LAO Sets Forth Framework for Federal American Rescue Plan Funds

This week, California Legislative Analyst Gabriel Petek issued a post setting forth a framework for the Legislature to allocate the anticipated $26 billion to be received by California from the recently enacted federal American Rescue Plan (ARP). Notably, the Legislature will face important decisions on to allocate California’s share of fiscal recovery funds. States have been granted considerable flexibility in allocating ARP funds, presenting a unique opportunity for the California Legislature.

Mr. Petek, in his post, urges the Legislature to clearly define its goals and develop a plan for allocating federal funds. Given that the ARP does not require states to spend its entire federal allocation immediately, Mr. Petek recommends that the Legislature not allocate all funds this year. The LAO further advises the Legislature to take a deliberative approach to consider how any contemplated allocations will interact with the state’s significant anticipated budget surplus and the limitations posed by the constitutional state appropriations limit (SAL).

The LAO sets forth the following general considerations for the Legislature as it assesses how and where to invest ARP funds:

  • Define Goals and Invest in Planning
    • Identify Significant Challenges – The LAO notes the unprecedented amount of funding to be received by the state, allowing the state to consider large investments to address significant challenges facing residents, such as childcare, homelessness, housing affordability, broadband access, and more.
    • Develop a Plan – Given significant pandemic-related direct assistance provided to individuals by the federal government, the LAO recommends taking time to develop a plan for the allocation of funds. The state has until the end of 2024 to expend its funding.
    • Other Considerations – The LAO identifies a series of other considerations, including whether to include additional program details in legislation or determining what additional resources might be needed to allocate funding effectively.
  • Identify Gaps
    • Gaps in Federal Assistance – Several populations and entities were not eligible for recent pandemic-related federal assistance, including undocumented immigrants and special districts. The LAO recommends considering whether ARP funds should be used to aid those who did not receive any from the federal government.
    • Disparities – The LAO points to the notable disparate health and economic consequences caused by the COVID-19 pandemic, recommending the Legislature consider targeting assistance to residents more acutely impacted by job losses and other long-term consequences of the pandemic.
  • Maximize Longer-Term Benefits
    • Mitigate “Cliff” of Federal Assistance – In preparation for some federal assistance to expire by the fall, the LAO suggests the Legislature use a portion of federal funding to phase out assistance to individuals and businesses that might still be experiencing the impacts of the pandemic.
    • Prepare for Service Needs as California Reopens – A significant increase in demand for certain services, including CalWORKs benefits, may be realized as public health restrictions lapse and more individuals resume normal daily activities.
    • Plan for Possible Long-term Pandemic Impacts – While COVID-19 vaccine distribution continues, public health concerns related to vaccine outreach and education, COVID-19 variant monitoring, and future stress on health systems will exist. The LAO recommends the Legislature plan in advance for these possible needs.

The full LAO report on the ARP allocation framework is available here.