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American Rescue Plan Act provides billions in relief to state and local governments

Mar 23, 2021

The American Rescue Plan Act of 2021 (ARPA) provides funding for many different government entities, including tribal, state, county and city governments.

As we said in our previous article, the ARPA’s goals include reducing child poverty, feeding the hungry, sustaining public transit, allowing schools to reopen, helping to fix income inequality, and repairing state and local government finances.

Here are more specifics on what relief the ARPA gives to state and local governments:

  • $350 billion goes to states, counties, cities and tribal governments to cover expenditures through December 31, 2024, and replenish revenue lost due to the COVID-19 pandemic.
  • $195.3 billion goes to states and the District of Columbia. It will be divided largely based on each state’s share of unemployed workers between October and December of 2020, but each is guaranteed a minimum of $500 million. Note that the Treasury can withhold up to half of a state’s allocation for as long as 12 months based on its unemployment rate, and it can require proof of the state’s funding needs.
  • $130.2 billion goes to local governments. Broken down, $65.1 billion goes to counties, $45.6 billion goes to metropolitan cities and $19.5 billion goes to towns with fewer than 50,000 people.
  • $20 billion goes to tribal governments.
  • $4.5 billion goes to U.S. territories.
  • $1.5 billion goes, over two years, to revenue sharing counties (public lands counties). These revenue share payments are available for any governmental purpose other than a lobbying activity.

Additionally, $10 billion will go to a Coronavirus Capital Projects Fund to support work, education and health during the pandemic. Each state, plus D.C. and Puerto Rico, will receive a minimum of $100 million. Another $100 million will be divided among other U.S. territories, and a further $100 million will go to tribal governments.

What the funds can be used for

The funds are meant to be used four main ways:

  1. To respond to COVID19 and its negative economic impacts by providing assistance to households, small businesses and nonprofits, as well as impacted industries such as tourism, travel and hospitality.
  2. To provide premium pay to eligible workers who are performing essential work during this public health emergency, or by providing grants to employers with eligible workers. (Note that premium pay cannot exceed $13 per hour or $25,000 per worker.)
  3. To provision government services that were affected by a reduction in revenue due to the pandemic.
  4. To make necessary investments in water, sewer or broadband infrastructure.

Additionally, state and local governments are allowed to transfer funds to private nonprofit organizations, public benefit corporations involved in the transportation of passengers or cargo, and special-purpose units of state or local governments.

What the funds cannot be used for

The funds come with restrictions, and cannot be used:

  1. Toward any pension fund.
  2. To directly or indirectly offset a reduction in revenue that resulted from a tax cut enacted since March 3, 2021.

Any state or local government, including counties, that fail to comply with the federal law and related guidelines will be required to repay the federal Treasury.

The American Rescue Plan Act specifically provides $77 million to the Government Accountability Office and $40 million to the Pandemic Response and Accountability Committee to oversee the use of funds and help ensure transparency and accountability.

How the funds will be administered

Funds will be distributed by the U.S. Department of the Treasury in two tranches. The first 50% will be delivered no later than 60 days from the date of enactment, and the second 50% will be delivered no earlier than one year after that first payment.

The deadline to spend the funds is December 31, 2024.

Reporting will be key. States are required to report how they use funds and how state tax revenue was modified during the time funds were spent. Local governments are required to provide periodic reports detailing their use of funds.

Your next steps

The American Rescue Plan Act is a huge piece of legislation. There is additional funding for health and human services, education, housing, veterans, technology and more that we couldn’t cover in just one article.

If you’d like to discuss what provisions specifically impact your government entity, what funds are available to you and how to spend your funds, contact an advisor at Wipfli.

You can also sign up to receive additional information about the American Rescue Plan Act in your inbox, or visit our COVID-19 resource center for more on how to navigate the pandemic and resulting changes.

Author(s)

Matthew J. Schueler, CPA
Partner
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