Two years later, American Rescue Plan funds are still a transformative resource: State and local governments—particularly in the South—should invest unspent funds in workers, families, and communities
The American Rescue Plan Act (ARPA) celebrated its second anniversary on March 11. In those two years, ARPA has supported a strong economic recovery and, through its provision of $350 billion in State and Local Fiscal Recovery Funds (SLFRF), allowed state and local governments to make transformative investments in their communities.
At the time of President Biden’s inauguration on January 20, 2021, the U.S. economy had recovered less than 60% of the 22 million jobs lost during the pandemic recession. Overall, 26.8 million workers—15.8% of the workforce—were either unemployed, out of work due to the pandemic, or employed but experiencing a drop in hours and pay. Additionally, key economic indicators suggested that the economic recovery had begun to reverse.
The American Rescue Plan Act was both a vital emergency measure that helped the nation through the worst of the COVID pandemic and a significant step toward addressing the nation’s economic inequalities. The $1.9 trillion package provided fiscal relief at the necessary scale to counteract the negative economic impacts of COVID. As a result, 2021 and 2022 saw the highest job growth of any of the past 40 years.
As ARPA enters its third year, state and local policymakers should use their remaining SLFRF dollars to rebuild public-sector workforces and support low-wage workers and their families. In particular, many Southern states have significant amounts of unspent funds, and workers, families, and underfunded public services could greatly benefit from the local economic boost SLFRF investments allow.
Transformative investments at the state and local level
During ARPA’s second year, many governments used SLFRF dollars to tackle deep inequities in their communities, not just to deal with the immediate challenges of the pandemic but to make transformative investments whose benefits will last long into the future. There are many notable examples, among them:
- The Merrimack Valley Regional Transit Authority in Massachusetts used ARPA money to eliminate all bus fares and expand staffing and equipment to increase the number of buses and routes. Ridership is up 40% since fares were eliminated.
- Colorado created an innovative program to extend unemployment insurance to undocumented workers, ensuring that undocumented low-wage workers and their families will be supported if they lose their job through no fault of their own.
- The City of Detroit approved a right to legal counsel for renters facing eviction, helping keep tenants in their home and ensure due process for low-income residents.
- Johnson County, Iowa, and several cities within the county appropriated just over $400,000 for wage theft co-enforcement in partnership with the Center for Worker Justice of Eastern Iowa, after research from EARN partner Common Good Iowa showed the pervasiveness of wage theft.
- The city of Charleston, West Virginia, used ARPA funding for a community grocery store in an underserved Black community.
These examples demonstrate the range of possible uses for SLFRF dollars, and the innovation of advocates and policymakers in devising solutions for the challenges facing different communities across the country. Above all, they show that every state and local government has ample opportunities to use SLFRF dollars in creative and equitable ways.
Remaining funds should strengthen the public sector and support working families and children
While SLFRF dollars can be spent through the end of 2026, they must be obligated (designated for specific uses) no later than December 31, 2024. Given that most state governments will decide their budgets long before then, the upcoming year will be many state and local governments’ last chance to decide how to use these important funds.
An important focus needs to be rebuilding the public sector. In the past year, while total nonfarm employment grew by 3.0%, state and local government employment grew by only 1.6%. State and local government workforces are 2.3% smaller than they were at the start of the pandemic, and most, even prior to the pandemic, had never fully recovered from the austerity that followed the Great Recession of 2008–09.
The shortfall in state and local government jobs is driven in large part by the inadequate wages paid to public-sector workers. Fully one-third of state and local government workers are paid less than $20 an hour, and 15% are paid less than $15 an hour. Black and Hispanic employees are especially likely to be paid inadequate wages in the public sector, which also employs 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, non-teaching peers. These workers need a raise, and state and local governments can use SLFRF dollars to support pay increases for their workers.
Rebuilding public-sector workforces will also allow state and local governments to restore and strengthen public services that are in too many cases stretched beyond their capacities. Policies that support adequate housing in low-income communities, raise wages for care workers and public servants, and address persistently high unemployment among Black and brown workers would all be valuable uses of state and local governments’ remaining SLFRF budgets. A strengthened public sector can implement such policies effectively and raise living standards for working families.
Focus on the South
No region of the country has spent a lower share of SLFRF dollars than the South. Six Southern states—South Carolina, Oklahoma, Mississippi, Tennessee, Georgia, and Florida—have spent less than 10% of their SLFRF dollars. These are states with particularly high rates of poverty and economic hardship among families. Only two states, Maryland and Texas, have spent more than half of their available SLFRF dollars.
It is especially important that Southern states invest these dollars in their workers and families given higher poverty rates, lower overall earnings, and large economic disparities between Black and white Southerners. In the South as a whole, median annual earnings were $50,542 in 2021, lower than national median earnings ($53,888) and much lower than median earnings in the West ($59,009) and the Northeast ($62,926). This has translated into higher poverty rates. While the poverty rate nationally is 12.8%, it exceeds 19% in Louisiana and Mississippi and is above 16% in Alabama, Arkansas, Kentucky, and West Virginia. Black Southerners experience even higher poverty rates exceeding 30% in states like Mississippi and Louisiana. Remaining SLFRF dollars should provide targeted economic support to impoverished children and families.
SLFRF dollars should also be used to rebuild the public sector in the South, which would improve the economic status of Black and brown workers and women, who are disproportionately employed in the public sector. Since the start of the pandemic, public-sector employment is down 7.2% in West Virginia, 6.9% in Louisiana, and 4.3% in Mississippi. Over the long run, states like Kentucky, for example, have seen public-sector employment fall by one-third over the past three decades.
The low wages that have contributed to a public-sector jobs shortfall nationally are even lower in the South. In many states across the South, more than 20% of public-sector workers are paid less than $15 per hour, and that figure rises to 25% in Louisiana and 29% in Mississippi.
Beyond low wages, overall job quality is worse for Southern public-sector workers than in other regions after accounting for factors like health insurance and retirement plans. In Virginia, for example, public-sector workers’ total compensation is 28% lower than their private-sector counterparts. Kentucky had previously been able to attract and retain workers despite low earnings due to the presence of a defined benefit retirement plan for state workers. This plan was replaced in 2014, however, with a riskier, lower-quality plan. As many states across the South are seeking to make cuts in public spending while simultaneously eroding already weak collective bargaining rights of public employees, there has been a race to the bottom in the benefits packages that public-sector workers receive.
Investment in quality public services in the South is needed to improve the lives of working families. One example of ways that SLFRF dollars have been used in the South include a coalition of moderate and progressive Louisiana organizations using the “Recovery Agenda for Louisiana,” drafted by the Louisiana Budget Project, to win $60 million in ARPA funds for early childhood education and essential health care workforce training. An example of using SLFRF dollars to support public-sector workers can be found in North Carolina, where the state used SLFRF dollars (along with other funds) to provide one-time bonuses to school personnel. More Southern states and localities should follow these examples and use remaining SLFRF dollars to improve public services, rebuild the public-sector workforce, and boost wages and benefits for public-sector workers.
Heading into its third year, ARPA continues to provide essential resources to aid the economic recovery. Policymakers at the state and local level across the country should use this next year to decide how to allocate their remaining SLFRF dollars. The opportunity to make transformative investments remains, and policymakers should seize the moment to rebuild the public sector and improve the lives of working families.
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