Facing Fiscal Cliffs: The $195 Billion Challenge for State Spending of Federal COVID Aid

An illustration of the US Capitol building on the edge of a cliff


NEW REPORT OUT NOW: Read the 2023 Issue PAPER


The Volcker Alliance hosted a release webinar with William Glasgall, Volcker Alliance senior director, public finance, and Beverly Bunch, professor, School of Public Management and Policy, University of Illinois Springfield, and author of the forthcoming Issue Paper, The $195 Billion Challenge: Facing State Fiscal Cliffs After COVID-19 Aid Expires. The paper is the latest in a series of Alliance reports on state and local budgeting in the COVID Era.

The Issue Paper finds that, based on initial spending plans, at least three of the eleven most populous US states may face significant spending challenges after federal pandemic aid under the American Rescue Plan Act of 2021 (ARPA) expires by the end of 2026. Fiscal cliffs may loom if states use their budgetary relief funds for ongoing expenditures, such as long-term policy initiatives, instead of one-time costs, like infrastructure projects. The paper also concludes that preliminary filings on relief fund allocations required by the US Treasury Department are inconsistent and lack transparency, limiting the ability of decision-makers, researchers, and the public to evaluate implications of $195 billion in federal pandemic economic recovery cash provided to states under ARPA.

Read the Issue Paper

The webinar began with special opening remarks from former New York State Lieutenant Governor Richard Ravitch, a Volcker Alliance board member, on the issue paper and the dangers present on the path ahead for states and municipalities. Glasgall and Bunch discussed the use of State and Local Fiscal Recovery Funds by all fifty states and examine the initial plans of the most populous ones. Recommendations included supporting moves that reduce the risk of future budget shortfalls when federal aid expires and steps that the states and the US Treasury should take to improve transparency.

The State and Local Budgeting in the COVID Era Issue Paper series builds on the work of previous research efforts to focus on the impact of the pandemic and resulting recession on states and localities; explore how budgeting policies of states prior to the pandemic have impacted how well they were able to handle the crisis; identify risks and opportunities within states that will contribute to their ability to successfully recover from the financial impacts of COVID-19; and make recommendations for policy improvements that will contribute to the fiscal sustainability of states.