What does the American Rescue Plan Act mean for State Governments?
Administering ARPA funds will be a challenge even for the most sophisticated state and local governments. Ensuring that funds are spent with integrity, transparency and accountability is critical.
On March 12, President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) into law. It includes approximately $350 billion in direct aid to state and local governments. Here’s how it breaks down:
· States: $195.3b
· Territories: $4.5b
· Tribal Governments: $20b
· Cities and Counties: $130.2b
The ARPA includes another $200 billion for school districts, higher education, transit systems and airports. In addition, it funds rental and homeowner assistance, small businesses, food aid, rural hospitals, vaccination and testing and more. It also includes a $10 billion Capital Project Fund, half of which will be divided equally among the states and territories and the other half based on rural and low-income populations.
The amount for state and local government is more than double what was included in last year’s Coronavirus Aid, Relief, and Economic Security (CARES) Act, and the funding is both more direct and flexible. Cities and counties of every size will receive allocations — half this year and half next year — and the money can be used to respond to the public health emergency; promote economic recovery; replace lost revenue; and invest in water, sewer and broadband infrastructure.
The funds must be spent by December 31, 2024 and cannot be deposited into a pension fund or used to offset tax reductions or delay tax increases.
For many governments, the ARPA allocation will be more than enough to balance the budget, reverse service cuts and avoid layoffs. After filling the fiscal holes caused by the pandemic, these governments will have a historic opportunity to make their communities more sustainable and equitable through intentional and strategic deployment of dollars. They also run the risk of spending hastily and haphazardly, making structural budget problems worse, and failing to properly account for the dollars.
On May 10, the Treasury Department issued interim rules on how direct ARPA funding for state and local governments can be spent. The rules can be found at Interim Final Rule (treasury.gov). Consistent with the law, the rules provide significant spending flexibility and longer timeframes compared to the CARES Act.
ARPA funding represents an extraordinary opportunity for governments and government leaders to be bold. Their leadership is critical to assure these funds support recovery and chart the path for long-term economic growth in support of thriving communities. Many of the communities receiving the two planned tranches of funding also received CARES Act funding, yet there are many new cities and counties that will directly receive funding. How can they prepare?