In a blog last month, NASBO analyzed data published by Treasury based on quarterly project and expenditure (P&E) reports submitted by Coronavirus State and Local Fiscal Recovery Fund (SLFRF) recipients. At that time, data were available through the period ending March 31, 2023. This week, Treasury released an updated reporting dashboard and dataset through June 30, 2023. The following analysis is based on this latest data, with a focus on project plans and expenditures by Treasury category, as well as estimated revenue loss, reported by states, territories, and the District of Columbia (DC) (hereafter referred to collectively as “states”).
Adopted Budgets
According to the latest reporting data released by Treasury, states have adopted budgets for SLFRF projects totaling $171.6 billion – representing approximately 86 percent of their total SLFRF payments. The number of projects reported by each state/territory varies widely, ranging from 1 to 775. The average number of projects across states, territories and DC was roughly 161, with a median of 116 projects.
TREASURY P&E REPORT DEFINITIONS:
Adopted Budget: “The budget adopted by a recipient for each project associated with SLFRF funds. Recipients will enter the Adopted Budget based on information that exists currently in the recipient’s financial systems and the recipient’s established budget process.”
Obligation: “An obligation is an order placed for property and services, contracts and subawards made, and similar transactions that require payment.”
Expenditure: “An expenditure is the amount that has been incurred as a liability of the entity (the service has been rendered or the good has been delivered to the entity).”
Examining project-level data broken down by Treasury category, the largest share of budgeted SLFRF spending by states is designated for revenue replacement at 38 percent. It should be noted many projects reported under this category are also allowable under other expenditure categories but have been recorded under Revenue Replacement partly to reduce recipients’ reporting burden, as encouraged by Treasury guidance (for more discussion on states’ use of revenue replacement funds, click here). The next largest share of states’ SLFRF budgets in the aggregate is for projects addressing Negative Economic Impacts at 33 percent, followed by Water, Sewer, and Broadband Infrastructure at 14 percent and Public Health at 9 percent. The remaining share of budgeted spending is for projects to expand Public Sector Capacity at 4 percent, Premium Pay (for essential workers) at 1 percent, and Administrative Costs at 1 percent. (See Figure 1.)
Figure 1.
Notes: NASBO calculations based on U.S. Treasury, “July 2023 Quarterly Reporting Data through June 30, 2023.” Figures include recipient data from 50 states, five territories, and the District of Columbia.
Obligations and Expenditures
As of June 30, 2023, states had obligated $138.3 billion of budgeted funds. As defined in Treasury guidance, an obligation is “an order placed for property and services, contracts and subawards made, and similar transactions that require payment.” The deadline for states to obligate SLFRF funds is December 31, 2024.
States have until December 31, 2026 to fully expend the funds (except for funds obligated for Surface Transportation projects and Title I projects, which must be expended by September 30, 2026). As of June 30, 2023, states had cumulative SLFRF expenditures of $100.2 billion. The average time period between budgeting, obligating, and expending the funds varies considerably by Treasury category. For example, Premium Pay has, on average, the largest portion of budgeted items expended at 93.9 percent. Meanwhile, at the other end of the spectrum, for projects in the Infrastructure category, only 7.6 percent of budgeted items have been fully expended. This is not surprising, given the lengthy timeline for completion of large-scale capital projects. (See Figure 2.)
Figure 2.
Notes: NASBO calculations based on U.S. Treasury, “July 2023 Quarterly Reporting Data through June 30, 2023.” Figures include recipient data for 50 states, five territories, and the District of Columbia.
Estimated Revenue Loss
In addition to project-specific reporting, states calculate and report on their estimated revenue loss in their quarterly submissions using a specific methodology developed by Treasury. This method (explained in more detail here) involves comparing actual state revenue collections to estimated “counterfactual” revenue using an annual growth factor of 5.2 percent (or the recipient’s annual revenue growth in the last full three fiscal years before the public health emergency, if greater). Using this formula, states collectively estimated revenue loss thus far totaling roughly $147 billion over 2020, 2021 and 2022, which represents 73 percent as a percentage of total SLFRF payments. On a state-by-state basis, estimated revenue loss as a share of the total SLFRF payment ranges from 0 percent to more than 500 percent, with a median of 58 percent. Twelve states reported cumulative revenue loss exceeding their SLFRF allocation. Most of the estimated revenue loss occurred in 2020 ($116 billion). Among 56 recipients (states, territories and DC), 49 reported revenue loss in 2020, 20 in 2021, and 12 in 2022.
A state may only use funds for revenue replacement up to the total amount of that state’s revenue loss. States’ adopted budgets for SLFRF include roughly $66 billion for revenue replacement projects – or 45 percent of cumulative estimated revenue losses. (See Figure 3.) This speaks to how most states have not budgeted the full amount estimated to be available to them for revenue replacement under the formula adopted by Treasury, either because they are directing more funds to other allowable uses or because their revenue loss exceeds their total allocation.
Figure 3.
Notes: NASBO calculations based on U.S. Treasury, “July 2023 Quarterly Reporting Data through June 30, 2023.” Figures include recipient data for 50 states, five territories, and the District of Columbia.
Continued Progress Ahead of Deadlines
Overall, states’ reporting data to Treasury show continued progress towards budgeting, obligating and spending their SLFRF allocations. For the period ending June 30 compared to the period ending March 31, states reported $12.3 billion in additional budgeted spending, $17.3 billion more in obligations, and $9.7 billion in added expenditures. As the data make evident, spending down the funds will occur much faster in some categories than in others.
States have until December 31, 2024, to obligate the funds and until December 31, 2026 to fully expend the funds (except for funds obligated for Surface Transportation projects and Title I projects, which must be expended by September 30, 2026). It is important to note states are beginning the process of developing budgets for the time period that includes the obligation deadline, while certain states that budget on a biennial basis already passed budgets covering that period, which may yet need to be revised. Many hurdles remain for states, territories and other SLFRF recipients that range from issues with Treasury reporting systems to workforce and supply shortages when building large infrastructure projects. As states enter budget development for fiscal 2025, they continue to seek clear instructions that take into account state budget laws and regulations for the obligation of personnel during the December 2024 to December 2026 timeframe; guidance for re-obligating contracts during the closeout period; and more.
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