Rebuilding for a Better Tomorrow: Montana’s Use of Federal American Rescue Plan Funds

Heather O'Loughlin | March 2021 | Presented by the Montana Budget & Policy Center

As the state accepts more than $2 billion in federal funds through the American Rescue Plan Act (ARPA) to support families and communities struggling through the COVID-19 pandemic, Montana can take proactive actions to mitigate the damage to families, businesses, and begin to build a stronger economy that will support workers and families into the future. This report provides overarching principles the legislature should consider, a summary of the federal funding streams and Montana’s allocation, and specific recommendations on the use of funds.

Guiding Principles for Effective Use of ARPA Funds

As the legislature considers the use of federal American Rescue Plan funds, including roughly $900 million in more flexible COVID state relief funds, the state should consider the following guiding principles.

1. Montana should utilize revenue recovery funds to restore critical services and ensure continuity of services into the 2023 Biennium. The executive’s proposed 2023 biennium budget was constructed in 2020, using assumptions of revenue levels that were well below previous projections.[1] While revenue levels are projected to come in for FY 2021 below the previous fiscal year, the state is now projecting steady growth in revenue for FY 2022 and FY 2023.[2] However, the 2023 Biennium budget was built on lower revenue projections and provides for austere budget growth, even in areas lacking services. Under current HJ 2 revenue estimates, Montana faces a revenue decline of $189 million over the three-year period FY 2020 – FY 2022.[3] (This is subject to change if the legislature updates HJ 2.) The state can utilize relief funds to offset declines in revenue from 2019. As such, Montana should consider using those additional funds to restore essential funding, including items such as health provider rates, early childhood education funding, and caseload adjustments for the Office of Public Defender.
2. Funding considered “one-time-only” should be used to provide direct relief for families and communities hit hardest by the pandemic, as well as critical infrastructure demands. The state can utilize flexible state relief funds to support one-time assistance to families, including bolstering SNAP, child care assistance, and cash payments to families and workers. Additionally, the state should utilize existing structures to get funding out the door quickly, including fully funding existing eligible infrastructure projects already in the queue and utilizing programs such as the Community Development Block Grant program to fund infrastructure projects targeted to underserved populations.
3. The Legislature should proceed cautiously with any tax legislation that could risk the loss of federal funds. The American Rescue Plan Act provides that the state fiscal relief funds cannot be used to cut taxes.[4] As the state considers a series of tax cut measures that could ultimately reduce revenue below ongoing expenditures, the state should reconsider any legislation that would hinder the state’s ability to access federal funds. At a minimum, tax cut legislation should be reviewed for potential conflict with ARPA limitations.
4. Montana should expedite funding allocated to local governments, those best equipped to address immediate needs quickly. The American Rescue Plan allocates roughly $300 million to local government, much of which must be appropriated by the state legislature. In order for local government to act quickly to support families, businesses, and essential services, the state should ensure these funds are appropriated expeditiously to address ongoing needs on the ground. The Legislature should also utilize existing funding streams to leverage local nonprofit organizations that can support families most impacted by COVID-19.

Appendix A – Funding included in the American Rescue Plan Act

* Funding estimates for Montana only take into account initial formula allocations.[5]