9 minute read 26 May 2021
EY - Baker-standing-in-bakery-kitchen

How state and local governments should manage the American Rescue Plan Act funding

Authors
Andrew Kleine

Senior Director – Government & Public Sector

Author of “City on the Line.” Passionate about helping governments get the most possible value for their resources and achieve great outcomes for their residents.

Melissa Glynn

EY-Parthenon Principal, Strategy and Transactions, Ernst & Young LLP

Empathetic leader committed to improving government and social services. Animal lover and rescuer.

Amy Holloway

EY US Economic Development Advisory Services National Director

National economic development strategist serving more than 200 communities since 1995. Austinite and Ashevillian, arts lover, outdoor enthusiast and parent to two tenacious terriers.

Tom Rousakis

EY US Transactions Infrastructure Leader

Intrigued by the impact infrastructure has on our communities. Motivated to improve government agency performance. Inherited a love of food and gardening from Greek immigrant parents. Father of two.

Allen Melton

EY Americas Forensic & Integrity Services Government & Public Sector Leader

Helping clients recover financially after disasters. Extensive experience with commercial insurance claims and federal disaster grants.

9 minute read 26 May 2021

The $1.9 trillion American Rescue Plan Act (ARPA) includes approximately $350 billion in direct aid to state and local governments.

In brief:

  • Government officials will be deluged with ideas (and demands) for spending their ARPA funding.
  • EY has compiled 50 recommendations for how state and local governments can plan for, manage, and make an impact with ARPA funding.
  • Although ARPA funding is one-time money, if used wisely it can make state and local governments more fiscally sustainable for the long term.

On March 11, 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 countries

$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 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?

The sections below summarizes the full article. To read the full article download the pdf.

  • Getting ready

    Reflect and re-energize

    • ARPA funding is significant and represents a unique opportunity to make community investments, achieve equity and rebuild post-pandemic.

    Appoint a task force or commission to advise on the use of ARPA funding

    • Be sure to include all key stakeholders, give the group a clear charter and provide staff support.

    Engage in an objective assessment of needs

    • Begin any strategic planning efforts with a data and benchmarking analysis of needs across demographic groups, geographies and industries in your community.

    Map ARPA funding streams to needs and priorities

    • The ARPA contains more than 180 funding programs, covering everything from health centers to child abuse prevention to transportation to the arts.

    Define and implement governance systems

    • Align management of ARPA funds with existing or refreshed decision-making practices through government managers, executive leadership and legislators.

    Review work and workplace requirements

    • Through the pandemic, remote work became necessary, yet as society reopens, work-from-home policies should be revisited.

    Commit to transparency

    • Publicly share strategies, goals and progress, as well as tracking of funds usage (e.g., grant awards, contracts, assistance payments).

    Conduct lessons learned events

    • Governments and their community partners have adapted rapidly to meet the emerging demands of the pandemic.

    Build upon established communication channels

    • Communication about ARPA priorities and initiatives is critical to maximizing impact.
  • Managing the money

    Fully understand applicable guidance

    • Billions of dollars are available from the ARP. Federal funding is accompanied by strict rules, processes, procedures, and oversight.

    Follow evolving procurement standards

    • Many prime recipients spent CRF funds from the CARES Act during emergency and exigent periods that relaxed Uniform Guidance procurement requirements, often leading to sole sourced contracts.

    Document, document, document

    • Many organizations have limited experience and resources to handle the influx of federal funding and the specific requirements of each fund. 

    Plan and implement compliance-driven processes

    • For governments that received CARES Act funds, review compliance management efforts to assess what worked, what might be improved and/or how to streamline processes.

    Design programs to work together

    • With so many different programs funded in the ARP, it will be easy for the funding to become siloed.
  • Promoting sustainability

    Be careful not to create new programs or expand existing programs that commit your government to ongoing expenses after the ARPA funds are exhausted

    • Calling spending “one-time” does not make it any easier to discontinue a popular program.

    Don’t automatically restore funding that was cut to balance the budget prior to the ARPA

    • The sustainable way to fund new or expanded programs is by repurposing dollars within the base budget.

    Replenish reserves, fund balance or “rainy day” funds used to offset pandemic revenue loss or extraordinary expenses

    • Treasury’s interim rule does not permit ARP funds to be put in reserves, but allowable expenses can free up general revenue.

    Build a solid forecast of baseline revenue and current service costs for at least the next 5 to 10 years

    • A good forecast is the first step in planning for fiscal sustainability beyond the ARPA.

    Deal with structural budget gaps before restoring or adding funding for existing or new programs

    • Governments should be mindful of some fiscal and economic red flags that could affect their future budgets

    Review the revenue portfolio

    • The pandemic recession was especially hard on state and local governments that depend on economically sensitive revenues like sales and hotel taxes.

    Make smart capital investments

    • The ARPA law plainly allows for investment in broadband, sewer and water infrastructure, and other types of capital investments are also eligible under certain circumstances.

    Develop plans to optimize the use of physical assets

    • For many state and local government functions, working remotely will be part of the new normal.

    Invest in projects and initiatives that promise a financial return, if allowed

    • These might include economic development plans that could increase future tax revenue.

    Finally, before committing any ARPA funding, agree on a fiscal blueprint that guides how the funding will be spent.

    • Gain a comprehensive understanding of what the ARPA law allows and stay current on Treasury Department and other federal guidance
  • Making an impact

    Start with strategy

    • Governments should adopt a set of priority goals for pandemic recovery and use these goals to organize recovery work and guide how ARPA money is invested.

    Put process ahead of politics

    • With fierce competition for ARPA resources, it is essential that investment decisions are made in a fair, objective and transparent way.

    Measure and report progress, adapting plans as needed

    • Governments need to move quickly from goals to action.

    Follow the evidence

    • Communities looking for successful reemployment models, for instance, can now readily find detailed information about several examples.

    Experiment and evaluate

    • ARPA funding should not be used to start new programs with recurring costs, but it should be used to test-run promising ideas and inform future budget decisions.

    Appoint a “results team”

    • The process of deciding which ideas to fund should include a review by a team of experts and analysts who understand evidence.

    Issue challenges

    • One way to solve a tough problem is to crowdsource it.

    Think broadly about funding

    • There are over 180 programs in the ARPA.

    Cooperate regionally

    • ARPA funding is an unprecedented opportunity for neighboring jurisdictions to join forces and tackle shared challenges.
  • Driving economic recovery

    Promote inclusive economic development

    • As governments update their economic development plans for a post-pandemic economy, they should bring into the planning process historically underrepresented communities and give them a real voice.

    Rebuild and strengthen trust

    • Communities whose private, public and nonprofit organizations work well together also experience greater economic growth.

    Cultivate a technology-adept culture

    • Changes in how we do business and how we work have been accelerated in response to the pandemic because of technology.

    Shift target industries to align with global business, trade and other market trends

    • Most economic development initiatives focus activities on cultivating a handful of industry clusters that fit their regional assets and vision for the community.

    Expedite transformation of workforce development systems

    • Link user interface systems to workforce development and link workforce development to employer needs.

    Collaborate to connect small businesses with the resources they need to re-open and adapt

    • Provide them assistance to help them capture their share of available relief funding.

    When planning, consider how neighboring jurisdictions are deploying their funds

    • Some of the most impactful ARPA funded initiatives will have impacts across an entire region.
  • Advancing equity

    Plan to reduce disparities

    • The first step toward greater equity is setting explicit goals for reducing disparities.

    Engage underrepresented populations

    • Virtual meetings have boosted resident engagement, but only for those with the time and technology to access public meetings.

    Target those most in need

    • Use data to make sure the hardest hit people, businesses and neighborhoods are getting the help they need to recover.

    Bridge the digital divide

    • ARPA allows for investment in broadband infrastructure, and governments have an opportunity to provide low-cost digital access to underserved residents, promote economic growth, make municipal services smarter and possibly develop a new revenue source.

    Try participatory budgeting

    • Allocate a portion of ARPA funds to underinvested neighborhoods for one-time economic recovery projects.

    Leverage new resources

    • Many philanthropies and private companies are committed to advancing equity.

Summary

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.

About this article

Authors
Andrew Kleine

Senior Director – Government & Public Sector

Author of “City on the Line.” Passionate about helping governments get the most possible value for their resources and achieve great outcomes for their residents.

Melissa Glynn

EY-Parthenon Principal, Strategy and Transactions, Ernst & Young LLP

Empathetic leader committed to improving government and social services. Animal lover and rescuer.

Amy Holloway

EY US Economic Development Advisory Services National Director

National economic development strategist serving more than 200 communities since 1995. Austinite and Ashevillian, arts lover, outdoor enthusiast and parent to two tenacious terriers.

Tom Rousakis

EY US Transactions Infrastructure Leader

Intrigued by the impact infrastructure has on our communities. Motivated to improve government agency performance. Inherited a love of food and gardening from Greek immigrant parents. Father of two.

Allen Melton

EY Americas Forensic & Integrity Services Government & Public Sector Leader

Helping clients recover financially after disasters. Extensive experience with commercial insurance claims and federal disaster grants.