The American Rescue Plan Act (ARPA) was enacted on March 11, 2021. Among other provisions, ARPA allocated $350 billion for State and Local Fiscal Recovery Funds (SLFRF). SLFRF was a recognition of the stark reality that the COVID-19 pandemic had wreaked havoc on state and local government finances (McNicholas, Bivens, and Shierholz 2020). SLFRF was also a reflection of lessons that policymakers learned from recent history. In the years following the Great Recession, inadequate fiscal support to state and local governments resulted in massive budget cuts, public-sector job losses, and reduced spending that dragged on the economy, delaying economic recovery by years (Shierholz and Bivens 2013). With the prospect of potentially devastating COVID-19-induced state and local budget shortfalls, Congress and the Biden administration made the decision to spend at the scale of the problem by making sure SLFRF was large enough to meet its recipients’ needs.

Of the $350 billion in fiscal recovery funds, $195.3 billion went to state governments, $65.1 billion to counties, $45.6 million to cities, $20 billion to tribal governments, $4.5 billion to territories, and $19.5 to small units of local government, mostly towns and villages. They could use the funds for five purposes: responding to the public health emergency caused by COVID-19; responding to the negative economic impacts of COVID-19; providing premium pay to “essential” workers; improving water, sewer, and broadband infrastructure; and replacing public-sector revenue lost by the economic downturn that accompanied COVID-19. Recipient governments had until December 31, 2024, to obligate those funds and until December 31, 2026, to spend them.

By any objective assessment, SLFRF was a transformative success. It averted a potential crisis. It empowered state and local leaders to address long-standing community needs. It helped millions of working families. It saved lives during the COVID-19 pandemic. The design and implementation of SLFRF offer many important lessons to future policymakers.

This report will highlight the smart design of SLFRF, which made it well positioned to address the needs of state and local governments in 2021 and beyond. The report will also note ways in which future policymakers could improve upon SLFRF’s design. The report will describe how SLFRF funds were deployed, showcasing the breadth and variety of uses to which they were put. State and local fiscal recovery funds were a vital part of the U.S. economic recovery post-2020. They provide a shining example of what government can achieve when it has adequate resources, and when the needs of communities and families are the main drivers of investment decisions.

SLFRF played a vital role in preventing a second Great Recession

The pandemic recession that began so suddenly in March 2020 was the biggest economic shock the country has seen since the Great Recession that started in 2008. Comparing the distinctly different policy responses to those two crises demonstrates how important SLFRF was to speeding the economic recovery and to preventing a second Great Recession.

First, SLFRF was vital in preserving and rebuilding the public-sector workforce. In the wake of the Great Recession, state and local governments faced devastating budget cuts that resulted in significant reductions in staffing and services. All faced fiscal crises because of sharp revenue declines caused by the Great Recession, but public services were further strained in many states by deliberate policy decisions, predominantly by Republican-controlled state governments, to cut taxes and slash public services (Cooper, Gable, and Austin 2012). State and local government employment peaked in July 2008, then fell for five straight years. It took a total of 11 years to reach July 2008 levels again (Cooper 2020). By contrast, the peak in state and local governments jobs before the pandemic was in February 2020. By October 2023—just three years and eight months later—state and local public sector employment had fully recovered to pre-pandemic levels.

In the first year following the passage of ARPA, there is evidence that the pace of a state’s SLFRF spending was positively correlated to the recovery of its public workforce:

After that, the direct correlation between SLFRF spending and public-sector jobs faded, but that is hardly surprising, given all the other variables that impact job markets.

Second, this rapid recovery mirrored the recovery of the overall job market. The typical U.S. state needed 77 months after the start of the Great Recession for its job numbers to recover; it only took 29 months after the beginning of the COVID-19 pandemic for the same level of recovery. Of course, SLFRF was hardly the biggest factor in the overall economic recovery, but Cooper (2020) has shown that disinvestment in the public sector drags on growth in the private sector as well, and on economic growth overall. SLFRF supported conditions that made the private-sector economic recovery possible.

Third, SLFRF allowed states and localities to enact programs of social insurance and income support that directly responded to immediate community needs. In just the first two years of SLFRF’s operation alone, more than 4.5 million households received mortgage, rent, or utility assistance. Emergency programs offered housing to people who had been displaced by the pandemic and direct government assistance to food pantries and other programs that helped people facing food insecurity. These programs were valuable tools for helping working families in need.

Fourth, SLFRF has helped state and local governments and communities become more resilient against future downturns. Many states upgraded their unemployment insurance (UI) systems to make it easier to cope with an influx of claimants in the future. Some local governments created greater tenant protections and used recovery funds to give tenants facing eviction the right to free legal counsel. Several cities invested in pre-apprenticeship programs to help people in underserved communities gain access to high-quality infrastructure and climate jobs. These investments and others like them will help state and local governments to quickly distribute social insurance benefits when the next crisis hits and provide additional safety for working families put in jeopardy through job loss, illnesses, or natural disasters. (Kamper 2025).

SLFRF’s innovative program design meant funds could be used where they did the most good

The SLFRF program had two unusual characteristics that helped make it successful.

First, unlike previous iterations of state and local aid, SLFRF funds went directly to individual state and local governments. While payments to smaller cities were distributed first to states and then passed on to those cities, states were prohibited from imposing conditions on that distribution and could not hold back the payments; their role was purely administrative.

On previous occasions when federal money was allocated to local governments, it was much more common for the state government to hold federal aid on behalf of local governments. This was, for example, the mechanism behind the COVID-19-era financial assistance to school districts: the Elementary and Secondary Schools Emergency Relief Fund (ESSER, which had three iterations in 2020 and 2021, called ESSER I, ESSER II, and ESSER III respectively). A state’s department of education held ESSER funds and only parceled them out to school districts after the district had made a qualifying expenditure. The districts were not free to spend ESSER funds on their own. With SLFRF, however, recipients received funds before they needed to make expenditures and had complete control over how to use them.

This leads to a second important characteristic of SLFRF: Recipients were given broad latitude in how to use their funds. Under the legislation and the rules put out by the U.S. Department of the Treasury, SLFRF could be used for:

1. responding to the public health emergency caused by COVID-19
2. responding to the negative economic impacts of COVID-19
3. providing premium pay to “essential” workers
4. improving water, sewer, and broadband infrastructure
5. replacing public-sector revenue lost by the economic downturn that accompanied COVID-19

In 2023, the eligible uses for local governments were broadened to include government-built (or renovated) housing, surface transportation projects, and natural disaster relief, though in the end only a small share of recovery funds was used for those purposes.

Treasury rules also made the process simpler for smaller local governments by allowing up to $10 million to be used as public-sector revenue replacement without having to account for specific losses of funding—the SLFRF equivalent of the standard deduction on one’s taxes. Those rules also made clear that “negative economic impacts” could include existing inequities that predated the pandemic, such as long-standing racial employment and wage gaps (Economic Policy Institute 2025).

The combination of these two characteristics—state and local governments had the money within their control before making spending decisions, and great latitude in how to use it—meant that recipients could tailor the focus and pace of SLFRF spending to meet particular local needs. Given the extremely fluid state of the pandemic and the economy when ARPA was passed, this was the right decision to meet the pressing needs of the COVID-19 crisis. Overly prescriptive rules or additional bureaucratic hurdles to accessing and disbursing funds would have made it much harder for state and local recipients to respond rapidly to their specific needs.1

Lessons to apply for future policy design

Despite the great freedom given to recipients to use SLFRF in ways that best met their needs, of the roughly 31,000 local government recipients, almost 600 local government recipients did not report using their fiscal recovery funds at all and a further 600 reported using less than 99%. Another 220 local governments failed to file a single report on their use of fiscal recovery funds, and 1,089 more have been delinquent in filing for at least a year.

At least part of the explanation is that while ARPA guidance allowed for fiscal recovery funds to be used for myriad reasons, recipients (especially smaller local governments) with little experience in receiving money directly from the federal government often struggled to understand Treasury rules on allowed uses of funds. Unlike state governments with experienced personnel deeply versed in Treasury’s complex rules and how to navigate them, many local governments had no such in-house expertise. Advocacy organizations reported, again and again, that even in 2024, as the deadline to obligate ARPA funds was approaching, many local policymakers were still raising questions about how funds could be used and what was allowed (Rochford, Bauer, and Wallace 2024).

Relatedly, Treasury officials who talked with EPI noted that many of the smallest local governments did not have a website or internal email system. Because all SLFRF reporting was supposed to be done electronically, some of these recipients struggled to properly report their expenditures. Sometimes the departure of a single municipal official created significant problems because that person was the only one who knew the electronic passwords.

An abundance of reports from across the country make clear recipients struggled to choose from among many appealing options, creating a kind of paralysis of choice. This is completely understandable; the needs communities were facing at this time were myriad and diverse, and prior to SLFRF, most local government officials had likely never had access to such flexible resources before then.

These challenges were exacerbated because the Treasury Department made a conscious decision not to offer specific technical assistance regarding recipient governments’ possible uses of fiscal recovery funds. When local government officials reached out to Treasury to seek guidance on whether a particular idea was within the scope of the law, Treasury rarely offered definitive answers. This was understandable given that more than 31,000 governmental units received their own fiscal recovery funds; Treasury could not possibly handle detailed queries from more than a fraction of them. What this meant, though, is that many opportunities to use fiscal recovery funds in innovative and imaginative ways were missed. Many local governments chose caution over ambition, out of fear that particular uses of the funds would not be permitted and the funds rescinded.

To prevent a similar situation in the future, policy designers might do well to study Colorado’s Regional Grant Navigator program. Colorado chose 13 community and nonprofit organizations across the state to help local governments find ways to best access funds from the 2021 Infrastructure, Investment and Jobs Act and the 2022 Inflation Reduction Act. These navigators helped local governments understand the complex regulations around the laws, helped them design proposals to apply for funding, and offered advice on which programs might be best suited to the needs of those communities (Colorado n.d.). A similar model might allow local governments to get unbiased and timely assistance from organizations committed to helping them make the most of their funds.

A final challenge of the SLFRF policy design was the lack of clear definition of what “obligating” the funds meant. As advocates, policymakers, and others reported throughout 2022, 2023, and 2024, many local governments understood “obligation” to mean something similar to “budgeting” or “allocating”—making a formal decision as to how to use the funds (Kamper 2024). Recipients unfamiliar with the language used by Treasury could and did make that mistake. It was not until May of 2024 that Treasury explicitly stated in a webinar that “obligating” funds is not the same thing as budgeting (Treasury 2024). “Obligation” required not just a budgetary decision, but concrete steps to implement the decision, such as signing a contract with a vendor or an interagency agreement to send the funds to a particular department. Future fiscal recovery efforts should be more conscious of the need to clearly define terms, especially when plain-language definitions may not match Treasury’s technical definition.

How were fiscal recovery funds used?

General spending trends

The primary use of fiscal recovery funds—approximately 50% of state allocations and 60% of local government allocations—was revenue replacement, (replacing state and local funds that were lost because the economic shock of COVID-19 reduced tax and fee revenues). Revenue replacement had not been an allowed use of previous iterations of COVID-19 fiscal relief funds. Most notably the CARES Act, the first COVID-19 relief measure passed in 2020, did not allow use of Coronavirus Relief Funds for revenue replacement.

State and local governments face considerable constraints on their ability to raise revenues. Measures like Colorado’s Taxpayer Bill of Rights and California’s Proposition 13 often prohibit states from raising taxes or require legislative supermajorities to do so (Jefferson 2025). Local governments face even more constraints, with few policy levers available to raise revenues. As such, any shock to state and local government revenues can take a long time to reverse, a lesson we learned in the aftermath of the Great Recession. By allowing revenue replacement, SLFRF made it much easier for state and local governments to maintain adequate levels of funding, even as the pandemic recession lowered income from taxes. Revenue replacement was an important innovation in ARPA that should be replicated in the future.

Although the interim rules for ARPA put out by Treasury soon after the law was enacted required complex accounting of lost revenue, the final Treasury rule made the process much easier. For amounts less than $10 million, recipients did not need to calculate lost revenue. They could simply designate funds as revenue replacement and use them as needed. The appeal of this rule to local governments is evident in data summarizing subsequent uses of SLFRF; the smaller a recipient government, the more likely they were to use their fiscal recovery funds for revenue replacement.

After revenue replacement, the next most popular use of SLFRF was addressing negative economic impacts of the pandemic. Once again, the flexibility given to recipients under this category was almost certainly a key factor encouraging use of funds for such purposes.

Infrastructure was the third-largest use of fiscal recovery funds, and here there is a notable regional variation—state and local governments in the South allocated a far greater share of their funds to infrastructure than those in the rest of the country. In particular, 82% of all state funds obligated for broadband were in Southern states (not shown in Figure A).

Not only is water and sewer infrastructure essential for people’s health, these investments are vital to a well-functioning economy. As EPI has extensively documented in its Rooted in Racism series, Southern states have long underinvested in in basic physical infrastructure (Childers 2023–2025). These spending choices likely reflect, at least in part, a need to address the long-standing underinvestment in the region—underinvestment driven by Southern lawmakers’ antipathy toward raising adequate revenue.

Aside from infrastructure spending in the South, there are no clear regional trends in how fiscal recovery funds were used. This is not surprising, given the flexibility of the funding (a feature EPI has long supported) (Bivens 2020). When ARPA was enacted in early 2021, there was simply no way for the federal government, or state and local governments, to know what their needs would be. ARPA’s flexibility was the right decision. The ability of recipient governments to immediately fill unanticipated budget holes via revenue replacement meant hundreds of thousands of state and local jobs were preserved, vital public programs were maintained, and a deeper economic crisis averted. The most notable success of ARPA SLFRF lies in what did not happen: a collapse in basic public services, massive long-term unemployment, and an extended economic depression.

Innovative SLFRF investments supported working families

In all, SLFRF funded more than 159,000 different projects across the country. Some were gigantic, like a $787 million program in New Jersey to provide rental assistance to low- and moderate-income tenants, and some were very small, like the $28 that St. Clair County, Michigan, provided to help renovate the Port Huron Township Museum.

There are many examples of state and local governments using fiscal recovery funds to make transformative investments to build an economy that supports working families. Several types of uses deserve special attention: fighting the COVID-19 pandemic, investing in public health, and addressing problems with food access and nutrition.

First, ARPA SLFRF went a long way to address the health emergency the country faced in 2021. States, cities, and counties were on the front lines of keeping people safe, providing access to new vaccines once they became available, and saving lives throughout the COVID-19 pandemic.

Over $1.8 billion in SLFRF was used to test, trace, and vaccinate people against COVID-19. Much of this money was used to deal with the practical and logistical challenges of testing and vaccination. Cities and counties, especially, bought personal protective equipment for government employees, especially first responders. Scores of governments purchased testing kits and lab equipment and worked to engage the public to encourage vaccination and tracing outbreaks. For example, Milan, Illinois, rented a meeting hall in town for $43,200 to host their vaccine clinic. Jefferson County, Missouri, hired a nurse for every public school district to oversee a contact-tracing program to track COVID-19’s progress through schools. Monroe County, Indiana, was one of many governments that instituted wastewater monitoring to check for COVID-19 surges While any individual expenditure may seem minor, together these measures did much to reduce COVID-19 infections and deaths.

Second, SLFRF allowed recipient governments to make long-term upgrades to infrastructure that both mitigated COVID-19 threats and made public spaces permanently safer, healthier, and more accessible. Almost $4.3 billion was obligated to upgrade the air quality and safety of public and private facilities. At least 550 projects upgraded HVAC systems in schools, nursing homes, public buildings, and correctional facilities. Governments invested in digital communications tools to reduce the need for in-person meetings. Typical examples include Peoria, Arizona, which allocated $124,996 to install touchless drinking fountains in public buildings, and Stafford County, Virginia, which spent $115,255 to add a glass partition to the entrance of the Commissioner of Revenue’s office so that the administrative staff could be protected from visitors’ virus transmission.

The freedom given to local governments to innovate was particularly evident in the way multiple localities sought to address problems related to food access and nutrition—an issue that has received tremendous public attention resulting from New York City Mayor Zohran Mamdani’s plan to establish municipally operated grocery stores. While one commentator claimed such a project would resemble “the old Soviet Union” (McArdle 2025), the fact is that many SLFRF recipients used public funds to increase access to food for low-income communities, including by opening their own stores.

For example:

• Sioux Falls, South Dakota, set up a mobile grocery market that would operate in underserved parts of the city.
• The small town of Cutler, Illinois, set up a Community Commissary to make it easier to buy food without having to travel a long way.
• Branson, Colorado (population 74 in the 2010 census), constructed a community greenhouse to grow and sell fresh fruits and vegetables for the town and school.
• Charleston, West Virginia, opened a community grocery store that would provide access to fresh groceries for 14,000 residents, and the city of Austin, Texas, did something similar.

There were, in addition, scores of grants to food pantries and other nonprofits that help people find the food they need. The proposal for New York City fits well with how these communities used SLFRF to address food access.

Above are just a handful of the tens of thousands of useful projects made possible by fiscal recovery funds. Some uses were more effective than others, however. For example, although modernizing state unemployment insurance systems was a useful endeavor (see above), more than $22 billion was also spent replenishing state unemployment insurance trust funds, which was unnecessary. UI trust funds hold UI taxes paid by businesses, to make sure funds are available to pay UI claims during spikes in unemployment. While those funds had, indeed, been depleted by the pandemic recession, state UI trust funds are designed to be self-correcting.2 They have automatic mechanisms to raise employer payroll taxes when the trust fund has been drawn down, to rebuild the funds and be prepared for future downturns. It was wholly unnecessary to use fiscal recovery funds to refill trust funds that would have returned to full strength on their own. Spending SLFRF to refill trust funds was a missed opportunity to support economic growth and strengthened public services (Banerjee, Martinez Hickey, and Sawo 2021). Future fiscal recovery projects should not make refilling UI trust funds an allowed use, though they should continue to support modernization of and upgrades to UI systems.

SLFRF accomplished its goals without driving inflation

Finally, it is worth noting that, despite politically motivated claims to the contrary, there is little evidence that SLFRF, or indeed the entire $1.9 trillion American Rescue Plan, was a significant contributor to inflation. As Bivens, Banerjee, and Dzholos (2022) show, the rise in inflation starting in 2022 was a global phenomenon, one that impacted countries, regardless of whether they provided fiscal relief to their economies during COVID-19. Nor was inflation correlated with the rapid decrease in unemployment the U.S. saw, thanks in part to ARPA. Rather, inflation was primarily driven by the dramatic supply shocks to various sectors of the economy caused by COVID-19, and then exacerbated by the Russian invasion of Ukraine in early 2022. Given the scale of the crisis policymakers were confronted with in early 2021, they were right to spend at the scale of the problem, and critiques blaming that spending for inflation are not backed up by the data. Moreover, policy measures that prioritized lowering inflation would have led to either lower employment or lower real wage growth, as there was no policy option that would have lowered inflation, increased wage gains, and supported the strong job growth of 2021–2024 (Bivens 2024).

Conclusion

ARPA’s State and Local Fiscal Recovery Fund was a great success. By spending at the scale of the problem, the federal government aided the economic recovery, supported the maintenance of public services, and gave myriad governments the chance to make innovative choices that have improved the well-being of their communities. A smaller SLFRF would have slowed our economic recovery and made governments more cautious about enacting bold policies to protect working families.

By giving recipient governments so much flexibility in using the funds, the Biden administration allowed every state, county, city, territory, and tribal government to fashion the response most appropriate to their particular needs. When faced with a crisis that had so much unpredictability, this was the right decision.

We don’t know when the next economic downturn, global pandemic, or climate disaster will hit. Whenever it does, federal policymakers should seek to emulate the model set by ARPA.

Notes

1. The devastating Flint, Michigan, water crisis of the 2010s is a prime example of a situation in which too many bureaucratic hurdles worsened a disaster. Flint was facing a serious fiscal crisis and therefore lacked the internal capacity to apply for federal funding (which they would have received) that might have prevented lead contamination of the water supply. See GAO 2015 for more details.

2. At least they should be, provided policymakers have set adequate UI tax base rates. See Perez 2025 for more information.

References

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