How more than $600M in COVID relief funds awarded last year went unreported

Thousands of localities, many of them small communities, didn’t follow the law last year and tell the federal government when they spent their COVID stimulus dollars, according to a report released Wednesday by the Government Accountability Office. About $600 million in awarded funds went unreported.

And this year, a month before reporting deadline, twice as many municipalities, or about 14% more, hadn’t said how they had used about $3 billion in Coronavirus State and Local Fiscal Recovery Funds from the 2021 American Rescue Plan Act.

That it’s unknown how many millions of dollars, and potentially billions, are being spent is “deeply concerning, yet unsurprising,” U.S. Rep. James Comer, a Kentucky Republican, said in a statement to Route Fifty. Comer, who is chairman of the House Committee on Oversight and Accountability, has been concerned that the flexibility given states and localities in spending the money could lead “waste, fraud and abuse to run rampant.”

Indeed, congressional Republicans have already questioned how some of the money has been used, including to build pickleball courts. Nevertheless, both sides of the aisle agree that tracking the $350 billion in ARPA funding is necessary. 

The GAO report found that 2,155 localities out of 30,679 did not detail how they spent $606 million last year. Those same governments were also among the 4,268 localities that hadn’t yet filed a report as of March 31 this year.

The data analyzed by the agency also revealed that COVID funds have not helped as many small communities as larger ones. More than a quarter of localities with fewer than 50,000 residents that did file reports with the Treasury Department said they haven’t used any of their stimulus dollars as of March 31.

In comparison, only 6% of cities and 8% of counties had not spent any of their money. While cities received a median of $16.5 million in aid, small communities like towns, villages and townships received $212,000.

Perhaps explaining why so many small communities have not spent their dollars, the Treasury Department told GAO investigators that small governments are the “most nervous” to take stimulus funds “due to their limited experience with receiving federal funds.”

That is, in part, why the department opted not to make it public that these small communities had failed to comply. It worried that doing so would create “‘undue pressure’” or a “chilling effect” on the governments.

Until this year, the department had also not sent out notices of noncompliance to localities threatening penalties, such as returning funds to the Treasury if they did not file their reports. The department “was building out the capability to issue these notices through its award management system,” the report said. The department did say it intends to send out automated notices of noncompliance in the future. This year, 3,544 recipients that had not submitted reports received a warning.

The watchdog agency said it will continue to monitor the department’s efforts to make localities comply.

All states and the vast majority of local governments, though, have filed reports. Overall, as of March 31, states have spent 45%, or $88.2 billion, of their funds. Localities have spent 38% of their funding, or $47.9 billion. 

How much of the money has been spent, however, varies from state to state. Six states reported spending 75% or more of their COVID relief funds, the report said. Minnesota has already spent 95% of its money and Alaska, 91%. 

At the other end of the spectrum, Oklahoma has only spent 1% of its funds and South Carolina, 2%.

The largest portion of the funding in all state and local governments went to replace lost revenue during the pandemic, as businesses closed and many lost their jobs. Forty-five percent, or $39.5 billion, of the funds used by states has gone toward that purpose. For localities, 68%, or $32.4 billion, went to replace lost revenue.

California, for instance, used $16.7 billion to restore state employee pay cuts. Utah spent $333 million on essential services like corrections, public safety and social services, and Louisiana put $115 million toward building roads and bridges. North Dakota was the only state where all reported spending was used to replace revenue. And just seven states told the Treasury Department they didn’t use any of its funds to replace lost revenue.

States also used 43% of the funds, or $37.9 billion, on ways to address the negative economic impacts of the pandemic, most of it going to bolster their unemployment trust funds, the report said.