The Treasury Department just released new data on state and local American Rescue Plan spending. Here’s what we’re learning.

July 26, 2022

By Philip Rocco and Amanda Kass 

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On July 18, the Treasury Department released the second batch of data on how state and local governments are using their funds under the Coronavirus State and Local Fiscal Recovery Funds Program (SLFRF), a $350 billion program contained in the American Rescue Plan Act. Drawing on this data, this post updates our analysis of the first batch of Treasury data, which covered the activities of 1,756 governments through the end of 2021. The new data provide a glimpse into the activities of 27,341 governments through the end of March 2022 (referred to as the “Q12022” data).

Our analysis of these data suggests that governments have collectively obligated 45% of the first tranche of SLFRF funding. Still, state and local governments have devoted the bulk of their spending to activities with minimal administrative burdens, including and especially the replacement of lost revenues. By contrast, governments remain—on the whole—less likely to spend on new projects or programs, including policy priorities articulated by the Biden administration earlier in the 2021, including in the area of community violence intervention (CVI).

National Trends in the Obligation of SLFRF Dollars

In total, 27,341 governments provided P&E reports to Treasury for Quarter 1 of 2022. That includes the fifty states and Washington, D.C., 4 territories, as well as 27,286 units of local government. Unlike the previous report, which covered spending through the end of 2021, the most recent report includes not only large metropolitan cities and counties, but a large number of smaller local governments, including 1,567 in reporting group Tier 2, which are places with less than 250,000 residents but received more than $10 million in SLFRF aid, as well as those in reporting Tier 5, which includes small “nonentitlement” units of government (NEUs) that received less than $10 million in SLFRF aid.

In general, the SLFRF aid is delivered to governments in two tranches,¹ and the total amount of money these governments received as of March 31, 2022, was $223.9 billion. So, by the end of Q1 in 2022, these governments had collectively obligated 45% of the SLFRF aid they had available to spend.

One pattern that became immediately apparent to us is that local governments tended to obligate a larger share of aid than state or territorial governments. As the table below suggests, this trend is being driven by the smallest reporting units in the Treasury data. By the end of March 2022, Tier 5 local governments had obligated approximately 80% of their first tranche of aid. By comparison, Tier 1 local governments obligated about 50% of their first tranche. As we will see, the reason for this is that smaller units of government tended to obligate a larger share of their aid towards revenue replacement as opposed to new projects.

How Governments are Obligating SLFRF Dollars

In our second blog post, we noted that the first year of data on SLFRF revealed that both state and local governments spent allocated the majority of their obligations in the least administratively burdensome ways that Treasury’s final rule would allow. To a large extent, data from first quarter of 2022 shows a similar pattern. When we break down the data by expenditure category groups, we see that—for state governments—revenue replacement accounts for 43% of total obligations.² Along with spending on programs to alleviate the negative economic impacts of COVID-19, revenue replacement represents the largest share of states’ obligations.³

For local governments, obligations on revenue replacement dwarf those in all other categories. As of March 31, 2022, revenue replacement accounted for 70% of total obligations reported by local governments—more than all other Expenditure Category groups combined.

Revenue replacement is the single largest expenditure category for all local governments, as the table above shows, but this is especially true for governments in Reporting Tier 5, which is composed of the smallest metropolitan cities and counties as well as even smaller nonentitlement units (NEUs) of government. Within this tier, 93% of obligations went to revenue replacement. Given that these small units of government often have limited administrative capacity, the heavy use of the revenue replacement category makes sense. Tellingly, 92% Tier 5 units of local government used the Treasury Department’s administratively simplified “standard allowance” rule for revenue replacement, which allows governments to claim up to $10 million in lost revenue without completing a full revenue loss calculation. By contrast, only 69% of Tier 2 cities, 30% of Tier 1 cities, and 10% of state governments used the standard allowance for revenue replacement.

When we break down the data further to the level of individual expenditure categories, the results from the group-level analysis hold up. The tables below illustrate the largest expenditure categories for state and local governments. Aside from revenue replacement, these tables show that state governments’ second largest expenditure category was, as before, contributions to Unemployment Insurance trust funds. For local governments, the second largest share of obligations went to premium pay for public sector employees, as it did in the 2021 data. Again, the data would seem to confirm our preliminary conclusion that governments have thus far have obligated the largest share of their first tranche obligations towards the least administratively burdensome purposes.

(a) Top 10 Expenditure Categories for State Governments (Q12022 Data)

(b) Top Ten Expenditure Categories for All Local Governments (Q12022 Data)

Consistent with the findings in our prior blog post, the Treasury data reveal comparatively fewer dollars obligated to other types of allowable uses under SLFRF. This includes uses that have been emphasized by the Biden administration, including community violence interventions (CVI) programs which identify those who are at the highest risk of experiencing violence and work to reduce violence through targeted interventions (more about these programs can be can be found here and here).

As of March 31, 2022, state governments had obligated $83 million of SLFRF aid to the CVI expenditure category.⁴ Local governments had obligated $103 million to CVIs, though the majority of this spending was concentrated within cities Tier 1 cities.

Conclusions

To sum up, our preliminary analysis suggests that many of the same dynamics we observed in the first batch of 2021 data are present in the data from the first quarter of 2022.

First, reported obligations tend to be concentrated in areas such as revenue replacement that have comparatively low levels of administrative burden (including premium pay for public employees and, for states, deposits in Unemployment Insurance trust funds). This is especially true for smaller units of government with lower levels of administrative capacity, many of which opted to claim revenue replacement funds under the $10 million “standard allowance”.

Second, standing up new programs—including Biden administration priorities such as CVI—continues to proceed apace, but slowly. As of the end of March 31, 2022, state governments had obligated $83 million to CVI projects (roughly 0.13% of their total obligations). Local governments had obligated a total of $103 million to CVI projects (roughly 0.29% of their total obligations).

In sum, while governments have continued to spend out SLFRF dollars, the multi-purpose nature of the aid means that spending decisions will continue to depend on how elected officials weigh numerous fiscal challenges and public needs.