The nearly $8 billion in new direct federal aid that will flow to state and local governments in Massachusetts is best suited for one-time investments, but could be used to help finance new programs, such as the new $1.5 billion K-12 education law or investments in early education and child care, according to a new report.
The Center for State Policy and Analysis at Tufts University report concludes there's a "once-in-a-generation opportunity" sitting in front of the Legislature and Gov. Charlie Baker and advises that decisions about the American Rescue Plan investments be made quickly, perhaps through separate budgeting, information-sharing and oversight processes that will make key choices more transparent and prevent duplication of efforts.
"The possibilities are legion," the center said in its new report. "While ARP funds will come with some spending guidelines and explicit restrictions, state legislators and municipal officials will have a lot of latitude — particularly if they are creative about shifting money around."
White House and U.S. Treasury officials have laid out only basic ARP spending guidelines, with more detailed rules expected to arrive in May. The new federal law was designed to give the U.S. economy a spending jolt to bring back jobs lost during the pandemic and help states rebuild and recover.
The report suggests the funds are well-suited for one-time investments in things like broadband networks, school building upgrades, transportation maintenance, state information technology systems, and public health infrastructure. But researchers say the funds might also be used to introduce or finance new programs, with K-12 education, early education and child care cited as examples.
"The viability of this approach depends on the continuing strength of state tax revenues or future tax increases such as the proposed millionaires tax," the report said, referring to a Constitutional amendment that would impose a surtax on household income above $1 million per year. "By thinking of these two funding sources as a pair, the state might be able to leverage ARP money to introduce programs that would later be sustained by the millionaires tax."
However, center researchers cautioned that it might be prudent to wait and see if the amendment advances to a statewide vote in 2022 and passes before making the commitment to the education investments. Supporters of the amendment say it will force wealthy residents to pay their "fair share" of taxes while opponents warn that its passage could make Massachusetts less economically competitive and drive wealthy residents out of state.
House Speaker Ron Mariano has suggested that lawmakers might make initial decisions about ARP spending in June.