In response to economic challenges stemming from the pandemic, the Biden-Harris administration and Congressional Democrats set up the first program in U.S. history to provide flexible fiscal relief directly to small and mid-sized counties and cities, in addition to states, Territories, and Tribal governments. This American Rescue Plan program, known as the “State and Local Fiscal Recovery Funds” (Recovery Funds), gave governments across the country both the resources and the flexibility to invest in local needs. The program has brought billions of dollars to areas that previously haven’t accessed high levels of federal investment and has provided evidence that, when given access to adequate federal funding, local leaders will make investments that drive the U.S. economy from the ground up.
Public investment is key to economic recovery and growth
Public investments have been shown to stimulate economic activity, raise the productivity of existing physical and human capital, boost private sector output, and increase employment. Research shows a strong association between public investment and higher annual Gross Domestic Product (GDP) and private sector productivity. Moreover, a 2021 analysis by the Congressional Budget Office found greater public investment in physical infrastructure in the U.S. would lead to higher levels of private sector productivity, as well as economic growth that would increase federal revenues and bring down long-run net public spending costs.
Despite these benefits, a 2018 study found that public investment in GDP-adjusted dollars had declined by roughly 40 percent since 1968. After the Trump administration failed to reverse this trend, the Biden-Harris Recovery Funds helped begin a new era of public investment.
The Trump administration did not invest in long-term solutions for local economies
Before the pandemic, former president Trump repeatedly sought to eliminate federal support for community development, including for rual and farming communities. For example, the former president’s last budget would have cut critical programs for rural communities and farmers, such as funding for rural broadband, transportation, and water infrastructure. Researchers have also found the Trump administration’s trade war harmed U.S. agricultural employment.
The Trump administration also impeded funding for state governments during the pandemic. Top Trump administration officials sought to block funding for states’ vaccine rollouts in the fall of 2020, fought against support for state governments shouldering the pandemic response, and delayed signing major legislation that provided Americans with economic relief. Each of these decisions threatened the nation’s prospects for a return to normalcy and a strong economic recovery.
With Recovery Funds, local leaders are laying the groundwork for economic prosperity
While the past administration’s policies left many communities without a path for economic growth, states and localities have used the Biden-Harris administration’s Recovery Funds to meet constituents’ needs. The Joint Economic Committee (JEC) Democrats’ analysis of Recovery Fund reporting data shows that—in addition to funding for COVID relief efforts—states and localities directed a significant amount of Recovery Funds to infrastructure, affordable housing, workforce training, education, and child care. Key findings from this analysis are below.
States and localities have used Recovery Funds to invest in education and the workforce
Public investment can enhance Americans’ futures by supporting education and families. Research shows that high-quality and well-funded training programs lead to significantly higher earnings for workers. Investment in early childhood education—including in child care and pre-K— has been shown to have immediate and long-term benefits for the economy. Moreover, investments to address educational disparities and services for underserved schools can lead to significant societal and economic returns.
Under the Recovery Funds program, states and localities could invest in people’s education, skillsets, and child care to assist individuals through projects that went beyond the immediate impacts of the pandemic. The JEC Democrats analyzed funding categories related to investments in workforce and training assistance for under-employed and unemployed individuals, child care and early education support, and in addressing educational disparities. Findings below show that, when compared to other states, Arizona has directed the largest proportion of its funds (12%) and the greatest amount of funding ($832 million) to child care, education and workforce initiatives. New Mexico is also among the top states to invest the largest fraction of its recovery funds into supporting its workforce.
