Pandemic-induced disruptions resulted in one of the most severe economic downturns in U.S. history, with the unemployment rate spiking to 14.7% in April 2020. Business closures, supply chain disruptions and other factors led to a 9.1% drop in economic output in the second quarter of 2020, the steepest quarterly decline on record. To address these issues, 30 states and territories have invested roughly $6.3 billion in Coronavirus State Fiscal Recovery Funds (CSFRF) towards economic relief and development, or 4.8% of all allocated funds. This brief outlines the most common uses of these funds towards economic recovery.
Broad Latitude in the Use of Recovery Funds Towards Economic Recovery
An all-encompassing crisis such as the COVID-19 pandemic requires a comprehensive approach. The economic impacts of COVID-19 vary from sector to sector and household to household. The fiscal recovery funds program offers state policymakers broad spending latitude to best meet the needs of individual communities.
The U.S. Department of Treasury’s final rule elaborates on accepted uses of the recovery funds to address economic impacts. Eligible uses include, but are not limited to, assistance to households, industries, small businesses and nonprofit organizations. The final rule also stresses the importance of addressing “preexisting disparities” exacerbated by the crisis and providing aid to those who were disproportionately affected by the pandemic.
Flexible Funds Under the American Rescue Plan Act
The $1.9 trillion American Rescue Plan Act (ARPA) was enacted to help mitigate challenges associated with the COVID-19 pandemic. A cornerstone within ARPA, the Coronavirus State Fiscal Recovery Funds (CSFRF) program provides $199.8 billion for states, the District of Columbia and the territories to respond to the public health emergency and its economic impacts, and for the provision of government services and infrastructure. The CSFRF is the second round of flexible federal stimulus funds provided to state, territories, local and tribal governments. The first round came from the $150 billion Coronavirus Relief Funds (CRF).
Priorities in Economic Relief
The pandemic hit small businesses particularly hard. Health concerns, lack of financial reserves and reduced demand for certain goods and services caused 43% of small businesses across the country to close temporarily. Another 200,000 small businesses closed permanently. Several states used fiscal recovery funds to assist small businesses, predominantly through loans and grants.
- American Samoa: $10 million for a small business loan program. The program will provide loans and lines of credit for covering payroll, mortgages or rent, and other operating costs.
- Maine: $48.4 million in loans and loan guarantees for small businesses having difficulties securing investments due to COVID-19.
- Illinois: $500,000 for loans and the administration of small-business microloans.
- California: $1.5 billion to fund additional relief for impacted small businesses through the California Small Business COVID-19 Relief Grant Program.
- North Carolina: $500 million for the Business Recovery Grant Program for businesses that suffered economic loss of at least 20%.
- Rhode Island: $300,000 for family child care start-up and technical assistance grants to help stabilize the child care sector and recognize the vital work of early educators.
- Washington: $50 million for grants to small businesses that have annual gross receipts of less than $5 million and that have experienced a reduction in income.
Aid to Impacted Industries
Certain industries were hit harder by COVID-19 than others. The U.S. hotel industry, the ninth largest workforce sector in the country, experienced an 11.6% decline in revenue in the first week of March 2020 alone. Similarly, the food service industry lost nearly 3.1 million jobs. States and territories have allocated fiscal recovery funds to disproportionately affected industries in their communities, as permitted under the Treasury Department’s final rule. Some examples include:
- Alaska: $25 million for the mariculture industry through an incentive grant program.
- Hawaii: $100,000 to support creative industries such as film and television production.
- North Carolina: $5 million to the Restaurant and Lodging Association for industry workforce recruitment and to help rebuild the state’s hospitality industry.
- Virginia: $250 million for lodging establishments, restaurants and public amusement venues.
Assistance to Nonprofits
Nonprofit organizations provide numerous essential services nationwide and were particularly susceptible to economic disruptions created by the pandemic. The Urban Institute found that 37% of nonprofits experienced a decrease in donations in 2020. Policies funded by the fiscal recovery funds to support nonprofits include:
- Louisiana: $10 million for the Louisiana Small Business and Nonprofit Assistance Fund, which includes charities and faith-based organizations.
- Maine: $3.5 million in infrastructure investments to support diverse nonprofits and small businesses.
- Northern Mariana Islands: $4 million for assistance to nonprofit organizations to enable the continuation of services.
- Tennessee: $80 million in grants to over 200 eligible arts nonprofits to recover and deliver arts and culture services.
Assistance to Households
Layoffs, health costs, closure of schools, child-care facilities and other factors contributed to the deterioration of household incomes. Consequently, the number of people living in poverty increased by 3.3 million from 2019 to 2020. Household assistance programs created with fiscal recovery funds include:
- Arizona: $10 million for households below the federal poverty level, providing families $7,000 per student.
- Maryland: $20 million in assistance with utility bills for households at or below 175% of the national poverty level.
- Washington: $88.7 million for rental and utility assistance to households with an income at or below 80% of the area median.
More Federal Funds in the Pipeline
The Paycheck Protection Program, established by the Coronavirus, Aid, Relief and Economic Security Act, provided stopgap funding to more than 11.4 million small businesses that suffered economic losses due to the pandemic. Paycheck program loans targeted businesses with fewer than 500 employees, select types of business with fewer than 1,500 employees, 501(c)(3) nonprofits with fewer than 500 workers, and some 501(C)(19) veterans' organizations. Self-employed, sole-proprietor, freelance and gig workers were also eligible for the program. Loans could be used primarily for payroll costs, mortgage interest, rent and utilities. According to the Small Business Administration, 91% of the program’s total loan value has been forgiven, in full or in part.
This brief only touches on some of the ways recipients used fiscal recovery funds to fend off one of the sharpest economic downturns on record. Additional examples and program details can be found in NCSL’s allocation database.
States, territories and the District of Columbia must obligate federal recovery funds by December 2024 and spend them by December 2026. Until then, NCSL will continue tracking how these funds are prioritized and allocated.
Leo Garcia is a policy analyst with NCSL's Fiscal Affairs Program. He covers economic development, budget, and tax issues for NCSL.
Emily Maher is a senior policy specialist with NCSL’s Fiscal Affairs Program. She covers budget, tax, state-local, and economic development issues for NCSL.