Rescue plan

How the US Bailout Supports the ‘Submerged State’

In March last year, the US bailout invested $350 billion in a fiscal stimulus fund for state and local governments. Lately, ARPA only seems to get media attention when the center-left complains that it has funded tax cuts or triggered inflation. Critics who say it was over the top complain that it was “fighting the last war” – which ARPA overtook in its attempt to avoid the austerity of the Great Recession.

But ARPA is unrivaled in recent history as a flexible and open public funding program. A multi-purpose fund available to tens of thousands of governments nationwide, ARPA is the largest large-scale aid transfer in 50 years since the general revenue-sharing program President Nixon signed into law in 1972, which ended in 1986. ARPA is also larger than its $150 billion. predecessor, the CARES Act Coronavirus Relief Fund, which only went to state governments, cities and larger counties. This makes it a wealth of information for researchers studying public investment.

Amanda Kass, associate director of the Government Finance Research Center at the University of Illinois at Chicago, and Philip Rocco, a political scientist at Marquette University, broke down local government spending. The Perspective interviewed the researchers about their findings as part of our Twitter Spaces series. Audio is embedded below.

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Breaking the popular belief that ARPA money was sprayed indiscriminately, Kass and Rocco find that more than half of what was delivered to state and local governments has yet to be spent. Unspent money does not imply wasteful money – it may indicate a lack of administrative capacity, manpower, shortage of materials, or simply caution about spending money over a time horizon. four years. Of the money that was spent, some went to specific priorities like repairing lead pipes, while a large majority of small governments spent the money to replace lost revenue.

A frequent criticism of this recent revival of fiscal federalism is that it just gave Republican lawmakers like Ron DeSantis a cushion to pass tax cuts. The governor of Florida used about $200 million in federal aid to pay for the gas tax suspension. Still, this gas tax was planned, and DeSantis likely would have enacted tax cuts anyway in an election year, making ARPA’s fiscal stimulus fund especially important to prop up a state. -unhealthy providence.

“By focusing on tax cuts, you miss the flexibility of what it allows governments to do that isn’t tax cuts. A more narrowly tailored rule would have made it more difficult,” Rocco said. Also, he added, programs with stricter rules have been proposed and failed.

“The idea that you were going to put a program into ARPA that had 10 or 12 narrow categorical goals that was going to satisfy those coalitions seems naïve, when the request from the 7 major state and local government associations was for flexible aid” , did he declare. said. Yet the misuse of federal funds is a problem. Some states are using the money to repay their unemployment insurance trust funds, which they borrowed from the government to fund before. It’s the most devious debt cancellation in history – and also a tax cut for businesses, because otherwise they would be paying to replenish unemployment coffers.

Most small governments use all their ARPA money for revenue replacement, Rocco and Kass found. This use is intentional: the Treasury has allowed governments to claim up to $10 million in lost revenue due to the pandemic without having to prove that figure. In its guidelines, the Treasury has even encouraged local governments to use this standard allocation, as it is the least administratively burdensome way to use the money.

While the flexibility is great for understaffed local governments, it also means that if states and cities are doing new and interesting things with their revenue replacement money, it’s usually not reported at the project level. , so it won’t show up in the data. . This creates what political scientist Suzanne Mettler has called in other contexts a “submerged state”.

In general, ARPA has gone unnoticed, it does not even have a logo. Obama’s American Recovery and Reinvestment Act (ARRA) of 2009 had at least one symbol, which you can still see on buses. But ARPA’s poor readability has made it harder for the Biden administration to recoup its political investment.

“One of the challenges the Biden administration might have is telling a big story,” Rocco said. That said, “it’s not like the flexibility of reporting requirements prevents the Treasury from doing a little more research on local budgets. Look, just because they don’t report this stuff doesn’t mean you can’t go down and recover data.

“What is the political victory lap you want to achieve with this program? Do you want it to be infrastructure? About the COVID-19 response? To support decimated local governments? Kass said. “There is not a single political story to be told from the program.”

Listen to David Dayen and Lee Harris’ conversation with Philip Rocco and Amanda Kass by clicking on the links below:

Part 1:

Part 2: