By Andy Nickerson & Jerry Newfarmer

The American Rescue Plan Act (ARPA), signed into law on March 11, 2021, provides $1.9 trillion in economic stimulus to aid in the country’s recovery from the COVID-19 health emergency. It includes $350 billion in funding for state and local governments to use for direct and indirect costs associated with responding to the public health crisis or its negative economic impacts. The U.S. Department of Treasury recently issued its Interim Final Rule to provide guidance to state and local governments to implement the Coronavirus Fiscal Recovery Funds. This unprecedented stimulus provides local government leaders with a broad range of pandemic-related spending priorities and significant flexibility on how to allocate the funds for fiscal recovery. Here are some factors local government leaders should consider as they identify spending priorities and develop a strategy for recovery.

Provides $130.2 billion to local governments.

  • $65.1 billion for counties.
  • $45.6 billion for metropolitan cities.
  • $19.5 billion for towns with fewer than 50,000 people (Non-Entitlement Units).

ARPA also provides an additional 6 categories of grant funding for 71 different programs. Of the 71 programs, local governments are eligible to participate in approximately 43. These 43 programs have been allocated $169 billion in funding, with individual local government program amounts ranging from $10 million to $47.8 billion. 

Short-term vs. long-term goals

In the short-term, local governments can use ARPA funding to replace revenue lost due to COVID-19, helping to ensure they can continue to provide needed government services and avoid cuts and layoffs. Funds can also be used for costs associated with responding to the public health emergency through COVID-19 mitigation and prevention, medical expenses, behavioral health care, public health and safety, employee payroll and benefits, and expenses related to improving the design and execution of public health programs. 

The pandemic has created significant economic hardship for many small businesses and households, especially those in industries such as food service, tourism, travel, and hospitality. Previous programs providing rental assistance, eviction moratoriums, expanded unemployment insurance benefits, and the Paycheck Protection Program (PPP) helped support households and small businesses, but additional assistance may be needed as the economy recovers. ARPA gives state and local governments a funding source and broad latitude to use those funds to support individuals and businesses that have experienced negative economic impacts due to the pandemic.  

These short-term priorities should be balanced against longer-term needs which can include addressing housing and homelessness, making necessary investments in critical infrastructure, water, sewer, or broadband infrastructure, or planning for possible long-term pandemic impacts. Eligible housing and neighborhood services include affordable housing development, addressing homelessness (including purchasing real estate for supportive housing), or providing navigation assistance to facilitate household moves to neighborhoods with high levels of economic activity for low-income residents. The rule allows for investment in critical infrastructure for healthcare, public health and safety, childcare, sanitation, transportation, and food production and services, among others. Agencies may also choose to make investments to prepare for future stress on health care and hospital systems to address long-term public health needs. Under ARPA, local governments have until the end of 2024 to obligate funding and until the end of 2026 to expend the funding, which provides time for leaders and communities to identify goals and develop plans for addressing these long-term challenges.

Additional ARPA programs are allowed in low-income areas. These presumptively eligible activities span programs directly addressing public health, social services, education, childcare, and housing insecurity. A Qualified Census Tract for such services is defined as any census tract in which at least 50 percent of households have an income less than 60 percent of the Area Median Gross Income (AMGI), or which has a poverty rate of at least 25 percent. 

Tensions between one-time spending and ongoing programs

Careful consideration should be placed on funding priorities that are one-time in nature versus those that are ongoing. Agencies could use Federal stimulus funds to provide program services over the next few years, however this approach should be paired with longer-term plans for alternative funding sources.

Some agencies may want to consider a ‘blended’ approach between one-time spending and replacing revenue losses caused by the pandemic. Using a comprehensive approach of blending, ARPA funding can help local governments address revenue losses and make strategic investments in economic development initiatives, such as small business assistance, infrastructure investment, affordable housing development, and relief for business sectors most severely impacted by the COVID-19 pandemic. For example:

  • Small business assistance – More than 70% of small businesses report they have been moderately or significantly impacted by the pandemic. ARPA funds can be used for grant or loan programs to help small businesses with payrolls, rent, utilities, and operating costs.
  • Infrastructure investment – While ARPA funding cannot be used for a general infrastructure project unless the project responds to a specific pandemic public health need, funds can be used for water, sewer, and broadband infrastructure.
  • Affordable housing – Many local governments are faced with providing more affordable housing opportunities in their communities. ARPA funds can help with new projects and the rehabilitation of existing affordable housing projects. 
  • Targeted relief – ARPA emphasizes aid to industries significantly damaged by the pandemic including tourism, lodging, hospitality, and restaurants. 

Investment in technology and cyber security

ARPA funds can also be used in a variety of ways to increase efficient delivery of government services. This could include making investments to improve data collection and analysis, providing online service delivery, upgrading technology and software, and investing in cyber security. Examples include:

  • Constituent friendly web-based tax or fee payment portals
  • Upgrade building department software
  • Performance management software to track community priorities and measure outcomes
  • Grants management software
  • Case management software for health and human services
  • Tools to enhance community engagement

Developing priorities and a plan

Once the impacts of the pandemic have been identified and the limitations in terms of both eligible uses and appropriate use of one-time monies have been articulated, elected officials must identify priorities for ARPA stimulus funding. Given the complicated and time-consuming nature of this process, as well as the significant sums of funding involved, it is advisable to enlist assistance from outside advisors who can provide neutral guidance and experience with similar initiatives.

In many but not all cases, the development of priorities will involve public engagement and input. It is essential for communities that wish to gather public input to find ways to engage members of underrepresented and minority groups and those most impacted by the pandemic and its resulting exacerbation of inequity. Useful techniques include electronic surveys, community meetings, focus groups, and interviews with residents, representatives of the business community, community-based organizations, and others. In addition, a robust process of enabling members of a governing board to deliberate about their own priorities, as well as hear the priorities of constituents, will result in more thoroughly considered decisions.

From these discussions, professional staff – ideally with the help of facilitators who can guide the process – develops a set of potential strategies for use of ARPA funds and broad estimates of the amount of funding that could be utilized under each strategy. Staff or the facilitator(s) can also develop recommended guidelines for the appropriate use of ARPA monies. The strategies and guidelines are then used to develop a recommended approach on how to use the funds. 

A decision-making workshop with the governing board can ensure all options are considered, discussed, and prioritized. The result of the workshop is a blueprint for developing a plan that meets the priorities and produces the maximum long-term benefit for the jurisdiction. 

Sustainability and accountability

While department leaders and elected officials determine where to allocate their fiscal recovery funds, recipients should immediately prepare their financial foundation to support and sustain the use of these funds. As with any new program, it is critical that agencies understand the true cost of the program for budgetary and strategic planning. Furthermore, well-documented costs facilitate compliance with ARPA reporting requirements imposed by the Department of the Treasury. 

As mentioned above, there are many opportunities to invest capital into long-term needs. While there is significant opportunity there, care should be taken to avoid programs that will have ongoing direct and especially indirect costs beyond 2026 that the budget cannot support. By preparing an up-to-date cost allocation plan, compliant with 2 CFR Part 200 guidelines, recipients will have the necessary insight into the true cost of all programs, agency wide. This awareness of true cost will not only help sustain existing programs, but also plays a large role in supporting and sustaining ARPA-funded programs and projects.

A byproduct of understanding true program costs is comprehensive expenditure data. To remain compliant with the parameters set forth in the Interim Final Rule, agencies must report on fiscal recovery fund expenditures. Entitlement units (agencies with populations > 50,000) will be required to produce an interim report, which includes the recipient’s expenditures by category between the date of award and July 31, 2021. This report must be submitted by August 31, 2021. Thereafter, quarterly project and expenditure reports must be submitted through the end of the award period of December 31, 2026. Non-entitlement units are required to submit annual project and expenditure reports, with the initial report period being date of award through September 30, 2021, and due October 31, 2021. Depending on the recipients’ populations, other reporting may be required. The Department of the Treasury will provide additional reporting guidelines later. While burdensome, these reporting requirements enable compliance, accountability, and transparency.

Our checklist for local governments looking to optimize their response to ARPA would include:

  1. Calculate your “revenue loss” under ARPA criteria. This is by far the most flexible component of the Act and local governments can support their overall fiscal sustainability with funds designated to offset revenue losses.
  2. Consider capital and other investments which are ARPA-eligible that will improve service or efficiency for your local government.
  3. Balance ARPA spending between one-time expenditures and ongoing programmatic expenditures. Plan to identify new revenues to support any programs once ARPA monies are exhausted. Follow this by creating a ten-year financial sustainability plan to assure that on-going direct and indirect expenses are funded.
  4. Identify Qualified Census Tracts and consider the broader ARPA investments authorized in such communities, including evidence-based violence prevention and childcare and education programs. 
  5. Evaluate ARPA beyond the fiscal recovery funds for potential utilization. While this will be competitive funding, there are more dollars available under multiple programs that could benefit your community. 

 

Andy Nickerson is President/CEO of HdL Companies. Mr. Nickerson has 29 years of experience working with cities, counties and special districts on programs to enhance tax revenues, ensure regulatory compliance and provide accurate revenue forecasting and financial planning.  Throughout his career he has been instrumental in guiding market expansion and new product development for the HdL Companies.  In his tenure as President/CEO of HdL, Mr. Nickerson has led this employee-owned company from an established regional firm to a multi-state, multi-service corporation admired for its commitment to quality and client service. With a broad range of experience in leadership, finance, public policy, and taxation, he is a trusted adviser to local government leaders and is known for possessing high standards for responsiveness, accuracy and integrity.  Throughout his career, he has been involved with various municipal organizations including The Institute for Local Government, The League of California Cities, California Society of Municipal Finance Officers, State Association of County Auditors, California State Association of Counties, Alliance for Innovation, Texas Municipal League and Government Finance Officers Association.  Mr. Nickerson earned a Bachelor of Science degree (Finance & Real Estate Law) from California State Polytechnic University, Pomona. 

Jerry Newfarmer is President/CEO of Management Partners. Mr. Newfarmer founded Management Partners in 1994 after many years of public management leadership in California and Ohio. He is a national leader in local government performance management, and he has led his firm to nationally recognized expertise in municipal development review processes, strategic planning, budgeting and finance, and organizational analysis. Mr. Newfarmer served as City Manager in Fresno and San Jose, California; and Cincinnati, Ohio. He was Assistant City Manager of Oakland, California, which was the Chief Operating Officer role. He has been a key presence in the International City/County Management Association, and was Team Leader of the State-Local Relations Team of the National Performance Review.