By Pengju Zhang and Michael S. Hayes
As one of the most significant federal grants to local governments in American history, the American Rescue Plan Act’s Coronavirus State and Local Fiscal Recovery Funds (ARPA-SLFRF) were designed to provide robust support to local governments in addressing the public health and economic challenges arising from the COVID-19 pandemic.
As highlighted in a previous New Jersey State Policy Lab blog, approximately 85% of the financial resources provided through SLFRF were obligated earlier this year, primarily focusing on revenue replacement, public health, negative economic impacts, and infrastructure, rather than other categories, whether in New Jersey or other states. This blog further explores the distribution of these funds, with a particular focus on whether cities of varying sizes—differentiated by population, population density, and pre-pandemic financial conditions—have benefited equally from the SLFRF.
Based on the three tiers of non-tribal governments, Figure 1 illustrates the distribution of ARPA-SLFRF cumulative obligations per capita by municipal population size in New Jersey. Overall, the cumulative obligations for most municipalities in Tiers 1 and 2[1], as highlighted by blue circles, exceed $100 per capita. In contrast, municipalities in Tier 5 generally have cumulative obligations under $100 per capita, with only a few exceptions, as indicated by orange circles.
The stark contrast between Tier 5 municipalities and other municipalities is embedded in the design of the funding structure and also well aligned with the definition of tiers, as explained in the references below. While it may make financial sense to treat big cities differently from tiny ones, it may not be desirable for localities with populations just below 250,000 residents or to units that fall slightly below the population thresholds used to differentiate entitlement units (EU) and non-entitlement units (NEU). These municipalities, likely facing similar financial and economic challenges, received less support under the ARPA-SLFRF system.
Figure 1. ARPA–SLRFR Cumulative Obligations by Municipal Population in NJ
Relatedly, given that New Jersey is a small but densely populated state, we examine how the funding varies across population density. Figure 2 suggests that the ARPA-SLFRF cumulative obligations are at the same level across the lowest three quintiles, averaging around $100 per capita. However, the obligation size significantly increases for municipalities in the fourth and fifth quintiles of population density, with obligations doubling or even tripling compared to those in the lower quartiles.
Another research question we aim to address is whether the SLFRF funds were directed toward municipalities with higher levels of fiscal resources. Clearly, there are several ways to classify which municipalities in the state have more fiscal resources. One straightforward measure is revenue size in FY2019, just prior to the COVID-19 pandemic. Based on Figure 3, we observe a pattern similar to that found with population density. Overall, we find municipalities with more population density and municipalities with more fiscal resources generally received much more funding than all other municipalities in New Jersey.
Figure 2. ARPA–SLRFR Cumulative Obligations by Municipal Population Density in NJ
Figure 3. ARPA–SLRFR Cumulative Obligations by Municipal Prior-Pandemic Revenue in NJ
Pengju Zhang, Ph.D. is an associate professor at Rutgers-Newark and Michael S. Hayes, Ph.D. is an associate professor at Rutgers-Camden.
References:
[1] According to the U.S. Department of the Treasury, recipients of SLFRF funds are categorized into five tiers. At the local level, Tier 1 includes metropolitan cities and counties with populations exceeding 250,000 residents. Tier 2 consists of metropolitan cities and counties with populations below 250,000 residents that are allocated more than $10 million in SLFRF funding, as well as non-entitlement units of local government (NEUs) receiving more than $10 million in funding. Tier 5 covers metropolitan cities and counties with populations below 250,000 residents and allocated less than $10 million, along with NEUs receiving less than $10 million. Tiers 3 and 4 represent various sizes of tribal governments. (Details can be found here: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds/reporting-and-compliance)