Potential Changes to Obligation for American Rescue Plan Funds

When the American Rescue Plan Act (ARPA) designated $350 billion to every government jurisdiction in the country, it became apparent that specific details would follow as governments used funds to alleviate the impact on communities.

Clarifications have been released by the United States Department of the Treasury (Treasury Department) since the passage of ARPA. In November 2023, the Treasury Department issued further interim rules expanding the definition of “obligation.”

As with many ARPA interim rules, only slight variations have occurred between the proposed and the final language rules. Here’s what your government needs to know:

No Changes to Eligibility

The interim rule did not change other ARPA provisions relating to eligibility or period of performance requirements. Under the interim rule, Coronavirus State and Local Fiscal Recovery Fund (SLFRF) eligible projects must still be obligated by December 31, 2024, by states and local governments and expended by December 31, 2026 (or September 30, 2026, in some cases).

Change to Recipients

One of the most significant clarifications is that the definition of “recipients” in relation to the performance period does not include subrecipients. This means if your government passed funds via your respective state, the period of performance requirements are not direct and material requirements. This puts the budgetary responsibility of obligating SLFRF by December 31, 2024, with the recipient (again, in many cases, states).

In general, recipients may not re-obligate funds after December 31, 2024. However, specific circumstances allow a recipient to enter a new contract or modify an existing one or subaward after December 31, 2024.

Examples include:

• The contractor or subrecipient has defaulted or goes out of business. A bilateral agreement to terminate a contract or subaward for convenience occurs.
• The recipient terminates the contract or subaward due to noncompliance with procurement policies, such as being improperly awarded or a determination of bad faith activities.

Amending the Definition of Obligation

Lastly, “obligation” was amended as part of the Title 31 Code of Federal Regulations (CFR) Part 35.3. This was to provide clarity for the treatment of estimated amounts.

Recipients may have difficulty estimating indirect and direct costs associated with payroll and benefits of personnel responsible for compliance and maintaining records. The Treasury Department lists expenditures which may fall under the clarified treatment, including:

• Reporting and compliance requirements, including subrecipient monitoring
• Single audit costs
• Record retention and internal control requirements
• Property standards
• Environmental compliance requirements
• Civil rights and nondiscrimination requirements

In each case, costs must be calculated to comply with compensation rules charged to federal awards in Title 2 CFR 200.430 (Uniform Guidance). They must also:

1. Determine the amount of SLFRF funds the recipient estimates it will use to cover such expenditures.
2. Document a reasonable justification for this estimate.
3. Report those amounts to Treasury by April 30, 2024, with an explanation of how the amount was determined.
4. Report the final amount expended for these costs at award closeout.

Next Steps for Governments and the American Rescue Plan Act

The American Rescue Plan Act provided much-needed funding to governments affected by the pandemic. Now, many governments are looking to maintain compliance with the various rules set forth by the Act.

A trusted government advisor can help you work through compliance and definitions within the ARPA.