Spending American Rescue Plan Act funds: A primer for municipalities

The American Rescue Plan Act (ARPA) of 2021 is a $1.9 trillion legislative package that includes funding for states, local governments and tribal nations to respond to the economic and public health impacts of the COVID-19 pandemic. While initially restricted, subsequent guidance from the federal government has expanded what those funds can be used for. However, to avoid being required to repay the funds, it is important that all spending complies with the act and subsequent regulations.

As we are now seeing many cities and counties using the awarded funds, this article will provide an overview of how and when the funds can be spent and identify the major compliance requirements.

How can the funds be spent?
Under the ARPA, cities and counties may use funds to cover a wide range of expenses related to the pandemic, including:

• Premium pay: Funds can be used to provide additional compensation for “eligible workers performing essential work during the COVID-19 public health emergency or to provide grants to third-party employers [non-municipal employees] with eligible workers performing essential work.” Premium pay is designed to compensate workers who took on additional burdens or sacrifices because of the pandemic. Eligible workers include those whose work was necessary to maintain continuity of critical infrastructure sectors. A complete list of those sectors can be found in the 2020 House of Representatives HEROES Act. In addition to the critical infrastructure sectors, the chief executive or equivalent of a recipient may designate additional sectors as critical, provided doing so is necessary to protect the health and wellbeing of the residents of the jurisdiction.
• Lost revenue: Funds can be used to replace revenue lost because of the pandemic. Cities or counties can calculate the amount of revenue lost as a result of the pandemic or they can use the standard allocation of $10 million, whichever is less.
• Water, sewer and broadband: Funds can be used for water, sewer and broadband projects. Investment in these types of projects is generally limited to those that are necessary. Necessary projects would typically include those eligible for funding under the EPA’s Clean Water State Revolving Fund or Drinking Water State Revolving Fund.
• Public health emergency relief and negative economic impacts: Funds can be used to address the public health emergency created by the pandemic, including aiding of households, small businesses and nonprofits, or to aid impacted industries like tourism, travel and hospitality. To determine if a program or service is eligible for funds under this provision, the city must identify the need or negative impact of the pandemic and identify how the program, service or intervention would address the need. An eligible use under this category must be in response to COVID-19 itself or a harmful consequence of the economic disruption resulting from it.

There is no requirement for preapproval of projects.

Ultimately, although it is up to each city to determine how best to use the ARPA funds, we expect that most recipients will elect to use the funds under the “lost revenue” category. Once selected, those funds can be used for government services, which include any service traditionally provided by a government, unless the Department of the Treasury has stated otherwise.

To read the complete article, visit American City & County.