The United States and the European Union have responded to the COVID-19 pandemic with major recovery funding plans. While the plans of these two economic powerhouses share much in common, there is a fundamental difference in the amount of funding reserved for local governments. Both plans are promising, but some economists believe the EU could have additionally benefited from more funds delegated to local recovery efforts.
Summary of the American Rescue Plan Act (ARPA)
The federal government of the United States addressed the need for pandemic recovery funding through the $1.9 trillion American Rescue Plan Act (ARPA). Here is a quick summary of the main points of this sweeping piece of legislation:
- A national vaccination program
- $1,400 per-person checks for families
- Increase in child tax credit, earned-income tax credit, and child and dependent care tax credit
- Extension for unemployment insurance
- Emergency grants, loans, and investments for small businesses
- A Small Business Opportunity Fund, which provides small businesses in economically disadvantaged areas with growth capital
Breakdown of NextGenerationEU
The EU’s €800 billion recovery plan is known as NextGenerationEU, which also includes funding for an overarching vision of a greener, more technologically advanced, and more resilient future world. The EU considers the centerpiece of the plan to be the Recovery and Resilience Facility (RRF), which allocates €723.8 billion to grants and loans that address reforms and investments in all EU member states.
€338 billion of these funds are in the form of grants, while the remaining €385.8 billion is earmarked for loans for the individual member states, who will eventually repay those loans.
What Do the EU and US Pandemic Recovery Plans Have in Common?
On the surface, there are many similarities between the EU and US pandemic recovery plans. Both are designed as temporary recovery tools, have similar timelines (they require the funding to be spent by 2026), and have similar goals of becoming more resilient and supporting investments with the potential to spark transformative change in local communities. While NextGenerationEU has less funding than ARPA, it is supplemented by government funding in each member nation of the EU.
The main difference between the two plans is the funding designated for local governments. About one-sixth ($350 billion) of ARPA’s $1.9 trillion price tag is reserved for local governments through the State and Local Fiscal Recovery Fund.
City governments have control over how these funds are used based on the unique needs of their municipalities. The federal government has encouraged leaders to address not just the pressing health and economic needs related to the pandemic but to also dedicate funding toward investments in vital public services like sanitation systems and broadband Internet. Local governments are also encouraged to spend a portion of these funds on infrastructure deficiencies that may have worsened certain aspects of the pandemic.
Europe’s plan differs drastically in terms of funding for individual member states. To obtain EU funding, each member state is required to submit a national plan that shows how the funds will be used in pursuit of the EU’s green and just transition agenda. Additionally, governments at the subnational level were never consulted during the planning stages of NextGenerationEU and only have limited control over whether the money is allocated to urban projects and how that money is used.
How Have Local Governments in the US Used Pandemic Funding?
The Brookings Institution, a nonprofit public policy organization, conducted a study on American Rescue Plan spending near the end of 2021. The researchers behind this study arrived at three main findings:
- Most local governments have been slow to spend these funds, or in some cases, have been hesitant to even allocate these funds to specific projects. This is not necessarily a bad thing, as many governments have simply been taking their time to make sure funds are used appropriately.
- Only a handful of local governments have pursued transformational investment programs. Most local governments have focused on filling current or projected budgetary deficiencies, dedicated funding to project-based relief expenditures, or invested heavily in selective initiatives.
- Collaboration between nearby local governments is limited. Although funding has been sent to multiple governments within the same area, political issues have stunted collaboration between these different municipalities.
What Could the EU Learn From the US Pandemic Response?
Some economists have posited that the EU may have missed an opportunity with its pandemic funding package. The US approach placed power in the hands of local government officials, allowing them to use federal funding to tackle the most pressing issues for their localities.
The EU, on the other hand, had the opportunity to bestow similar power upon the leaders of member states and subnational governments within these nations but chose not to do so. This approach could deny these national and subnational leaders with funding that could have been used to address the most demanding local pandemic recovery issues.
Perhaps the EU could learn from the shortcomings of the NextGenerationEU plan by delegating more funding for cities during its next major investment program.