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How State and Local Fiscal Recovery Funds Are Being Used to Boost Public Sector Capacity

By Jacob Leibenluft and Laurel Blatchford

Earlier this year, Secretary Yellen explained how the State and Fiscal Recovery Funds (SLFRF) program has been crucial in not only helping communities recover from the COVID-19 pandemic – but also setting them up for a stronger future. As she explained, alongside investments in areas like public health, affordable housing, and broadband, SLFRF has “set the stage for the passage and successful implementation of our Administration’s historic long-term investments” – including the Infrastructure Investment and Jobs Act, CHIPS and Science Act, and Inflation Reduction Act. These investments, she added, are helping state and local governments “develop their communities into the kinds of places that can create and attract the jobs of the future — whether [in] an urban center, in the suburbs, or in a rural area.”

These opportunities are possible not only because the economy is in a stronger place today as a result of the American Rescue Plan, but also because SLFRF dollars are being used to expand the ability of state, local, territorial, and Tribal governments to play a critical role in implementing these laws as they apply for and oversee the funds now available to attract new jobs to their communities. For example, the Inflation Reduction Act enacted novel credit delivery mechanisms that enhance the ability of state, local, and Tribal governments to leverage clean energy tax credits for critical investments in their communities. The SLFRF program has provided state, local, territorial, and Tribal leaders with the opportunity to make investments in their workforce and their local government capacity in ways that can help them effectively deploy the significant federal funds available through the Inflation Reduction Act and other recent legislation.

At Treasury and across the administration, we are focused on ensuring that different funding streams that can support local communities are operating in tandem – leveraging these dollars to their full potential. Below, we’ve outlined how recipients may use SLFRF funds to build public sector capacity and provided a few examples from recipients who are already using SLFRF funds in this manner.


Using SLFRF to Build Public Sector Capacity

In the early months of the pandemic, state, local, territorial, and Tribal governments cut over 1.5 million jobs amid sharp declines in revenue.1 This mirrored the pattern of the Great Recession, when state and local governments cut 137,000 and 437,000 jobs, respectively,2 and declines in state and local government budgets were a drag on the overall economy for more than three years.3 During the Great Recession, the lack of fiscal support for state and local governments not only weighed down the overall economy, but also limited the ability of these governments to provide assistance to their residents when they most needed it.

To avoid a repeat of the effects of the Great Recession, Treasury’s final rule for the SLFRF program explains that state, local, territorial, and Tribal governments may use funds to support a broad set of activities to restore and support public sector employment as well as related investments to improve public sector capacity and increase resiliency against gaps exposed by the pandemic. But these funds have not just prevented the painful budget cuts of the past; they also provide a tool for governments to strengthen their ability to make new investments. Under the public health and negative economic impacts eligible use category, recipients may use SLFRF funds to boost public sector capacity for the following eligible uses:

  • Restoring public sector employment: Recipients may use funds to hire state, local, territorial, and Tribal government staff up to 7.5% above their pre-pandemic baseline. This could include hiring public sector employees to support implementation of the Infrastructure Investment and Jobs Act, CHIPS and Science Act, and Inflation Reduction Act.
  • Supporting and retaining public sector workers: Recipients may also use SLFRF resources to provide additional funds for employees who experienced pay reductions or were furloughed since the onset of the pandemic, maintain current compensation levels to prevent layoffs, and provide worker retention incentives to help local governments remain competitive with other employment options.
  • Covering administrative costs associated with hiring and retention: Recipients may use funds to pay for ancillary administrative costs associated with administering the SLFRF-funded hiring and retention programs, including costs to publish job postings, review applications, and train new hires.
  • Improving the efficacy of public health or economic relief programs: Recipients may use SLFRF funds for tools like program evaluation, data analysis, and targeted consumer outreach. They may also deploy SLFRF resources to support using data and evidence in designing, executing, and evaluating programs, including hiring public sector staff, contractors, academics, consultants, technical assistance support, and others with expertise in evaluation, data, technology, and community engagement. Overall, funds may be spent to support effective implementation of SLFRF-funded programs as well as programs that respond to the public health emergency and its negative economic impacts.

Under the revenue loss eligible use category, recipients may use SLFRF funds to provide government services up to the amount of revenue lost due to the pandemic. Recipients may determine their revenue loss by claiming the standard allowance of up to $10 million (not to exceed a recipient’s allocation) or calculate revenue loss according to the formula in Treasury’s final rule. These investments in government services under the revenue loss eligible use category allow for a wide range of spending that builds government capacity.4 As such, this provides another channel via which recipients can make investments that improve their ability to effectively compete for and implement funds flowing from the Infrastructure Investment and Jobs Act, CHIPS and Science Act, and Inflation Reduction Act.  


Examples of how local governments are investing SLFRF to boost public sector capacity

While the pandemic illustrated the importance of strong and well-resourced local and state governments, there is still more work to be done to ensure governments are prepared for the future. The examples offered below, as reported to Treasury by SLFRF recipients, illustrate how local governments are leveraging SLFRF to build local capacity, including using SLFRF to hire public sector staff that work in dedicated offices or on initiatives focused on administering federal funds.5

Overall Capacity Building and Service Delivery

  • Bayamon, Puerto Rico has budgeted $7 million to upgrade its technology system to provide better services to the public and improve usability for staff. The new system will expand capacity and help improve the ability to plan, execute, and evaluate SLFRF-funded activities as well as other federal and non-federal funded programs that are essential to economic growth.
  • Seattle, WA budgeted $1.6 million for the Affordable Seattle program, an online portal available in 16 different languages which connects residents with benefits they may be eligible for. This will improve efficacy of city aid programs by streamlining access. SLFRF funds were used for hiring staff to lead the Affordable Seattle program and covering program costs.

Public Sector Employment

  • Pittsburgh, PA spent $52 million to avoid layoffs across all city departments that would otherwise have been necessary due to the negative impact of COVID on the city’s revenue, enabling the city to sustain critical city operations and services.
  • Syracuse, NY spent nearly $22 million to support the city’s operations at pre-pandemic levels, ensuring critical government and public safety services wouldn’t face pandemic-related interruptions. Due to an estimated revenue loss of $141 million from the pandemic, the city would have had to reduce staffing levels across all departments, including police and fire, without federal revenue replacement funds.
  • Tarrant County, TX budgeted $4.7 million to increase the number of full-time equivalent employees to support essential government functions.

Planning, Monitoring, and Oversight

  • Boulder County, CO budgeted nearly $1.3 million for temporary staff to assist in administering the American Rescue Plan Act. Duties include facilitating requests for funding, ensuring financial compliance, and handling accounting, reporting, account reconciling, audit preparation, and other related duties.
  • Buffalo, NY budgeted $400,000 to hire and train staff for a new office within the Department of Administration, Finance, Policy and Urban Affairs, and for a Deputy Director of Planning in the Office of Strategic Planning. These staff will monitor the financial and programmatic reports of subrecipients, research best practices to improve outcomes, and evaluate the effectiveness of the outlined proposals.
  • King County, WA budgeted over $3.2 million to provide funding for temporary employees to support grant administration, accounting, and legal assistance.
  • Lubbock County, TX budgeted over $350,000 to hire a third-party administrator to oversee the implementation of the Small Business and Non-Profit Organization Grant Program. The third-party will help in the design, collection, processing, verification, and validation of grant applications. They will also help with marketing and outreach to ensure the program reaches those most in need.
  • Milwaukee, WI budgeted $540,000 on allowable administrative expenses for American Rescue Plan Act operations, including staffers to help with oversight, reporting, and compliance.
  • Omaha, NE budgeted $225,000 to hire a staffer to coordinate and oversee the use of American Rescue Plan Act funds for affordable housing efforts, including distribution of emergency rental assistance. This staffer also helped create a citywide affordable housing action plan and helped establish a HUD Section 108 loan program, which will increase access to low-cost, flexible financing for economic development, housing, and infrastructure projects.
  • Raleigh, NC budgeted more than $450,000 on two new positions dedicated to the citywide management and oversight of American Rescue Plan Act grant funding. One position is housed in the Budget & Management Services Department and the other in the Finance Department.

Evaluation and Data

  • Baltimore, MD has obligated $600,000 to partner with the University of Baltimore and Morgan State University to support evaluation, research, and evidence-based decision-making about programs and services created or expanded using SLFRF. The University partners are providing the Mayor’s Office of Recovery Programs with implementation advice, impact evaluation, best practices research, administrative data analysis, and performance management.
  • The State of Connecticut has budgeted nearly $1 million to create an Evaluation and Evidence-Building Unit within the state’s Office of Policy Management. This team is responsible for coordinating the state’s evaluation work and using evidence to inform the implementation of state programs. The unit will work closely with state agencies, subrecipients, applied researchers, and evaluators to develop evaluation plans, coordinate access to state data resources, and assist in synthesizing evidence for reporting and communications.
  • The State of Maine budgeted $600,000 for the state’s Department of Labor to analyze and improve the outcomes and effectiveness of the Maine Jobs & Recovery Plans workforce initiatives. This effort will track the success of the workforce and look at data so that communities and industries most affected by COVID-19 realize the benefits of these investments now and in the future.


Looking Ahead 

Treasury is committed to helping our nation not only rebuild from the pandemic, but also make investments that will strengthen local communities’ capacity to maximize the impact of historic investments in our nation’s economic future, including those made under the American Rescue Plan Act, Infrastructure Investment and Jobs Act, CHIPS and Science Act, and Inflation Reduction Act.

The Inflation Reduction Act enacted novel credit delivery mechanisms that enhance the ability of tax-exempt entities, companies, and other organizations to take advantage of the clean energy tax credits. For the first time, the law allows state, local, and Tribal governments to receive tax incentives as direct payments. This change will allow states and localities to significantly expand the availability and power of these historic investments in growing the clean energy economy. Treasury and the IRS are already working on an electronic pre-filing registration process for states, localities, and Tribes that want to take advantage of direct pay.

The benefits of the Inflation Reduction Act provide an opportunity to catalyze investment in communities across the country, including traditionally underserved areas, and in good-paying, quality clean energy jobs. Treasury will release additional guidance on the requirements for paying prevailing wages and employing apprentices to ensure strong labor protections for workers in these new opportunities.

The State and Local Fiscal Recovery Funds are a resource for local communities as they work to take advantage of these new opportunities presented by the Inflation Reduction Act and other historic federal legislation. The examples included above are just a handful of ways communities across the country are investing State and Local Fiscal Recovery Funds to build their public sector capacity for today and tomorrow. As Secretary Yellen explained, “We know that laws don’t implement themselves. Turning a law into action requires close partnership between the federal government, state and local governments, workers and unions, businesses, and non-profits.” As communities seize the new opportunities unlocked by recent legislation, Treasury looks forward to helping governments use their remaining SLFRF funds to continue to build the foundation for that partnership.


1 U.S. Bureau of Labor Statistics, All Employees, State Government [CES9092000001] and All Employees, Local Government [CES9093000001], retrieved from FRED, Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/CES9092000001 and https://fred.stlouisfed.org/


4 The restrictions on use in the SLFRF program apply to the revenue loss eligible use category. Please refer to Treasury’s final rule for more information.

5 The examples included throughout this post are based on recipient reports, and their inclusion in this document does not constitute an explicit approval of these projects by Treasury.