As states plan how they’ll spend the $25 billion remaining in federal COVID-19 relief funds, some also are facing criticism and renewed scrutiny over how they allocated money already received from the American Rescue Plan Act.
Of the $198 billion authorized by Congress in 2021, $173 billion already has been appropriated by states, the District of Columbia and Puerto Rico. Much of the money went — as it was intended — to deal with the COVID-19 public health emergency, including social programs benefiting low-income communities, grants to help small businesses stay open and pay for essential workers. But civil rights groups and think tanks focused on economic and tax policy have pointed out that the money has gone to build prisons, offset tax cuts, and fund initiatives completely counter to improving public health, such as Arizona’s $163 million program to give grants to schools that didn’t have mask mandates.
The American Civil Liberties Union in a letter earlier this month requested that the Treasury Department investigate the misuse of ARPA funds. The Institute of Taxation and Economic Policy has criticized tax cuts that it says are squandering revenue built up in part by the federal relief funds. And the GOP-controlled House Committee on Oversight and Accountability on Wednesday the first of what its chair, Rep. James Comer (R-KY), says will be many hearings examining how federal pandemic relief dollars were spent.
The Center on Budget and Policy Priorities, a nonpartisan research institute, has analyzed the ARPA fund appropriations since 2021, and in a January report says that many have used the funds “constructively” toward economic recovery but it also suggests that states need to use the remaining funds to help the people most affected by the pandemic and prevent long-term damage to health, education, and social services in states.
According to the CBPP’s data, capital construction made up 21% of the allocations — the largest share for all states — through December, with some states like Montana allocating 79% of their funds to capital construction projects. And while many state projects were for broadband and water and sewer infrastructure, some of the spending was unrelated to “an equitable recovery,” according to CBPP policy analyst Iris Hinh, author of the report.
In 2021, Alabama allocated $400 million, almost 20% of its funds, toward the construction of two new prisons. In Arizona, $4.2 million in recovery funds was designated to fund offices for Department of Corrections staff. In its January letter to the Treasury Department, the ACLU urged the Deputy Inspector General to investigate the use of ARPA funds for jail and prison expansions saying such construction “does not mitigate the effects of the COVID-19 pandemic and does not fall under any of the eligible uses of ARPA funds.”
Twenty-three percent of Florida’s funds were allocated to highway construction, according to the CBPP. Colorado, Louisiana and North Dakota also spent a large proportion of their funds on transportation construction.
Hinh noted in the report that “while spending on highways may help produce a stronger recovery, it is often poorly targeted to the communities that need help the most.”
Revenue replacement and unemployment assistance
Another big chunk of the relief funds — 13% across the nation — has gone toward replacing revenue losses from the pandemic, as allowed under the federal guidelines. The CBPP argues that although it makes sense to ensure that services that existed before the pandemic continue, states should use more of the funds to target inequities made worse by the pandemic, such as food becoming even less affordable for many families. In Wyoming, 58.8% of appropriations of these funds went toward revenue replacement, followed by New York at 57.2% of appropriations and Pennsylvania at 56.8%.
States allocated $23 billion to unemployment insurance trust funds, but only a small portion of that, $929 million, went toward upgrading unemployment insurance and improving access through IT changes and other advancements. The rest went toward rebuilding those trust funds after jobless claims increased due to the pandemic-related closures of businesses.
Nevada, for instance, which had borrowed from the federal government to pay unemployment claims during the pandemic used ARPA funds to pay off its loan rather than raise the unemployment tax paid by employers, according to the Nevada Current.
But Nevada is also using ARPA funds to modernize and streamline its system which buckled under the influx of claims during 2020, according to the Current. Colorado, Delaware, New Jersey, South Dakota, Tennessee, Virginia and Washington are also planning to use ARPA funds to update their systems.
Hinh said that states that are only choosing to rebuild their trust funds are missing out on opportunities to expand access and should instead raise the unemployment taxes paid by businesses.
Tax cuts
