The U.S. Department of the Treasury has released new data on how state and local governments are spending the $350 billion of State and Local Fiscal Recovery Funds (SLFRF) allocated by the American Rescue Plan Act (ARPA), covering expenditures through March 31, 2023. Less than half of the money has been spent: States have spent 45% of the $195 billion they were allocated and local governments have spent 38%, both slight increases from the previous quarter. However, these data do not include most spending decisions made during spring state legislative sessions, which may change the situation somewhat.

Fiscal recovery funds can be used for myriad purposes related to the COVID-19 pandemic and its economic impacts. While the official pandemic state of emergency has come to a close, the economy and public services are still dealing with the negative economic impacts, including a loss of public-sector jobs. We find that the 10 states that have spent the least amount of their fiscal recovery funds have state job vacancies twice as high as the 10 states that have spent the most.

Governments should prioritize rebuilding public services and filling state and local government job vacancies with their remaining funds. Fiscal recovery funds must be obligated (designated for specific uses) by December 31, 2024, and must be spent by December 31, 2026.

States that haven’t used their funds have higher public-sector job losses

Governments have used these funds in many innovative, equity-enhancing ways. One of the clearest needs now, though, is rebuilding the public sector. While the private-sector recovery is strong—with employment 3.1% above pre-pandemic levels and a record-high 24 states with unemployment rates at or below 3%—state and local government employment is still 160,000 jobs below what it was before the pandemic started. This comes after a decade of public-sector disinvestment in the name of austerity following the Great Recession.

The shortfall in state and local government jobs is driven in large part by the inadequate wages paid to public-sector workers. One-third of state and local government workers are paid less than $20 an hour, and 15% are paid less than $15 an hour. While the public sector has smaller Black-white and Hispanic-white pay gaps than the private sector, Black and Hispanic employees are still disproportionately represented among the lowest-paid jobs, which also employ a disproportionate share of women workers. Meanwhile, the teacher pay penalty has hit a new high: Teachers are now paid 23.5% less than comparable college-educated, nonteaching peers.

State governments are reporting increasing difficulties in filling vacancies. SLFRF dollars can be used to raise public-sector pay, create hiring and retention incentives, and expand benefits to attract public employees. Given the importance of a strong public sector to the overall health of the economy, filling these vacancies should be a high priority.

There is a strong correlation between how much SLFRF dollars a state has spent and state government employment. The 10 states that have spent the least have a state government jobs deficit twice as high as the 10 states that have spent the most. This means that where the need is greatest, the funds are available, and policymakers should make filling job vacancies a priority.

Smaller cities and counties are spending SLFRF dollars at a faster rate than larger ones

Unlike Treasury’s previous data releases, the March 31 data also include small cities and counties that received less than $10 million in funding. These smaller units of government do not file quarterly reports like larger municipalities, so this release offers the first real opportunity to see how they are using their fiscal recovery funds. Many of them received just a few thousand dollars—the smallest amount was $1,093 allocated to Fork Township, Minnesota, which had a population of 7 in the 2020 census.

To date, smaller cities and counties have spent 44.7% of their fiscal recovery funds; 92% of those funds have been spent on revenue replacement, the broadest category of allowed SLFRF uses. This is not a surprise, because the Treasury Department’s final rule for SLFRF allowed recipients to use up to $10 million in revenue replacement without having to identify specific revenue losses. The purpose of the rule was to reduce compliance burdens on small local governments, and it is apparent that the rule is having its intended impact. The 44.7% spent is slightly larger than the share spent by larger cities (43.4%) and substantially higher than spending by larger counties (31.5%) that have been much slower than cities to make use of SLFRF dollars. 

There is still ample time for state and local governments to assess the state of their public workforces and develop SLFRF spending plans to help them rebuild. The American Rescue Plan Act has contributed a great deal to the nation’s strong recovery from the COVID-19 recession. Policymakers should help finish the job by investing in public services.