One-time money, recurring bills: the Rescue Plan’s technology hangover
The American Rescue Plan gave state and local governments $350 billion of flexible, temporary money. Where it paid for subscriptions, the risk sat in three places: the shape of the funds, the shape of the costs, and contracts signed in a hurry.
Looking Back revisits one week at a time, from January 2020 to today, and asks what it meant for the banks, health systems and public agencies we serve. The series was written in 2026, with the benefit of hindsight, and each article says which week it looks back on.
The week
On March 11, 2021, President Biden signed the American Rescue Plan Act, a $1.9 trillion relief package. Alongside direct payments, extended unemployment benefits and health coverage subsidies, it created the Coronavirus State and Local Fiscal Recovery Funds, $350 billion for states, territories, tribes, counties and cities. It also funded the Emergency Connectivity Fund for schools and libraries and a Capital Projects Fund aimed largely at broadband. Treasury’s interim final rule on the recovery funds followed in May 2021 and its final rule in January 2022. Eligible uses included responding to the public health emergency and its economic effects, premium pay, water, sewer and broadband infrastructure, and replacing lost public-sector revenue, which could in turn pay for general government services, including technology. Funds had to be obligated by the end of 2024 and spent by the end of 2026.
For state and local technology leaders, the recovery funds were the largest flexible funding event in a generation. It is tempting to judge them by what got bought. A more useful test is the fit between how the money arrived and how modern technology is paid for. The mismatch has three parts, and each created its own exposure: the funding shape (large, flexible and temporary), the cost shape of what agencies bought (increasingly recurring), and the contract terms that connected the two, often negotiated under deadline pressure.
The funding shape: generous, flexible and temporary
The recovery funds had two properties that rarely appear together in public finance. They were large relative to many local budgets. They were also flexible, especially after Treasury’s final rule let recipients claim a standard revenue-loss allowance of up to $10 million. That money could pay for general government services with lighter reporting. They were also explicitly temporary, with fixed deadlines to obligate and spend.
Temporary money suits things that end: a broadband build, a backlog clearance, a data migration, the replacement of a failing benefits system. It suits poorly anything that carries an annual bill. Finance officers knew this. The difficulty was that the most urgent technology needs of 2021 rarely fit the one-off pattern. The revenue-loss route also made it easy to fund ongoing services without a separate debate about who would pay for them later.
Timing made the problem worse. Many agencies spent their first year on planning and public engagement, then faced a compressed window to obligate funds by the end of 2024. Money that must be committed by a date tends to flow toward whatever can be contracted quickly. In technology, that usually means a subscription from a vendor already on a cooperative contract.
The cost shape: subscriptions, not assets
By 2021, much of what agencies needed was sold as a service. Cloud hosting, software-as-a-service case management, endpoint protection, identity platforms, collaboration suites and managed detection all carry recurring fees. A county that used recovery funds to move permitting, benefits intake or court scheduling to a cloud service was starting a payment stream, not buying an asset.
That was often the right call. The pandemic had shown how fragile paper and on-premises processes were. But a one-time grant was quietly creating a future operating cost. Where agencies phased those costs into general fund budgets over several years, the investment held. Where they did not, the system’s survival depended on a budget conversation scheduled for after the federal money ran out.
Cybersecurity shows the mismatch most sharply. Many governments used recovery funds, directly or through revenue replacement, for multi-factor authentication, endpoint detection, immutable backups and around-the-clock monitoring. These were sensible purchases after a year of ransomware attacks on cities, counties and school districts. Almost all of them have value only while they keep running. A monitoring service that lapses after three years leaves an agency where it started, with staff who have come to rely on protection that is gone. The same applies to the people side: a security analyst hired on grant-funded salary lines, or a managed service sized for a three-year term, needs a successor budget as much as any license does. Cyber insurers, meanwhile, began asking about exactly these controls at renewal, so a lapse could also raise premiums or narrow coverage.
Prepaid multi-year subscriptions added a subtler effect. Paying three years upfront from recovery funds made a service look cheap in its first years and hid its run-rate from the operating budget. The true annual cost surfaced only at renewal, when price increases and the end of federal money arrived together.
The contract terms: speed against durability
Recovery funds came with federal grant rules and reporting obligations, and with pressure to move quickly. Agencies used cooperative purchasing vehicles, emergency procurement where justified, and existing vendor relationships to obligate funds on time. These routes were legitimate, but they favored speed over the slower work of defining what happens after the first term.
The terms that matter most for a recurring service are the ones that apply later: renewal price caps, data export in a usable format at no extra charge, transition assistance if the agency changes provider, clear ownership of configurations and integrations, and the right to reduce license counts without penalty. Contracts signed in a hurry often left these thin. Nothing went wrong in 2022. The exposure arrives at renewal, when switching costs are highest and the agency’s bargaining power is weakest.
A sound approval process would have asked three questions of every recovery-funded technology project, one for each part. What does this cost per year once the grant is gone, and which budget line will carry it? If we stop paying, what do we keep? Do the terms after the first period protect us as well as the terms in the first period? Agencies that wrote the answers into the project record, and gave the budget office a copy, turned one-time money into durable capability. Those that did not bought a few good years.
With hindsight
By this point in 2026, the recovery funds’ final spending deadline at the end of the year is close, and these questions are practical. Many agencies used the money well: broadband builds, water system upgrades, and replacements for benefits and unemployment systems that had buckled in 2020. The strain appears where recurring technology costs were started with one-time money and never moved into base budgets. Renewals of multi-year subscriptions signed in 2021 and 2022 are arriving as the federal funds end, and some agencies face a choice between finding operating money, renegotiating, or migrating again. The broader principle held up: in public finance, the shape of the money should match the shape of the cost. Agencies that budgeted the run-rate early are in a calm position. We cannot tally how many did, because recovery-fund reporting tracks spending categories, not whether the resulting services were moved into base budgets.