On March 11, President Joe Biden signed into law the American Rescue Plan Act (ARPA), a nearly $2 trillion spending bill as a way to provide relief to state and local governments in funding their response to the COVID-19 pandemic. This makes $6 trillion spent by the federal government in the last 12 months.
The latest batch of federal funds will be disbursed in two parts: the first installment will be transmitted to states and localities sometime in May and the second will likely come a year later. ARPA is unique from most federal spending bills in that local governments will receive direct disbursements from DC, rather than through the state.
While state and local leaders await more developed guidance from the US Department of Treasury, liberty-oriented think tanks (including Maine Policy Institute) are getting out in front, requesting clarification on the specifics of how governments may use ARPA funds. Until then, state and local governments can make smart, efficient decisions with this new funding, being careful to focus on specific, one-time uses that will do the most good for their communities right now.
All told, Maine localities will receive nearly half-a-billion dollars, from as much as $57 million for Cumberland County and $48 million for the City of Portland, to about $1,300 for Frye Island and just under $300 for Glenwood Plantation. This does not include an additional $1 billion flowing to state government coffers.
The bill mentions how states may use the money: to aid businesses and nonprofits still reeling from the shock of pandemic shutdowns, give premium pay to frontline workers, invest in sewer, water, and broadband infrastructure, and replace lost state tax revenue.
ARPA also contains some explicit restrictions on how states and localities may spend the $600 billion injection of federal cash. While these rules will not fully solidify until the US Treasury issues its guidance, certain limitations are clear. For instance, ARPA funds may not be used on public pension systems.
States also may not use their ARPA funds “to either directly or indirectly offset a reduction in the net tax revenue…or delay the imposition of any tax or tax increase.” Local governments are not bound by the same restriction, so temporary relief to property taxpayers can, and should be on the table for local officials.
“Temporary” is the operative word, as ARPA provides a single injection of outside funds to towns, cities, and counties. This is why clarity and transparency will be crucial in the allocation and expenditure of this money. State and local officials should not view this haul as yet another excuse to pump up their preferred government program.
A temporary expansion of the state auditor’s office would be a prudent move to help protect against waste by strengthening oversight to how Maine’s more than 450 municipalities are spending their ARPA funds over the next few years.
A one-time upgrade to the information technology systems of the Department of Labor might be a worthy line item for an unemployment system that experienced numerous issues over the past year, dealing with skyrocketing claims and stressed staff, leaving thousands of struggling workers in limbo.
Localities might be interested in funneling much of their disbursement to the local school system, seeing the ways in which new funding could help shore up different aspects of running the district. In this manner, towns should not put these funds into extra staff or expanding or implementing new programs, since those types of expenditures will undoubtedly exceed the amounts granted in the ARPA, many years into the future. These entities would be wise to use their disbursements to beef up core governmental functions like record keeping, first responders, fire fighters, and crucial municipal infrastructure.
One-time grants for businesses and nonprofits struggling to stay afloat amid the state’s constant revenue-depressing restrictions and mandates might be helpful for local communities as well.
As previously mentioned, towns and cities are not prohibited from using ARPA funds to facilitate tax relief for their residents, whereas states are. Localites can provide relief by delivering a one-time exemption for their residents on personal property or vehicle excise taxes.
The fact is, many local governments are not carrying massive budget holes over from last year. As Marc Joffe writes for Reason, local governments derive most of their funding through property taxes, which unlike the Great Recession of 2008-09, remained relatively stable over the last 13 months.
Property taxes in Maine bring in more than $2 billion to fund school districts and local governments each year. Localities in Maine will receive roughly one-third of that sum from the federal government over the next year, but many are still raising taxes on their residents.
People don’t need any more government programs to grow and prosper, they just need fewer roadblocks. Local and state officials would be wise to use ARPA funds for direct relief and core public services. That includes tax relief. More money in peoples’ pockets means more for hiring, supporting, and investing in Mainers.