As you may recall, our previous Thought Leadership article addressed what local governments can expect from the American Rescue Plan Act which was signed into law in early March. Of the $1.9 trillion in relief funding, the ARPA will provide $350 billion dollars in emergency funding for state, local, territorial, and Tribal governments to remedy the current mismatch between rising costs and falling revenues. The state funding portion is approximately $195 billion, with $25.5 billion distributed equally among the 50 states and the District of Columbia, and the remaining amount distributed according to a formula based on unemployment. The local funding portion is approximately $130 billion, equally divided between cities and counties.
When can you expect financial relief?
Localities will receive the funds in two tranches – the first, after the U.S. Treasury certifies the proceeds to each jurisdiction and the second, one year later. Funding must be spent by the end of the 2024 calendar year. Now that you know these funds are headed your way, what’s the next step? We strongly recommend that now is the critical time for careful consideration, organization, and planning, to reflect on exactly how the ARPA funds can be used to stimulate rescue efforts and lead to economic recovery in your community.
Plan now, save later:
- Whenever possible, use dedicated grants and programs, saving ARPA funds for priorities not eligible for federal/state assistance programs.
- Whenever practical, costs related to ARPA funding should be spread over the qualifying period (through December 31, 2024) to strengthen budgetary stability.
- Carefully consider all other possibilities for the practical use of ARPA funding before committing resources to ensure the best use of the temporary funding.
- Critical infrastructure updates are a well-suited use of ARPA funds because it is considered a non-recurring expense that can be targeted to strategically important long-term assets that provide benefits over many years. However, assess any ongoing operating costs that may be associated with a specific project.
Eligible uses of these funds include:
- Revenue replacement for the provision of government services to the extent of the reduction in revenue due to the COVID-19 public health emergency, relative to revenues collected in the most recent fiscal year before the emergency
- COVID-19 expenditures or negative economic impacts of COVID-19, including assistance to small businesses, households, and hard-hit industries, and economic recovery
- Premium pay for essential workers
- Investments in water, sewer, and broadband infrastructure
The law contains two restrictions on eligible uses:
- States cannot use the funds to directly/indirectly offset tax reductions or delay a tax increase
- States and localities are prohibited from depositing funds into any pension fund
Before the COVID-19 pandemic, New York State enjoyed its longest economic expansion on record. However, with the onset of the pandemic, the state lost 1.9 million private-sector jobs in March and April 2020, half of which was recovered by November 2020. While the new law stipulates the allocation process and authorized use of funds, the U.S. Department of the Treasury will be issuing regulations that will provide more detail and guidance, our team will continue to update you as more information becomes available and help you to navigate this financial relief. Since 1969, our governmental clients have depended on RBT CPAs, LLP professionals for assistance with all types of financial issues. We encourage you to contact our team today if you have questions about ARPA, or other questions surrounding the unique factors that impact the government sector.