It’s been a tough few months if you work in government at any level.  Let me further depress you with another concerning deadline that arrives at the end of next year:  December 31, 2026.  That’s when states and localities are required to have spent all of their funds that were provided via the American Rescue Plan Act (ARPA) COVID-19 relief packages.

The coming of this deadline is not the scary part, and using a deadline of this sort is a hallmark of well-run programs.  And, even more importantly, the funds were a real lifeline for local governments at a time of unprecedented crisis. (Here’s an excellent tracker on ARPA spending.) The challenge is this:  many municipalities used ARPA funds for “revenue replacement” (i.e. to fund regular government operations) and have not developed new tools or mechanisms to replace this expiring Federal revenue source. By the end of 2026, many observers are now projecting a potential local government funding crisis, especially for poorer, more rural, and lower capacity regions.

These budget fears may be premature and overblown—I certainly hope so.  But, state and local governments should be preparing now.  As noted in a new piece from the excellent Spotlight PA, Pennsylvania offers a potential model.  Governor Josh Shapiro’s current budget proposal includes a small increase in funding ($10m) for the Department of Community and Economic Development (PA DCED) to assist municipalities who may face such economic distress. If approved, the funding will be deployed in the state’s Act 47 program, which provides specialized support to localities facing severe economic distress.  (I’ve previously written about Act 47 here). This is a small, but important, down payment, and offers a potential tool to help communities before their fiscal situations become untenable. More states should consider this type of smart early intervention.

I’ve long been a fan of innovation vouchers, and have written often about them, wondering why they are not more common here in the US.  For those new to this topic, innovation vouchers are common tool in Europe and across the world.  These programs provide small grants to firms to help defray the cost of innovation in areas such as worker training, patenting, or accessing specialized consulting support. 

Most evaluations of innovation vouchers (or growth vouchers) have found them to be very effective.  Newer evaluation efforts, including one of the largest randomized controlled trial studies of vouchers, are finding somewhat more mixed results.  A new UK study of Britain’s growth voucher program, “Does Subsidizing Business Advice Improve Firm Perfomance,” is instructive on this front.  This program, which operated in the mid-2010s, provided vouchers (up to around $2500) to access outside training and consulting.

The researchers assessed the effects of this support, and found big impacts in the Year 1.  After receiving this support, firms increased sales and, to a lesser extent, employment levels.  However, these impacts did not persist over time. The researchers find several potential causes for the limited long-term effects. The biggest factors seem to stem from the inability of supported firms to make an additional leap by further improving business assets or capabilities.  In other words, growth can be sparked but sustaining it can be challenging.  In addition, much of the first year revenue growth came from local sales, and shifting to sales outside of the locality or in new markets proved more difficult for firms. If you’re interested in learning more about vouchers, this well-done report is worth a read.