How Pandemic Funds Are Helping States Jump-Start Critical Infrastructure Projects

With the end of the COVID-19 public health emergency, states are continuing to use federal relief dollars to offset revenue losses experienced during the pandemic or to address its negative effects. As the economic recovery progresses, policymakers across the country are also using billions of these federal dollars to jump-start much-needed infrastructure projects to upgrade critical public services such as water supplies, broadband networks, and roadways.

The federal relief efforts enacted during the pandemic provided states and localities with unprecedented resources to address the public health emergency and combat its economic impact. The American Rescue Plan Act (ARPA) of 2021 provided the largest and most flexible share of these resources, with $350 billion in direct funding to governments through the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program. Officials can spend these funds on a range of eligible government services through 2026, with the explicit goal of building a resilient and equitable economic recovery.

Reporting on how governments are using these funds offers insights into the historic opportunities offered by ARPA. The broad categories of eligible expenditures allow policymakers to direct resources where needs are greatest in their communities. This flexibility is helping state and local officials fund long-needed investments in critical infrastructure in a manner that takes into account enduring social and economic inequities.

ARPA explicitly allows governments to dedicate SLFRF resources to water, sewer, and broadband infrastructure. States already have committed nearly $18 billion—$1 out of every $8 budgeted—for eligible infrastructure investments, including more than $11 billion for water projects. Governments also can replace lost revenues through SLFRF, allowing them to fund services that are not covered under other eligibility categories. More than $5 billion of states’ revenue-loss spending is going to further infrastructure projects, including replenishing transportation trust funds that experienced shortfalls during the pandemic, making additional water infrastructure investments, and funding surface transportation and mass transit projects.

To achieve the program’s goal of ensuring a more equitable economic recovery, SLFRF guidelines are helping policymakers consider how best to use investments to address infrastructure disparities affecting historically disadvantaged communities—including communities of color and those in rural areas. The law specifically authorized governments to direct funds where the need and the impact of the pandemic are greatest; eligible expenditures can cover a range of critical services. Guidance and reporting requirements encourage equity considerations, whether by establishing equity frameworks or seeking community engagement. In annual reporting, governments must also explain how SLFRF-funded projects incorporate equity and how equitable outcomes will be measured.

To date, reporting shows that several states have made commitments prioritizing equitable infrastructure investments. For example:

• Alabama has committed $225 million for water and wastewater investments, including $100 million in grants, for projects in areas that have been disproportionately affected by the pandemic or that lack funding to complete critical projects. The state is using a mapping tool associated with a new federal equity initiative to identify communities that will get priority for grants.
• Colorado invested $343.5 million for transportation projects, including $161 million to promote a multimodal transit system to serve rural areas and disadvantaged communities and provide safe school routes.
• Ohio is committing nearly $270 million to water projects, including $250 million in grants to assist traditionally underfunded communities. The program will prioritize projects in areas with high unemployment, below-average household income, and above-average utility costs.
• Maryland is investing $572 million in transportation infrastructure projects, including mass transit. Policymakers are using a framework to guide transit investments that includes strategies to help meet the needs of underserved communities and reduce cost barriers to public transit.

As governments continue to obligate and spend down these resources, the U.S. Department of the Treasury has outlined a draft learning agenda to guide research into how funds are being used nationwide to promote and achieve an inclusive economic recovery. The effort will also help document the program’s successes and challenges.

These federal funding infusions are just one component of several resources available to pay for infrastructure projects. States also saw significant budget surpluses over the past two fiscal years, portions of which can be used for one-time investments. The federal Infrastructure Investment and Jobs Act of 2021 provides an additional $500 billion in federal funds for surface transportation and water infrastructure through 2026. Finally, a December 2022 federal appropriations package expanded eligible infrastructure expenditures under SLFRF, allowing governments to allocate up to 30% of funds for investments in roads, highways, and bridges.

Although initial reporting shows that governments are finding meaningful and transformative ways to use these resources, they face continued challenges. Many communities may not have the capacity to obligate and spend down funds by 2026 as required, and identifying one-time investments that will not require increased government outlays once funds are depleted may pose additional difficulties. Infrastructure projects in particular face issues if inflation increases costs beyond initial estimates or if projects are not completed before the deadline to spend funds. Despite these challenges, the State and Local Fiscal Recovery program represents a historic opportunity for states and local governments to get a strong start on long-needed infrastructure investments and secure a more equitable economic recovery.

Stephanie Connolly is a principal associate, Fatima Yousofi is an officer, and Susan Banta is a project director with Pew’s state fiscal policy project.