Navigating the Difficulties of Using ARPA Funding

The Federal American Rescue Plan Act of 2021 (ARPA), a $1.9 trillion stimulus package, was signed on March 11, 2021. Among the allocations provisions, county governments and municipalities with populations over 50,000 will receive direct assistance. The ARPA will provide states with funding for allocation to other qualifying local governments and all other municipalities—Non-Entitlement Units of Local Governments (NEU). The distribution schedule for the funding will occur in two phases, the first distribution within 60 days of the law’s enactment and the second distribution one year after the first. Under the ARPA and the Interim Final Rule, local governments have until December 31, 2024, to obligate these funds and until December 31, 2026, to expend all the funds. 

Securing Funding for Non-entitlement Units

If a municipality is classified as a NEU and still has not received the first round of funding, respective state government officials should be contacted immediately. You can find additional information regarding NEUs from the U.S. Department of Treasury. In addition, the U.S. Department of Treasury has published an FAQ document specifically for NEUs. 

Allowable Expenditures under the ARPA

As some governments may have received funding, and others may be reviewing allocation projections or allocation requests, each will have to determine and understand many key funding provisions. One of the most central questions relates to expenditure parameters, specifically, “What are allowable costs under the ARPA?” In addition to understanding the federal law surrounding these funds, each participating government should review its respective state laws. Since the Act’s passage, many governments have been seeking clarification on or answers to various aspects of allowable expenditures. The U.S. Treasury has issued further guidance to address many of these questions, which provides a critical update to the main expenditure categories.   As listed within the Interim Final Rule, the categories are:  

• Support public health expenditures by funding COVID-19 mitigation efforts, medical expenses, behavioral healthcare, and specific public health and safety staff; 
• Address negative economic impacts caused by the public health emergency, including economic harm to workers, households, small businesses, impacted industries, and the public sector; 
• Replace lost public sector revenue, using this funding to provide government services to the extent of the reduction in revenue experienced due to the pandemic; 
• Provide premium pay for essential workers, offering additional support to those who have borne and will bear the greatest health risks because of their service in critical infrastructure sectors; and, 
• Invest in water, sewer, and broadband infrastructure, making necessary investments to improve access to clean drinking water, support vital wastewater and stormwater infrastructure, and expand access to broadband internet. 

Economic Needs and Recovery

To help address the needs and recovery within its jurisdiction, local governments should seek to understand a cross-section of individuals and businesses (for-profit and not-for-profit) that have been impacted economically by the pandemic. Many local governments have a wide range of programs, including employment, childcare, health care, and education. The Federal American Rescue Plan Act provides that a local government can use some or all its funding on current or new programs related to the negative impact of COVID-19 on its low or moderate-income citizens. Some local governments may have or wish to establish a program with an area not-for-profit entity.  While the Act specifically allows a local government to transfer any of these monies to a private nonprofit organization, as defined under U.S. Code, local governments are encouraged to review their state and local statutes/ordinances before funding a private nonprofit organization. Other local governments may wish to partner with another local government to use these funds to carry out one or more of the allowed purposes. Again, while the Act specifically allows a local government to transfer any of its allocations to a “special-purpose unit of State or local government,” local governments should review their state and local statutes before using any ARP in such partnership. The U.S. Treasury has also issued an FAQ document to assist local governments, broken down according to the above-listed expenditure categories. 

Statute and Policy Review

With additional resources available to assist in determining allowable expenditures, and as local governments begin receiving stimulus funding, local governments should also review their states’ budgetary laws as well as their cash management policies. By reviewing their internal policies and procedures and reviewing state statutes, local governments can position themselves to better track, assess, and report these funds and the needs served.  

 Federal Reporting and Compliance

As with all federal grants, local governments should be aware of reporting requirements associated with these funds. The federal reporting directives can be found in Part 2 of the U.S. Treasury State and Local Fiscal Recovery Funds Compliance and Reporting guidance. According to the U.S. Treasury, the reporting requirements are based upon the following principles—accountability, transparency, and user-friendliness, and are focused on recovery. The report categories are as follows: 

• Interim Report; 
• Project and Expenditure Report; and 
• Recovery Plan Performance Report. 

These reporting requirements can vary depending on type of government, including a county or a NEU. Therefore, governments are encouraged to review the U.S. Treasury reporting guide.  The U.S. Treasury closed the comment period for the Final Interim Rule on July 16, 2021, with the Final Rule expected within the next month or two. As such, local governments should consider waiting until final guidance is issued and continue monitoring the U.S. Treasury’s FAQ document. With potential confusion stemming from recent guidance, it’s vital to engage with a team of advisors that can offer years of experience to assist with understanding and determining a proper plan of action. For more information, please reach out to a CRI professional for assistance.