Data released this month by the Treasury Department encompasses spending by almost 1,800 states, territories and large cities and counties as of the end of December 2021. GFRC found by that time they had obligated just 28 percent of $208 billion in the first tranche of SLFRF aid made available to them.
The final rules on how SLFRF funds could be used did not go into effect until April of this year. “The data seems to evince hesitance on the part of state and local governments to use a large chunk of the federal money before the rules on how that money could be used were finalized,” says Philip Rocco, associate professor of political science at Marquette University.
Recipients of the funds are allowed to use them to provide government services equal to the amount of revenue they lost due to the pandemic. These uses accounted for the largest share of dollars obligated at both state (39 percent) and local levels (48 percent). More than a third of the money obligated at the state level went to unemployment insurance trust funds.
“It is not terribly surprising that largest chunk of the money is being devoted to purposes that have very low levels of administrative burden,” says Amanda Kass, associate director of the GFRC. “That would have been my expectation.”
With support from the Joyce Foundation, Kass and Rocco are engaged in a two-year evaluation of how 26 large cities use relief funds for community violence interventions. Federal dollars were intended to address social factors that caused the pandemic to hit some citizens much harder than others. But standing up such programs can be complicated.
Bringing Relief Has Costs
ARPA funds are not fully discretionary and come with reporting requirements. “If a city uses its money for revenue replacement, it pretty much has to tell the Treasury Department it was used for revenue replacement and government services,” says Kass.
Relief programs are a different matter. Reporting to Treasury could include details such as the evidence-based research behind a program, the number of people it will serve, demographic information about them and tracking its impact.
“Administratively, it’s much more burdensome to use the money to provide relief directly to the kind of people most impacted by COVID,” says Kass.
If a jurisdiction isn’t already offering programs to patch holes in social safety nets — e.g., social determinants of poor health, housing instability, food security, living wages — it will also have to invest in creating something that can be funded.
One way around this is to allocate relief funds to community organizations that have established programs. Baltimore has done this, says Kass. If this approach is implemented, groups that receive funds need to have the capacity to meet reporting requirements.
“Cities are struggling in many ways to figure out how to leverage the limited capacity they have to take advantage of this opportunity,” says Rocco. Relief programs will require ongoing spending, and Kass notes that this runs up against a key tenet of public finance: One-time revenue should be used for one-time expenditures.
What Lies Ahead
The data GFRC reviewed is from large cities and it’s not possible to infer what smaller jurisdictions might do from it. However, governments that receive $10 million or less are allowed to claim all of it for revenue replacement.
Kass thinks it’s likely small governments will use all their SLFRF funds this way, bypassing extensive reporting requirements and the need to closely track rule changes. “The final rules allow them to, and the Treasury Department explicitly encouraged them to do that,” she says.
For states and larger cities, competition and conflict over the political and policy consequences around huge pockets of funding that can be spent in more than one way could keep the pace of obligations slow. Rocco believes progress will depend on robust political processes and personnel who understand intergovernmental finance.
“This is a historic, once-in-a-generation scale of investment,” he says. The question is how quickly governments not accustomed to this level of funding can respond to the opportunity, and how well they can use it to stand up programs to respond to needs they have not been able to address successfully in the past.
“I hope we’ll see creative partnerships between local governments, or between state, county and local governments, to promote knowledge sharing about how to administer these dollars, and the best way to use them in a coordinated or targeted way,” says Kass.
