States and local governments are starting to receive the first payments related to the American Rescue Plan Act (ARPA). The first sets of FAQs have also been released for the Coronavirus State and Local Fiscal Recovery Funds (CSFRF / CLFRF), the Higher Education Emergency Relief Fund III, Emergency Rental Assistance (ERA2) with likely other FAQs not listed.
Many articles have been written over the last two months on ARPA in advance of the FAQs and the finalization of the Interim Final Rule. There are also many aspects of ARPA that are still up in the air. Perhaps the most important aspect is whether the restriction in ARPA against reducing taxes to supplant the reduction with ARPA funds survives the judicial process.
What are some things governments can do to help them navigate through the jungle of information?
1. Take a government-wide view of the waterfall of federal funds received during the pandemic (and still to come) to better understand the pools of funds and what are allowable costs specific to that pool.
Governments have been receiving so much money, they may forget that each federal act may have different allowable costs, even though the funds may use the same Catalog of Federal Domestic Assistance number. Funds can come from the CARES Act, the often-overlooked Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act and what is in ARPA.
It’s important to build a comprehensive spreadsheet of:
2. Take a long-term approach to deciding what is the best path forward by engaging your citizens on ARPA funds.
Perhaps the most important aspect is to make decisions regarding ARPA funds for the long-term, if possible. This can be accomplished by engaging citizens as to what they would like accomplished within the limits of the funds. Take surveys or facilitate communication forums in the form of virtual “town halls” to help your governing board make the right choice for the long term.
ARPA is different than the CARES Act. Funds in the ARPA FRFs only must be obligated by December 31, 2024. Obligated is different than incurred, which is used in the CARES Act. So far, the period of performance in ARPA is until December 31, 2026. This means that governments do not have to make quick judgments. Think of it this way—your government has a big cake in front of it, but it might be the last cake it ever eats. Savor the cake as much as possible, within limits. But once that cake is gone, it is gone. Some are terming the December 31, 2024, date as the fiscal cliff.
Can you use FRF funds for a “rainy-day” reserve or stabilization fund? Currently, the FAQs say no, since they do not directly relate to the provision of government services. The best path may be to stretch out the obligating events by leaving the funds at the federal treasury.
Funding under ARPA was for new programs, as well as testing programs that are subject to single audit. Familiarize yourself with single audit implications of the American Rescue Plan Act.
3. Yes, there is a restriction on pension deposits from ARPA funds, but not entirely.
Much has been written about the restriction on pension deposits from ARPA. The Interim Final Rule does not permit deposits into pension funds to reduce a liability incurred prior to the start of the pandemic and occurs outside the recipient’s regular timing for making such payments.
However, “deposits” are also different than “payroll contributions” in the FAQs. If the payment occurs to the pension fund “on regular intervals, with contribution amounts based on a pre-determined percentage of employees’ wages and salaries,” those amounts are eligible uses of the ARPA FRF.
The Eide Bailly ARPA advisory team can help your government understand what is allowable and unallowed from ARPA funds.
4. This may be an opportunity for your government to centralize grant lifecycle processes and procedures.
For states, counties and metropolitan cities, billions of dollars in ARPA funds will be further allotted to agencies of those governments and to so-called non-entitlement units (NEUs) of government (smaller local governments). There is a large amount of reporting that has been required relating to the CARES Act that will continue with ARPA, with additional reporting on performance from some units of government.
Governments will need a communication process for determining the “cap” on allotments to NEUs, allowable costs, effective subrecipient monitoring, and required reporting. If your government is doing these processes either manually or using legacy systems, now is the time to consider speaking with one consistent voice.
5. There will be further information available.
Similar to what occurred after the passage of the CARES Act, federal agencies are trying to understand ARPA like the rest of us. Could FAQs issued from ARPA change in the future? Likely—just like in the CARES Act, especially if there is a final court decision on the allowability to reduce taxes and fund the reduction with ARPA funds.
Our ARPA advisory team will continue to update governments of upcoming changes through newsletters, webinars and direct conversations. If you have any questions in the meantime, please reach out to us.
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