Pandemic aid will protect against Omicron fallout, Yellen tells mayors

The $350 billion of state and local aid in the American Rescue Plan was a “vaccine for the American economy,” Treasury Secretary Janet Yellen told U.S. mayors Wednesday.

“Omicron could have derailed the economy,” Yellen said in a speech Wednesday at the 90^th winter meeting held by the U.S. Conference of Mayors, referring to the latest COVID-19 variant to surge across the country. But thanks to billions in federal stimulus aid, “when omicron started spreading around our cities it did not find them broke and broken. It found them much readier to respond.”

Andrew Harrer/Bloomberg

Local governments “decimated” by the onset of the pandemic in 2020 collectively laid off or furloughed 1.3 million workers, Yellen said. ARP funds that began to flow in April 2021 allowed them to halt additional layoffs, rehire workers, and invest in private entities to help their recovery.

“In some ways the ARP acted like a vaccine for the American economy, protecting our recovery from the possibility of new variants,” Yellen said. “The protection wasn’t complete but it was very strong and prevented communities from suffering the most severe effects of delta and omicron.”

Passed in March 2021, the American Rescue Plan Act featured $350 billion in direct aid in the State and Local Fiscal Recovery Fund, marking the third of three stimulus packages since the onset of the COVID-19 pandemic. The money has to be spent by the end of the 2024 calendar year. The funds featured fewer restrictions than previous federal aid, though several states have challenged Treasury’s requirements for the use of the funds. The department is also in the midst of a fight with Arizona over a potential claw back of the stimulus funds.

Yellen’s comments about cities leading the 2021 economic recovery were supported by a new IHS Markit report released Wednesday by the U.S. Conference of Mayors. Metro areas last year enjoyed a rapid recovery from the sharp downturn in 2020, with 17% recovering all jobs lost in 2020 and 70% seeing job growth of at least 2% in 2021.

Metro areas are now on track to see a gross metro product, or GMP, of 4.6% in 2022, higher than the projected national GDP of 4.3%, IHS found.

The report projected that 66% of metros will see unemployment rates below 4% in 2022. Many state unemployment rates will also reach near pre-pandemic levels by mid-2022, the report said.

Yellen said ARP’s local aid was crafted to manage with a virus-led economic shock.

“Rather than one burst of money that could only be spent in certain ways, it called for sustained funding, and our Treasury team has worked hard so you can use the money as flexibly as possible,” she said.

The ARP also paved the way for the November 2021 passage of the $1.2 trillion Infrastructure Investment and Jobs Act and possibly the Build Back Better bill, Yellen said.

“By helping us alleviate the immediate crisis, the ARP helped us build up the environment for the infrastructure bill,” she said.

“You can draw a straight line between the ARP’s passage and our economic performance during delta and omicron,” Yellen said. “At the time we all believed state and local funding was important; in retrospect that program in particular and the ARP in general proved absolutely essential.”