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State and local governments need to fortify their fiscal position

The fiscal outlook for state and local governments has never been better or more challenging.

In brief
  • Most ARPA fund appropriations must be obligated by the end of 2024.
  • There are six fortifiers for state and local government agencies to consider during this transition period while budgets are still healthy.

On the one hand, the federal government sent state and local governments $350 billion in direct American Rescue Plan Act (ARPA) aid with limited restrictions, and billions more is still available for other pandemic aid related programs. The Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) provide another trillion and a half dollars to improve the country’s transportation, water, energy and broadband systems, in addition to addressing a variety of climate needs. Meanwhile, many state and local government revenues bounced back quickly from the COVID-19 recession, replenishing reserve funds and generating budget surpluses.

On the other hand, inflation is shrinking government’s spending power, rising interest rates are increasing the cost of municipal borrowing and reducing property tax assessments as home prices decline, volatile stock prices are reducing the funded status of pension funds, natural disasters are ever-more-frequent, and on top of all that, the public sector is struggling to fill jobs and regain its pre-pandemic capacity.


Most ARPA fund appropriations must be obligated by the end of 2024, and if the Federal Reserve’s inflation-fighting tactics continue, the recent increase in revenue collections likely will not last. When programs started or sustained with federal funding can no longer be funded and go away, the gap between constituent expectations and fiscal position reality will inevitably create political pressures.


Thankfully, it is not too late to prepare. Now is the time for state and local leaders to fortify their fiscal position and fiscal outlook. Acting during this transition period, while budgets are still healthy, can protect government balance sheets against uncertainty and set the stage for long-term growth.

Here are six "fortifiers" to consider:


State and local leaders cannot control the future, but they can control the policies, priorities and plans that will either strengthen or soften their fiscal defenses. The time is now to prepare.