Where Did Iowa’s Local COVID Relief Funds Go?

By Sarah Curry, DBA

In March 2021, the United States was in the midst of the COVID-19 pandemic. In addition to previous large-scale stimulus measures, Congress passed the American Rescue Plan Act (ARPA) on a party-line vote. Relief for state and local governments was among the most thoroughly debated provisions of the legislation, ultimately sending $130.2 billion to state, local, tribal, and territorial governments. Iowa cities and counties collectively received $1.162 billion. The state’s largest eleven metropolitan cities received nearly $335 million, while counties took in $612 million and smaller governments received $216 million in payments.

Iowans for Tax Relief Foundation (ITRF) has been a consistent voice against the unnecessary and often harmful stimulus money that has flowed to state and local governments across the country since the pandemic began. We use the term, “harmful,” because forcing so many dollars into our economy not only adds to the national debt, which is at record levels, but also has a huge inflationary effect.

To discover how local governments were using these funds, ITRF conducted a survey of select communities across Iowa. Our intent was not only to report on what government officials have done, but also to discern the long-term effects for taxpayers. Did communities use this windfall in a way that restrains future spending? Or did communities put citizens on the hook for spending increases and future commitments that will result in higher property taxes?

Elected officials have been presented with countless ideas about how to spend ARPA funds, however we feel that prioritizing the interests of the taxpayer should be at the top of their minds. Thankfully, most communities across the state did not commit to future obligations while spending these funds, but instead put them toward one-time expenses and capital projects. The largest spending category of ARPA funds was revenue replacement, followed by infrastructure that was directed primarily to water and sewer projects, negative economic impacts, and public health.

Many Iowans were hoping the aid would produce property tax reductions, and while the federal government would have permitted it, none of the communities obligated ARPA funds directly towards tax relief. Some governments went so far as to report erroneously that the funds could not be used for this purpose. That said, 10 of the 19 responding communities reduced their property tax levies between fiscal year 2022 and 2023, while two left their levy rates the same.

According to the data these local governments have provided ITRF, the most surprising finding was that approximately $465 million of the $538 million allocated to these communities remains unspent. Unfortunately, this is not unique to Iowa. Many news and research outlets have reported on local governments not spending their ARPA funds or rejecting the money altogether because they cannot think of ways to spend it. One report found that nationwide only 2.9% of the funds had been spent.

Assistance paid out this long after the onset of the pandemic, when everyday life has, in so many ways, returned to normal, is arguably too late to do any good and will only further contribute to painfully high inflation. At the time of its passage, the ARPA was billed as necessary relief for local governments hit hard by the pandemic. However, whether local governments needed funds to recover from the pandemic a year after it started is a question that should have been taken more seriously.

To read the details of our survey and to see how your local community spent their ARPA dollars, please click here.