2024 is the last opportunity for state and local governments to make spending decisions on funds provided by the American Rescue Plan Act (ARPA). Many states, localities, and school districts still have considerable unspent ARPA funds. At a time when the public sector has still not fully recovered from the job losses of the pandemic, governments should use remaining ARPA funds to shore up public services and invest in education.

ARPA allocated $350 billion to state and local governments (State and Local Fiscal Recovery Funds, or SLFRF). While governments do not need to spend those funds until 2026, they must be obligated by December 31, 2024. ARPA also provided an additional $122 billion to school districts and state education authorities (Elementary and Secondary Schools Emergency Relief, or ESSER III). That money must be obligated by September 30, 2024, and must be spent by January 28, 2025.

The latest SLFRF spending data, covering the period ending June 30, 2023, show that roughly half of fiscal recovery funds had yet to be spent. The amount is even higher for local governments, with more than 56% of funds unexpended.

These averages conceal considerable variations in expenditures: Half of state and local governments have spent less than 40% of their SLFRF allocation.

Five state governments—Oklahoma, Tennessee, South Carolina, Mississippi, and Missouri, all states with Republican governors and Republican-led legislatures—have still spent less than 10% of their fiscal recovery funds, and another 14 states have spent less than 30%.

States slower to use their funds have higher public-sector job losses

As we have noted in previous posts on SLFRF spending, there is a correlation between how much SLFRF dollars a state has spent and state government employment. The 10 lowest-spending states have 4.4% fewer state government jobs than before the pandemic; the 10 highest-spending states only have 2.7% fewer.

Governments have used fiscal recovery funds in many innovative, equity-enhancing ways. One of the clearest needs now, though, is rebuilding the public sector. While the private-sector recovery has been strong—with employment 3.6% above where it was in February 2020—state and local government employment has only now reached the level it was before the pandemic started. However, since the U.S. population has gone up by 1.2% since the last quarter of 2019, another 274,000 state and local government jobs would be required to reach pre-pandemic per capita levels.

This shortfall in public employment comes after a decade of public-sector disinvestment in the name of austerity following the Great Recession. In the 2010s, the federal government did not provide state and local governments with the resources they needed. Now, through ARPA, the federal government has done its job, and the onus is on state and local governments to use the resources they’ve been given.

The first thing they can and should do is raise public-sector wages, which are inadequate and have largely driven this shortfall in state and local government jobs. 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 26.4% less than comparable college-educated, non-teaching 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.

School districts also should invest in recruiting and retaining staff

The public-sector shortfall is most acute in education. We are still 76,000 state and local education jobs below February 2020 employment levels. The shortfall is quite dramatic in particular areas—the number of school bus drivers, for example, has decreased 16.5% since the beginning of the pandemic and continues to decline.

This is primarily a job for the $122 billion in ARPA funds allocated to the Elementary and Secondary Schools Emergency Relief Fund (ESSER III), which came on top of $60 billion in earlier funds allocated in 2021 (ESSER I and ESSER II). While projections from the Edunomics Lab at Georgetown University suggest that school districts, on the whole, are on track to use their funds, many districts have barely begun spending their ESSER III allocations. Just 37% report using ARPA funds to hire staff.

Like SLFRF, most ESSER III funds went directly to localities for school districts to use as they see fit with relatively few restrictions. Reports from national and state partner groups strongly suggest that many school districts have been unable to decide between competing funding needs and have opted to sit on the money. Many districts are also, understandably, concerned about the financial state of their school districts once the ESSER III money dries up.

Keeping ESSER III money for a rainy day, though, is not an option. ESSER III was specifically intended to help address urgent needs in schools arising from the pandemic, and school districts that do not obligate the money by the end of September 2024 will lose their remaining funds. Staffing shortages not addressed with ESSER III funds will only get worse as time goes on. It is vital for school districts to invest in their workforces during 2024.

When ARPA was enacted in 2021, the deadline to obligate and spend SLFRF and ESSER III dollars seemed very far away. State and local governments had plenty of time to make deliberate, careful decisions about how to use the money. The time for deliberation, however, is coming to an end. Governments need to act quickly to restore public services with the funds they have left before they lose them—forever.