States Legislators Can Usher In an Anti-Racist, Equitable Recovery. Here’s How.

As state legislators finalize their budgets for the year ahead, they should pursue tax and budget policies that align with three principles for an antiracist, equitable state response to the COVID-19 pandemic. To set states up for long-term success and a stronger recovery, lawmakers should:

1. Target aid to those most in need due to the pandemic and economic crises.
2. Advance short- and long-term antiracist and equitable policies to dismantle racial, ethnic, gender, and economic inequities that non-dominant groups and identities experience.
3. Strengthen state revenue systems to sustain transformative, long-term investments in Black, brown, Indigenous, and low-income communities and those with large numbers of immigrants.

As of December 2021, states and U.S. Territories have $80 billion remaining in Coronavirus State and Local Fiscal Recovery Funds (FRF), which were provided under the American Rescue Plan. States should consider the three principles when deciding how to spend their remaining federal pandemic aid to uplift communities experiencing challenges exacerbated by the pandemic and to address racism, poverty, and other injustices. States also have flexibility in determining how to appropriate this aid. How they choose to spend these dollars can advance equitable, antiracist policies to build economic recovery and long-term opportunities for all families and communities.

For example, states and territories (as well as cities and counties, which also received FRF) can use the funds to:

• Provide housing assistance. FRF can extend rental assistance programs originally funded through other sources such as the Emergency Rental Assistance Program. These programs help people avoid evictions by providing short-term assistance to cover the costs of housing and utilities. They can also provide targeted support to people who face additional barriers to housing, and therefore a greater risk of homelessness, such as those leaving jail or prison, people with substance use disorders, people with mental health conditions, and immigrants and their families. In places with limited housing supply, FRF can help develop and preserve affordable homes.
• Expand food assistance. Black and Latinx households, especially those with children, are more likely to experience food hardship. FRF can provide food benefits and meal programs to those who need help now but whom existing programs don’t reach. States that plan well can use their own funds to extend these supports to advance long-term racial, ethnic, and economic equity.
• Invest in K-12 extended learning and tutoring. Students of color and students from low-income families face barriers to educational opportunities due to historical discrimination. During the pandemic, many of these students lost months of learning, setting them back even more. States can use FRF to supplement initiatives to provide extended learning time and tutoring to help students recover the learning they missed and to strengthen K-12 education for children of color and those from low-income households.

To work toward the three principles, some states have directed their FRF to communities most affected by the pandemic by using aid to establish programs that promote workforce development, human services, public health, education, and more:

• Illinois invested $4.2 million for grants and administrative expenses associated with legal assistance to migrant persons.
• New Jersey appropriated $100 million for a Child Care Revitalization Fund to improve facilities, support employees, and provide workforce development programming. Job losses during the health and economic crisis have been concentrated in lower-paid industries such as child care, where women and people of color — including immigrants — are overrepresented. Targeting professional support to child care providers is important for early childhood development, families, and local economies.
• Nevada spent $4 million to establish the Nevada First-Gen Network, a statewide program to assist students in grade 6 or higher who are prospective first-generation college students and have been negatively affected by the pandemic.

States have also used FRF to address racial, ethnic, gender, and economic inequities and barriers by investing in policies and programs that provide targeted support to people with lower incomes and underrepresented groups:

• Montana invested $2 million in its Individuals with Disabilities Employment Engagement Program to support individuals with disabilities to obtain and advance in employment, extending the capacity of existing workforce programs to reach more people.
• New York City spent $3.7 million on community-driven strategies to promote mental health services in parts of the city — often with large numbers of Black, Latinx, Asian, and/or other people of color — that have historically lacked access to these services.
• Washington State allocated $45 million for a new program that addresses food insecurity and supports local farmers and food businesses. It procures local food, focusing on underrepresented farmers and ranchers including Black, Indigenous, and other people of color, to distribute to hunger relief organizations that serve communities of color and other marginalized communities.

States will need to invest more in historically excluded communities over the long term to overcome racial and ethnic inequities. This will require more revenue, which should be raised in ways that further advance equity. White supremacy and structural racism created — and perpetuate — disparities in power, resources, and opportunities, where the wealthiest 10 percent of white households hold nearly two-thirds of the nation’s wealth. Further, the upside-down nature of most state tax systems allows those with the most income to pay the least as a share of their income. Some states have begun to update their systems by raising new revenues to finance investments that broaden opportunity and promote equity. For example:

• Washington, D.C. scaled back an ineffective tax incentive for technology companies and used the savings for a range of critical programs such as homelessness services and health care for people who are undocumented. D.C. also implemented a tax increase on high-income residents to fund permanent housing for residents experiencing homelessness, raise salaries for workers in early childhood education, and increase financial assistance for workers with low earnings through D.C.’s earned income tax credit.
• New York adopted higher income taxes for millionaires. Income tax rates increased from 8.82 percent to 9.65 percent for households making over $1 million, to 10.3 percent for those making between $5 million and $25 million, and to 10.9 percent for those making over $25 million. With this new revenue, New York plans to invest in education and create a recovery grant program to assist small businesses affected by the pandemic.
• New Mexico enacted a tax increase on health insurers that is projected to raise about $110 million annually to fund Affordable Care Act marketplace subsidies. New Mexico also adopted a new statewide refundable Child Tax Credit that will provide families up to $175 per child to help address child poverty and food insecurity.