This Week in Federal Funding

Route Fifty's This Week in Federal Funding newsletter provided weekly updates on the pandemic-era aid dollars the federal government is funneling to states and localities. The newsletter went out for 10 weeks during the summer of 2021. An archive of all the issues is here. To get the latest on federal aid to states and localities and other trends and best practices happening in state and local government, sign up for our daily newsletter, Route Fifty Today.

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Welcome to the 10th and final edition of Route Fifty's This Week in Federal Funding. I'm Senior Editor Bill Lucia. I've really enjoyed reporting and writing this newsletter this summer, and getting the chance to cover the American Rescue Plan Act's rollout. 

It's been nearly six months since ARPA was approved, with its $350 billion in direct state and local aid. That's along with around $120 billion for schools, $30 billion for transit, and other grant funding states and localities can tap into. This historic influx of federal money did a great deal to alleviate financial stress and uncertainty that states—and especially local governments—were facing as the pandemic wore on. Since President Biden signed the law in March, we've come a long way, with the Treasury Department issuing guidance for the state and local aid program, and plans for spending and administering the funds taking shape at the state and local level. 

This week, I'll recap some of the major themes that emerged in this newsletter over the past couple of months. Here goes...

1. Flexibility and long spending timeframe. These are two of the most important features of ARPA's direct state and local aid program. 

For sure, state and local officials have requested greater clarity from the Treasury Department about whether specific types of spending are okay (browse the public comments on the department's rulemaking and you'll see plenty of examples). State and local advocates have also pressed for changes to allow for uses barred under the interim final rule for the program (for instance, repaying short-term debt that governments took on during the depths of the pandemic). But, in general, the law gives state and local governments an unusual degree of latitude to spend federal aid as they see fit. This leeway is reflected in the spending plans state and local leaders have put forward so far. These plans call for using the money in a wide range of areas, including assistance to businesses and low-income residents, broadband projects, addressing homelessness, workforce development and shoring up unemployment funding.

The 2024 deadline to obligate funds and a 2026 cutoff to spend the money mean governments have time to map out complex investments, to make sure they have systems in place to safeguard against misuse of funds and to evaluate programs. Oversight officials and others flag the distant program horizon as a major plus.

In contrast, recall the state and local aid last year from the CARES Act. That money was approved in March, but states and localities were initially up against a December deadline to spend it. And even heading into the fall there was a lack of clarity about issues like whether the cash could be used for certain public employee payroll expenses.

2. Transformational spending vs. repairing pandemic damage. The balance between these two types of spending will vary place to place. Across the country, as state and local leaders begin to allocate their aid, some of the spending is geared towards fixing problems caused by Covid (patching up budgets, boosting public health agencies, rehiring public workers, helping businesses and households that took the worst economic hits). But many places also want to use some of the money to try out new programs, or to make major one-time investments in infrastructure. For example, a few weeks ago I covered how a handful of cities were turning to the money to help fund guaranteed basic income initiatives, or other cash payments to households. We've also reported on and highlighted places that are planning to spend sizable chunks of the aid on water and wastewater upgrades and broadband. Others are using money to acquire and revamp hotel space to house people who are homeless.

3. Accountability and evaluation. The large number of funding recipients and amounts of money involved create tremendous oversight challenges. The risk of waste, fraud and abuse is out there and examples of it are likely to surface as more money is spent. This will be another area to watch. (To get more of a window into the world of ARPA oversight, see our previous issues featuring conversations with California's state auditor and with the state and local lead for the Pandemic Response Accountability Committee.)

On a related note, compliance and reporting guidelines will be a challenge for some places (for a refresher on why, see here). Today is the deadline for states and many local aid recipients to provide an "interim report" to Treasury, offering an initial look at the status and use of their funds. Places receiving large sums will have to assign or hire staff, or bring on consultants, to lead compliance efforts and make sure that they're meeting Treasury's requirements. Small communities unaccustomed to receiving federal dollars will likely need extra help even though they'll be dealing with less money. 

Also, the federal government is emphasizing, though not requiring, that funding recipients should prioritize "evidence-based" programs where possible, and adopt systems to evaluate program results. Program evaluation will be one key to assessing not only whether programs are working at the local level, but also judging overall whether ARPA was a success. But done well it's also another significant layer of work. 

4. Equity and community input. Communities continue to gather public feedback on how to spend ARPA funding, as equity concerns remain front and center. We've covered how local governments are conducting outreach and why it's important. Incorporating equity into budgeting processes is a concept that's been getting more attention lately. That's true with ARPA as well. In Baltimore, for instance, equity sits atop a set of criteria the city will use to assess federal aid spending proposals from agencies.

5. Partnerships and cooperation. In many cases, cities and counties receiving ARPA funding overlap. If they coordinate spending, it can help them to avoid duplicative efforts, or to make complementary investments. The same is true when it comes to how state ARPA spending meshes with local programs. We also looked at the reasons local governments might benefit from working with businesses, philanthropic organizations and universities in planning and carrying out ARPA-funded initiatives. 

This cross-sector collaboration is in some ways comparable to the work cities and counties have done in recent years around Opportunity Zones and trying to attract Amazon during the so-called HQ2 competition. It's also important to remember that there's state and local funding in ARPA beyond direct aid—grant programs like those offered by the Economic Development Administration are just one example. These sorts of programs open up other avenues for states and localities to unlock additional funding.

So, there you have it, five takeaways from pulling together this newsletter. All 10 issues will be archived here. Meanwhile, our news coverage of ARPA and other issues related to federal pandemic recovery funding will continue with regular news reporting and analysis. If you haven't already, make sure to subscribe to our daily newsletter, Route Fifty Today, to get the latest. 

Thanks to everyone who read the newsletter and to those in the state and local government arena who took the time to speak with me about the work that their communities and agencies have been doing. As always, 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.