The U.S. Department of the Treasury (Treasury) recently released the Final Rule for the American Rescue Plan Act of 2021 State and Local Fiscal Recovery Funds (ARPA Funds) bringing closure to most of the uncertainty surrounding eligible uses of ARPA Funds by local municipalities. 

In general, the Final Rule provides numerous examples of eligible projects, within the four primary eligible ARPA Funds use categories. Additionally, the Final Rule provides local municipalities clear direction that as a recipient, a local municipality will have broad flexibility to use the ARPA Funds to respond to the specific needs of its local community.

As a reminder, the four primary eligible ARPA Funds use categories are as follows:

• Responding to the public health emergency concerning the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts;

• Providing premium pay to eligible workers;

• Providing government services to the extent of a recipients revenue loss due to the COVID–19 public health emergency; and

• Making necessary investments in water, sewer, or broadband infrastructure.

Since March of 2021 when the American Rescue Plan Act of 2021 was announced, it became clear that the eligible use of providing government services to the extent of a recipients revenue loss due to COVID–19 would be the broadest use category. However, prior to the Final Rule this use category could only be utilized after engaging in a complex formula for determining revenue loss that proved to be challenging for most local municipal recipients.

Two Options for Determining Revenue Loss Under the Final Rule

One of the most significant changes between the Interim Final Rule and the Final Rule is the method for determining a recipient’s revenue loss. Under the Final Rule local municipalities no longer need to engage in the yearly complex formula calculation (provided for under the Interim Final Rule) to use ARPA Funds for providing government services. Instead all recipients now have a choice for determining revenue loss. Recipients may make a one-time election between either: (i) completing a yearly full revenue loss calculation under the Treasury provided formula; or (ii) selecting the standard allowance of ten (10) million dollars total in revenue loss. 

A local municipality recipient that chooses to elect the ten million dollar standard allowance for revenue loss may then use up to ten million dollars of its ARPA Funds allocation for the eligible use of providing government services. Government services are defined as the services that have been traditionally provided by the recipient, unless such a service is expressly prohibited by the Treasury under the Final Rule. Therefore, if a local municipality receives in total less than ten million dollars in ARPA Funds the municipality may now use all of its ARPA Funds for providing government services, which includes general infrastructure projects like roads and bridges, or parks and recreation projects.

It is important to note that a recipient can only elect one format for determining revenue loss. Unless other guidance is provided by the Treasury, municipalities that previously used the actual lost revenue formula calculation and used ARPA Funds to provide government services under such calculation will likely need to stick with that format election.

Recipients are expected to be able to make this one-time election for determining revenue loss on the next reporting documents, which are currently due by April 30, 2022. The reports due in April of 2022 will be the first ARPA Funds reports due by local municipality recipients. The Treasury has indicated that electing the standard allowance for revenue loss will also provide simpler reporting for ARPA Funds used for the provision of government services. More information on the requirements for reporting and the revenue loss election is expected to be released by the Treasury closer to the April 30, 2022 deadline.

Next Steps for Local Municipality Recipients

Local municipality recipients can expect to receive the second tranche of APRA Funds, via disbursement from Pennsylvania, in the summer of 2022, twelve months after receipt of the first tranche. 

While the Final Rule does not officially take effect until April 1, 2022, the Treasury has announced that recipients can begin using ARPA Funds consist with the Final Rule now. Based on this guidance, elected officials of local municipalities can more comfortably deliberate and take action to obligate ARPA Funds in the coming months, including the consideration of projects that were previously not an option. As a reminder, the use of ARPA Funds must be obligated or incurred by December 31, 2024, and fully expended by December 31, 2026.

Given the breadth and depth of the Final Rule, including the continued ability to transfer ARPA Funds to sub-recipients or beneficiaries, local municipality recipients are encouraged to seek the advice of their Solicitor before taking action to obligate any ARPA Funds. 

Local municipalities with larger governmental bodies, like a Borough, may want to consider: (i) creating a new committee to review all proposals and suggested possible ARPA Funds projects, request and review the necessary legal opinion(s), and then make ARPA Funds obligation recommendations to Borough Council for action; or (ii) assigning such ARPA Funds review and recommendation processes to an existing committee.

The Final Rule and an Overview of the Final Rule can be located HERE on the Treasury’s website. If you have questions about the Final Rule, the use of ARPA Funds or about how the American Rescue Plan Act of 2021 impacts the municipality you serve, contact your CGA Attorney or Attorney Beth Kern.

Beth J. Kern

Attorney

Beth J. Kern provides legal services to Municipal, Business, Employment, Land Use, and Real Estate Law clients. Beth brings to her clients and practice a diverse background with over twelve years of professional experience in business and human resources management. Before joining CGA, Beth worked for Flagger Force®, a rapidly growing multi-state traffic control company, as a Human Resources professional while attending Widener Commonwealth Law School in the evening. Beth uses her business acumen and experience in human resources management to gain insight into partnering with leaders and teams to develop organization strategies. She knows that the most successful solutions are developed in partnership with the people within an organization and she loves helping clients achieve their goals.

Read Beth’s Bio Page in full HERE.