Terraform 0.12 nested for loops

The for expression in your local value association-list is producing a list of list of lists of strings, but your references to it are treating it as a list of lists of strings.

To get the flattened representation you wanted, you can use the flatten function, but because it would otherwise group everything into a single flat list I’d recommend making the innermost value an object instead. (That will also make the references to it clearer.)

locals {
  association-list = flatten([
    for user in keys(var.iam-user-policy-map) : [
      for policy in var.iam-user-policy-map[user] : {
        user   = user
        policy = policy
      }
    ]
  ])
}

The result of this expression will have the following shape:

[
  { user = "user1", policy = "policy1" },
  { user = "user1", policy = "policy2" },
  { user = "user2", policy = "policy2" },
]

Your references to it can then be in the following form:

user = local.association-list[count.index].user

policy_arn = "arn:aws-us-gov:iam::aws:policy/${local.association-list[count.index].policy}"