States Divvy Up Federal Covid Billions With More Equity In Mind

With roughly two years still left on the clock, states have allocated almost two-thirds of the $199.8 billion in federal pandemic relief aid from the Biden administration’s landmark stimulus package to fund a wide variety of their own priorities—from building homes and expanding broadband access to providing bonuses to public school staff.

Data compiled by the National Conference of State Legislatures through early September shows that states have parceled out roughly $148 billion in federal money aimed at helping states counteract the health, fiscal, and economic impact of the Covid-19 pandemic.

Facing such a large influx of one-time money from the American Rescue Plan and a brisk deadline to allocate it by December 2024 and actually spend it by December 2026, many state policy makers have established frameworks for making decisions, set policy priorities, created oversight committees and reviewed applications.

Officials also have sought to be more intentional and deliberate about infusing their choices with a greater awareness of social justice and equity opportunities.

“States understand the gravity of the unprecedented amount of funds that they have and the responsibility they take within their state,” said Emily Maher, a senior policy specialist for the state legislatures group. “There has been a little bit more of a priority-setting intention between the legislative committees and even task forces. States have really taken a step back to determine what that looks like and how they should make those decisions in a responsible way.”

‘Deliberative Process’

The Oklahoma Legislature established a 24-member joint committee in June 2021, shortly after the federal law was enacted, to assess the state’s immediate and long-term needs and review more than 1,400 project proposals that would cost $17.9 billion. Michigan allocated nearly $150 million to support access to safe and stable housing, including developing 135 affordable housing units for disproportionately impacted residents. Massachusetts is prioritizing funding to address negative economic impacts of four communities—Chelsea, Everett, Methuen and Randolph—designated by the Treasury Department to be among the “hardest hit” in the state. Lawmakers also plan to track the money to ensure equity and policy goals are met.

In New Jersey, more than 90% of the money committed through 2022 will go to programs that contain a requirement to report whether the service primarily serves disproportionately impacted communities.

“It’s been a very deliberative process in states,” said Kathryn Vesey White, director of budget process studies for the National Association of State Budget Officers. “You’ll see that in the plans that states have laid out for how to spend those funds that they are really looking to use those funds in a way to set their state up for a robust recovery and an equitable recovery over the longer term.”

Although the law prohibits states from using the money to either directly or indirectly offset a reduction in a state’s net tax revenue, local officials have considerable leeway to use the federal funds for projects such as expanding access to high-speed internet in underserved communities and remediating outdated water and sewer systems.

Similar examples from other states are:

• Tennessee allocating $500 million to at-risk counties to expand broadband services and agreeing to provide any remaining funds to help families cover expenses for internet service and supporting digital literacy.
• Missouri targeting $20 million as part of a “100 Cell Towers Campaign” to expand broadband cellular towers across the state.
• Rhode Island planning to spend $12 million to acquire properties that will be redeveloped as affordable housing.
• Connecticut designating $70 million for workforce initiatives to help train and place up to 7,000 students and job seekers in high-demand industries like advanced manufacturing and clean energy to boost its post-pandemic jobs recovery.
• New Jersey allotting $808.5 million to prevent eviction and homelessness, utility assistance and legal services to those who were disproportionately impacted by the pandemic along with $604.5 million to provide an additional year of special education to students with disabilities who missed a critical year of development during the shutdown.

“States are spending the vast majority of funds in ways that are aligned with the intentions of the Act to help people and communities that were hit particularly hard by the pandemic and continue to struggle as a result of that,” said Michael Leachman, vice president for state fiscal policy at the Center on Budget and Policy Priorities.

Broadly, the category funding trends this year are consistent with last year’s— a significant share is directed at general state operations and administration, water infrastructure and refilling depleted unemployment trust funds, according to the NCSL’s analysis.

Spending Tempos

While some states were quick to spend tens of millions of dollars, others initially grappled with how to handle an unprecedented infusion of money at a time when their coffers were unexpectedly being replenished by a rebounding economy that in many cases was generating billions more in tax revenue than forecasted. Others waited for the Treasury Department to issue its final guidance in January 2022 before committing any money.

“There were a few states that really were hesitant to allocate funds before that,” Maher added.

Some Republican-led states also challenged the law’s prohibition against using funds to reduce net tax revenue, known as the “offset provision.” The Eighth and the Ninth Circuits have split on whether these states have standing to challenge the restriction. The states convinced trial judges to bar Treasury from enforcing the ban in four of the cases, which are all currently on appeal. Cases brought by Ohio and Kentucky have been argued in the Sixth Circuit, West Virginia‘s challenge was argued in the 11th Circuit Tuesday and a case by Texas is in the briefing stages at the Fifth Circuit.

To date, 32 states have designated the majority, if not all, of their funding, according to a National Association of State Budget Officers analysis of each state’s annual 2022 recovery plan that was due to Treasury by June 30. That’s more than double the share of funds that were allocated on average about a year ago, when states released their initial recovery plan performance reports covering a similar time frame.

“By this time last year, some states hadn’t acted yet due to their legislative calendars, whereas by now states—whether they did so in a special session that was held or during regular session—they’ve made that progress,” said White.

—With assistance from Perry Cooper in New Bern, N.C.