The American Rescue Plan Act (ARPA) was signed into law nearly two years ago. Alabama’s state government directly received $2.1 billion in federal COVID-19 relief funding under the act, the first half allocated during a January 2022 special legislative session.
Alabama’s approximately $1 billion remaining stimulus funds will likely be allocated in the coming weeks. What are lawmakers likely to spend the money on?
The top priority should be providing economic relief to Alabama citizens and business owners. Beyond that, legislators should look to one-time projects of significant statewide need.
A recent change in federal COVID spending guidelines could impact how the money is spent. The FY 2023 omnibus appropriation act, enacted in late December, included provisions providing more flexibility to state and local governments in spending pandemic relief funds. The biggest expected change is that governments will be able to spend ARPA funding on expenses not directly related to the COVID-19 pandemic.
“The omnibus bill had language in it that seems to provide more leeway, and that opened up different interpretations on how the money can be spent, but we have not received further guidance from the treasury,” Sen. Greg Albrittion (R-Range), chairman of the Senate General Fund committee recently said. Sen. Arthur Orr (R-Decatur) echoed these sentiments, noting that there are now more spending options, but where lawmakers “wind up is to be determined.”
While the U.S. Treasury will not publish final guidelines until the end of February, the changes are expected to allow state and local governments to use a portion of their ARPA funds for infrastructure projects, and an unlimited amount for natural disaster relief. Given recent tornado outbreaks in Alabama, state government could supplement Federal Emergency Management Agency funds with ARPA dollars.
The best indication of how lawmakers may spend the remaining $1 billion in ARPA funds is to revisit how the first half was allocated.
The construction of two new state-run prisons have swallowed $400 million in ARPA funds. Shortly after the funding plan was announced, more than 60 inmates filed a lawsuit challenging the use of stimulus funds to construct prisons. That lawsuit is not concluded, but the expected Treasury rule changes could clarify that it is an allowable use of ARPA money.
The state also attempted to sell $725 million in bonds to complete the prison construction projects. The sale came up more than $200 million short, meaning that a hole remains in the budget. The impending ARPA spending guideline changes could mean that lawmakers use additional pandemic relief funds to fill the gap.
Another likely use of ARPA funds is further expansion of broadband capabilities. The state allocated $85 million for broadband expansion from the first round of ARPA, though none was spent as of Feb. 1st. Alabama’s plan to spend a separate ARPA funding stream of $191.8 million on broadband was approved by the U.S. Treasury last week, and Alabama Department of Economic and Community Affairs-administered grants should begin the application and awarding process soon.
Given that it is expected to cost between $4 billion and $6 billion to expand broadband capabilities to Alabama’s underserved areas, we can expect another significant investment in broadband infrastructure when the next ARPA funding bill is finalized. Other continuing priorities could include water and sewer infrastructure spending and additional money for hospitals, nursing homes, and other healthcare providers.
Will lawmakers use any of Alabama’s ARPA funds to provide tax relief to citizens?
Originally, ARPA funding guidelines barred states from using the money to directly or indirectly cut taxes. However, Alabama and other states challenged that prohibition and the 11th U.S. Circuit Court of Appeals ruled the tax mandate unconstitutional.
This opens the possibility that lawmakers could use some or all of the remaining $1 billion in ARPA funds to provide tax relief. A one-year grocery tax holiday would reduce state revenues by an estimated $500 million, for example. This could pave the way for a permanent repeal of the tax, providing relief to Alabamians every time they step inside a grocery store.
The state could potentially use ARPA funding to lessen the impact of rising food costs on Alabamians and still have hundreds of millions of dollars to invest in other priorities, like broadband expansion. Other taxes, such as the business privilege tax, could be suspended or eliminated with ARPA funds, helping Alabama’s small businesses as they face staffing and supply-chain issues.
Tax relief should be a top priority for the remaining ARPA funds, but however lawmakers decide to spend the money, they must ensure that it will benefit as many Alabamians as possible. It should not be reinvested in government.