State and local governments have spent very little of the federal aid they were allocated under the American Rescue Plan Act (ARPA) of 2021 which meant little impact on GDP

See Disclosures reveal state and local governments haven’t spent federal rescue funds: These governments were allocated $172 billion of ARPA funds but had only spent $4.9 billion (2.9 percent) of the money by the July 31 cutoff date for the initial reporting period by Marc Joffe of Reason.

"State and local governments have spent very little of the federal aid they allocated under the American Rescue Plan Act (ARPA) of 2021, according to recovery plan reports filed by states, cities, and counties. With a July 31 cutoff date for the initial reporting period, a review of 142 recovery plans filed with the U.S. Treasury Department by state, county, and city governments show these governments only spent $4.9 billion (2.9 percent) of the $172 billion of ARPA funds they were allocated.

The delay in utilizing the COVID-19 stimulus funds suggests that state and local governments were, by and large, not facing the severe financial emergencies that proponents of federal stimulus insisted they were when the federal legislation was being debated. Further, data show that the state and local aid components of ARPA had little effect on second-quarter 2021 gross domestic product growth and likely had a minimal impact on third-quarter economic activity.

Although the 142 reports our researchers reviewed represent a small fraction of governments that had to report in time for the Treasury Department’s next deadline, Aug. 31, the state and local governments in our sample were predominantly larger units that are receiving the bulk of the federal assistance. 

We obtained the reports by visiting city and county websites, using state and territorial reports gathered by the National Association of State Budget Officers (NASBO), and filing a limited number of public records act requests. The local government reports are available here. Since U.S. Treasury rules instruct state and local governments to post their expenditure reports on the web as well as filing them with Treasury, it appears that many governments have yet to do so. The Treasury Department could post all the reports and aggregated data it has available on its own website—and says it plans to do so on or about Oct. 15. 

When reporting their information, the Treasury Department instructed state and local governments to include a table of categorized expenses, providing a list of 74 possible designations for their spending. The most heavily used categories in the reports filed were:

Code	Category Name	Amount Spent
2.8	Contributions to UI Trust Funds	$1.8 billion
6.1	Provision of Government Services	$0.9 billion
2.6	Unemployment Benefits or Cash Assistance to Unemployed Workers	$0.7 billion
2.9	Small Business Economic Assistance	$0.4 billion
2.2	Household Assistance:  Rent, Mortgage, and Utility Aid	$0.3 billion

Note these rankings exclude federal funds that states transferred to their local governmental units. Reporting by lower-level governments on these so-called “Non-Entitlement Units” are not due until Oct. 31.

The slow rate of spending seems inconsistent with the belief in some political and policy circles that state and local governments urgently needed large amounts of federal aid to address fiscal emergencies. For example, a White House fact sheet, published in January as the bill was being debated, stated:

President Joe Biden is calling on Congress to provide $350 billion in emergency funding for state, local, and territorial governments to ensure that they are in a position to keep front line public workers on the job and paid, while also effectively distributing the vaccine, scaling testing, reopening schools, and maintaining other vital services.

Similarly, in February, House Majority Leader Stenny Hoyer (D-MD) issued a news release that said, in part:

The American Rescue Plan will provide crucial funding for state and local governments after a year of record revenue shortfalls and devastating budget cuts. Leaders on both sides of the aisle continue to raise alarm over the urgent need for assistance for state and local governments…

But as we observed at the time, evidence from state and local government revenue reports as well as Census Bureau surveys indicated that calendar year 2020 revenues were little changed from the prior year. In retrospect, it is now clear that $350 billion in federal aid was far more than state and local governments needed to offset any COVID-19 revenue losses. 

Because we only have a sample of the spending data, and therefore do not yet know exactly how much was spent before June 30 (the end of the second quarter), we can only offer some very rough approximations of the second quarter GDP impact of American Rescue Plan Act state and local assistance. Assuming that state and local governments spent $10 billion of ARPA funds in Q2 2021 and that this spending had a GDP multiplier of 1.34 (as estimated by Moody’s Analytics), the economic impact of this program amounted to only about 0.2% of that quarter’s GDP.  Unless spending ramped up substantially in August and September, the third quarter economic impact of the American Rescue Plan Act is also likely to be minimal.

Even still, the Moody’s multiplier and thus the GDP impact estimates are likely overstated because the biggest application of the federal aid has been to backfill depleted state unemployment trust funds. While replenishing unemployment funds is a sensible policy decision that will stabilize unemployment tax rates in the future, it does not result in any immediate spending.

These findings also offer reasons for caution and arguments against making major federal fiscal policy in haste before gathering and analyzing relevant information. But now that it has obligated $350 billion in aid, does Congress have any options to improve the performance of this program?

Congress isn’t going to go back and pass a bill requiring state and local governments to return unspent portions of the American Rescue Plan Act. But one reason the money is being spent slowly is that it came with so many strings attached as Congress limited how state and local governments could allocate the aid in various ways.

Congress could allow a state or local government to return a percentage of the funds it has received in exchange for allowing it to use the remaining federal funds without any of the restrictions in the American Rescue Plan Act. Since this would be offered as an option, it need not affect any state or local government whose leaders believe they can and should spend the aid in accordance with the existing restrictions. But, cities or states that think they could more effectively and efficiently spend federal aid could buy their way out of the ARPA-imposed limitations.

It is increasingly clear that state and local governments didn’t need the federal aid they’ve received. Congress should look for opportunities to save taxpayers money and ensure the federal aid is spent in the most useful ways possible."