Most local governments have received their first deposit of funds from the American Rescue Plan Act (ARPA). The second payment, set to be disbursed this spring, will round out your community’s total allocation.
Matt Horn, host of the Building Stronger Communities podcast and Director of Local Government Services with MRB Group, recently discussed the rules surrounding ARPA spending, how to prepare for the next deposit, and the best ways for local leaders to utilize this one-time infusion of federal funds.
Can ARPA funding go towards any project or expense?
The U.S. Treasury recently released its ‘final rule’ for spending ARPA local relief funds, which are meant to aid communities in COVID-19 recovery efforts. This final rule provides local governments with increased flexibility in terms of how they use said funds.
“The final rule for smaller local governments effectively says, ‘Hey, short of some really, really specific requirements, you can spend this money pretty much any way you like.’ They actually use the term ‘general government expenses’ as an eligible expense, so you have a lot more freedom with respect to what you’re able to do,” explained Horn.
What’s off limits?
ARPA funds cannot be used to support pension contributions, go towards lawsuit settlements, or be put into reserves. Apart from those stipulations, you can use your allotment to fund virtually any project.
“Think about your spending priorities, those projects that have been hanging around out there for years that you’ve really wanted to get to, but there aren’t traditional grant programs for them, or you haven’t been competitive for traditional grant programs in the past,” said Horn. “What have you been putting off due to lack of funds? These are good funds for that because there aren’t a lot of requirements around them.”
Additionally, Horn cautioned against using ARPA money on any reoccurring expenditures, or traditional everyday budgeted items like salaries, utilities, and operating expenses.
How do we prepare for the final deposit?
Smaller local governments must file one ARPA report per year until funds are exhausted. This report is due on April 30 of this year even if you haven’t touched the money yet. The first thing you’ll want to do to prepare is set up a separate bank account exclusively for ARPA funds.
In this case, said Horn, “You’re actually able to earn and keep interest on the funds that you deposit. So, there’s benefit in setting up a separate bank account and tracking those interest earnings.”
The next step is to set up a separate filing system to keep track of ARPA expenses: One file drawer for deposit paperwork from the initial allocation as well as bank account information, and then a separate file for each individual project. Feel free to integrate ARPA files into your normal filing system after the close out of your ARPA project.
Lastly, it is crucial that you set up your account with the Treasury Department now, not later. The first report is due in a little over a week, so you’ll want to have that login information squared away before crunch hour. If you fail to meet the April 30 reporting deadline, the federal government can retract your funding. This applies to any missed reporting deadline.
Best ways to spend ARPA money
Capital projects are great contenders for utilizing ARPA money. Look at comprehensive plans, long-range capital plans, and other long-range planning documents: Are there any projects that got pushed back a year because of funding? Is there an opportunity to accelerate a project?
Before you decide on a project to direct your ARPS funding towards, consider total project financing. Is your total allocation enough to entirely fund the project you’re considering? How long would it take to get other funding in place?
If you cannot have the rest of your project financing in place to sign a contract by December 2024, you must put that project aside and choose something else. Likewise, if a project cannot be fully constructed or funds fully expended by December 2026, it also must be put aside.
We’ve settled on a project, now what?
Get your community involved. Hold public hearings, conduct surveys, and host forums to engage residents in the process so you can feel confident that your funding priorities have public support.
Celebrating achievements is also important. The time to do so is when you select a project or, more crucially, when you’ve constructed or completed a project.
“Be excited about it and get your community excited about it. Demonstrate to your legislative delegation that you can move these projects forward because that makes all the difference in a future grant application or in a future allocation of funds,” encouraged Horn.