What Is In the $1.9 Trillion American Rescue Plan Act For Local and State Governments?

The timing of this pandemic was such that both political parties, Republicans and Democrats alike, had their chance at passing some of the largest economic relief bills in American history, and some of the largest provision were carried over into each of the relief packages:

 

• direct payments to the American public;

• extension of the unemployment benefits;

• expansion of tax credits and financial help to small businesses.

And, as shown below, over half of the $1.9 trillion was allocated towards the three aforementioned provisions, including a third round of stimulus payments of up to $1,400 for adults and any dependent. However, households with earnings of more than $80,000 for single filers, $120,000 for the head of household filers, and $160,000 for married filing jointly will not receive any payment. Here is the allocation of the most of recent financial relief bill and its various components:

 

Source: Joint Committee on Taxation and Committee for a Responsible Federal Budget

As local and state governments have yet to see the return of their revenues to the pre-pandemic levels, the American Rescue Plan Act allocates roughly $350 billion towards assisting both levels of governments with their fiscal recovery, and also a small allocation towards capital project funds for governments to carry out projects to support work, education and health monitoring during COVID-19. All funds allocated under this relief package to local and state governments must be used by December 31, 2024, and the governments cannot use the funds towards pensions or to offset revenue resulting from a tax cut enacted since March 3, 2021.

Here are a few of the highlights from the National Law Review on how the distribution of funds will happen between state and local governments:
 

• $195.3 billion out of the $350 billion to states and the District of Columbia, of which $25.5 billion to be equally divided to provide each state a minimum of $500 million. The remainder will be distributed based on each state’s share of unemployed workers during the period of October through December 2020.

• $130.2 billion out of the $350 billion is allocated towards local governments, of which $65.1 billion to counties, allocated based on each county’s share of the national population. Furthermore, $45.6 billion is allocated towards metropolitan cities (cities with 50,000 or more people), and $19.5 billion to municipalities with fewer than 50,000 people (to be distributed by the applicable state), allocated based on each municipality’s share of the overall population of municipalities within that state.

It’s also important to note that many of the provisions under the COVID-19 recovery funds allocated for state and local governments are based on the assumption that local and state governments will be able to respond to the economic impacts of the pandemic, able to maintain their service levels without having to make significant cuts, provide premium pay to the essential employees of the state and local governments, and make adequate investment in essential services, like water and wastewater infrastructures.

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Although the mass vaccine roll-outs and promising decline in COVID-19 hospitalizations have shown local and state governments some kind of light at the end of the long tunnel, the road to fiscal recovery can still be a long haul. The federal stimulus funds can only provide a short-term fix to the larger issues at hand, and unless we continue to see a sustained economic shift into a positive direction, local governments will continue to face similar fiscal challenges.

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