving premium pay for public safety workers, improving education in jails and funding police reform initiatives. Alabama spent $400 million, or 18% of its ARPA dollars, to build two new prisons.

Still, there are needs the money could help with, Leachman said. 

“It is important that states focus on investments for hard-hit communities that not only help communities recover from the pandemic now but position them to be stronger in the future,” Leachman said, citing health care, housing, mental health and education.