7 Mar 2022
City leaders share how they will make ARPA and SLFRF funding decisions

City leaders share how they will make ARPA and SLFRF funding decisions

Andrew Kleine
By 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.

7 Mar 2022
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  • Getting Down to Business Eight City Leaders Talk ARPA Funding Decisions

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We spoke with city budget and finance officials across the country to get an early take on how they plan to use ARPA funding.

In brief:

  • In developing their ARPA spending plans, cities are balancing the needs to stabilize their budgets and make investments in public health, economic recovery and equity.
  • Local budget and finance officials are focused on ensuring that ARPA dollars deliver long-term impact without creating new fiscal burdens.
  • Cities are actively engaging community members and finding creative ways to leverage ARPA funding.

The American Rescue Plan Act (ARPA) includes $350 billion distributed directly to states, territories, tribal governments and local governments, known as the State and Local Fiscal Relief Funds (SLFRF).

In May 2021, Ernst & Young LLP published an article outlining 50 recommendations for how state and local governments can plan for, manage, and make an impact with ARPA funding. With thousands of local governments receiving SLFRF allocations at the same time — and no playbook to go by — the rapid sharing of ideas and insights is essential.

Recently, we spoke with city budget and finance officials across the country to get an early take on how they are managing this unprecedented influx of federal money — not just how they plan to use it, but also how they make their spending decisions.

What we learned is that these local leaders are figuring things out and taking a wide range of approaches, even to common challenges. They are being both practical and creative in stabilizing their finances, generating and evaluating investment proposals, engaging community members, promoting equitable outcomes, preparing for project implementation and managing uncertainty.  The results remain to be seen, but the initial steps are critical and instructive.

This article summarizes the full report available for download. To see our panel of city officers and to read all findings from city officials, download the PDF

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SLFRF Funding Categories

Based on the ARPA and the Treasury Department’s Interim Final Rule, SLFRF funding can be used for relief and recovery activities in four categories:

  1. To respond to the public health emergency or its negative economic impacts, including assistance to  households, small businesses and nonprofits, or to aid impacted industries such as tourism, travel and hospitality
  2. To respond to employees performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers
  3. To provide government services to the extent of the reduction in revenue due to the COVID-19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency
  4. To make necessary investments in water, sewer or broadband infrastructure

The funds must be obligated by December 31, 2024, and expended by December 31, 2026.

How funding is getting spent so far

President Biden signed the ARPA on March 11, 2021, and Treasury made SLFRF funding available in May 2021. Treasury is allocating the funds in two tranches — one this year and one next year — and recipients have more than three years to obligate and five years to expend the money. The eight cities we talked to are heeding advice from the Government Finance Officers Association (GFOA) to take their time in making spending decisions. Their interim reports, which were due August 31, showed that of more than $2 billion of their first-tranche funding, they had spent a grand total of $47,145.

More telling than how much the cities had spent two months into the program is how they have planned out their future spending. Here the cities fall along a broad continuum.

  • New Orleans

    On one end, a few cities are being especially deliberate in their planning. New Orleans, for example, has taken a cautious approach, initially worried that Congress might decide to divert a portion of ARPA funding for other priorities, such as the infrastructure bill. That worry subsided, and the city repurposed its COVID-19 coordinating committees into a 28-member Stimulus Command Task Force chaired by Mayor LaToya Cantrell. The task force is organized into working groups around six priority areas.

    To learn more about New Orleans’ planning and to see the New Orleans Stimulus Command Task Force organization chart, download the PDF.

  • Madison

    On the other end of the continuum, a few cities have appropriated and programmed both tranches of funding. Madison’s city council approved a spending plan for its $47 million allocation in June. Madison’s plan splits the funding roughly 50/50 between investments in housing, employment and violence prevention and replacing revenue loss to maintain government services. 

    Learn more in the complete report [PDF]

  • Denver

    In between are cities taking a sequenced funding approach. Denver has announced two rounds of funding. The City Council approved $46.2 million for Round 1 in July 2021, aimed at “rebuilding city capacity,” from its revenue loss amount. Brendan Hanlon, Denver’s CFO, has proposed a schedule of stepped-down revenue replacement for future years — $25 million in 2022, $12 million in 2023 and $0 in 2024 — to guard against overreliance on temporary relief funding. Round 2, with a proposed first installment of $73 million, is for community and business recovery.

    Denver’s phased approach to spending CARES Act Coronavirus Relief Funds was a model for SLFRF rollout, starting with addressing immediate needs and progressing to longer-term investments. Hanlon explains that a phased approach allows Denver to check the results of its spending and recalibrate if needed over the course of the funding availability. Unallocated funding will serve as a contingency in the event of changes in the course of the virus or the city’s needs and priorities. Download the PDF for an overview of Denver’s phased funding approach.

  • Detroit

    Detroit is focusing its ARPA-funded home repair program (Renew Detroit) on a new approach to replace 1,500 homeowners’ roofs. The city is also spending $100 million on a new Skills for Life program that employs Detroiters in neighborhood revitalization projects and helps them obtain a GED or other credential and fulltime employment paying $15/hour or more.

  • San Antonio

    The city officials we spoke to have made it their first priority to restore or preserve critical services. Some are also setting aside a portion of their allocation as contingency. San Antonio has gone so far as to model emergency COVID response scenarios from optimistic to pessimistic, with price tags ranging from $23.7 million to $73.3 million for a worst-case virus spike.

  • Chicago

    Chicago Budget Director Susie Park says that a key component of the ARPA appropriation process for Mayor Lori Lightfoot was striking the right balance between current essential services and new investments. While Park acknowledges that in her city’s Recovery Plan, “not everything is tidy as onetime costs,” she has insisted that each spending proposal have a clear “off ramp” — a plan for turning off or transitioning the program to other organizations, leveraging philanthropy or other new funding sources, or handing the baton to a community partner. Proposals that could not meet this criteria were not included in the final Recovery Plan. For those that passed, Park has no illusions. “Messaging will be important” to manage expectations that the city will pick up the tab for ongoing initiatives when the SLFRF money runs out. For Chicago, the goal of the SLFRF is to provide resources for a successful pandemic recovery, so the projects funded by the City are intended to support communities in this effort by strategically and intentionally investing in community priorities to increase safety and opportunities. The intended outcome is a stronger, resilient city based on those onetime investments.

    Cities that decide to use SLFRF funds to start or expand permanent programs are doing so with their eyes open. Park reports that Chicago restored fewer than half of the 1,000 vacant positions it cut in 2020, which will help make room in the city’s base budget.

  • Tulsa

    In Tulsa, Mayor G.T. Bynum has been clear that SLFRF funding should be used for onetime projects, but if some merit local funding in the future, CFO James Wagner believes that a priority-based budgeting process will help accommodate new spending.

  • Baltimore

    Baltimore is a good case study to start. According to Budget Director Bob Cenname, the city has allocated its $640 million into four “buckets”: $130 million for budget stabilization, $400 million for agency-developed projects, $100 million for community-proposed projects and $10 million for administrative expenses. Mayor Brandon Scott directed his agencies to develop project proposals with three priorities in mind: COVID-19 response, broadband access and violence reduction. To review proposals, he appointed a “results team” that includes his budget, planning and equity officers, plus private sector members. The team scores proposals on a 100-point scale based on five criteria, the most heavily weighted being equity. The others are public good, performance metrics, onetime expense and ability to leverage other funding sources. Projects that earn 60 or more points go back to the agency for detailed implementation planning, then to the mayor and city administrator for final decisions.

    To learn more and to see a chart detailing Baltimore’s SLFRF proposal review process, download the PDF.

The ambitions for what SLFRF funding can accomplish are bold. In its Interim Final Rule, Treasury writes, “[T]hese resources lay the foundation for a strong, equitable economic recovery … by addressing the systemic public health and economic challenges that may have contributed to more severe impacts of the pandemic among low-income communities and people of color.”1 The SLFRF compliance and reporting guidance requires recipients to describe their efforts to achieve equitable outcomes, design projects using evidence and measure results.

Across the board, the CFOs and budget directors we spoke to embrace the focus on measurable outcomes, one saying hopefully that he expects the SLFRF to put a strong shoulder to shifting his city to an “evidence-based culture.” They are also unanimous in fretting that the biggest challenge lies ahead — actually getting the dollars spent in a way that delivers desired outcomes.

Finance officers understand better than most the treacherous path between ideas and impacts. Besides the old bureaucratic obstacles that delay hiring and procurement, the current economic environment is full of new ones, including rising inflation, a labor market in flux and strained supply chains. With so much competition for the goods and services needed to execute projects, cities are rightfully worried about how they will get theirs.

Some cities have explicitly made implementation a factor in their selection of projects.

Some cities have explicitly made implementation a factor in their selection of projects. New Orleans is focusing on just a few big initiatives: alternative response to mental health emergencies and neighborhood beautification. Detroit is primarily focusing on areas of existing administrative strength, scaling them up in ways previously not possible for lack of funding. Given the size and scope of ARPA funding, several cities are adding staff dedicated to coordinating, monitoring and reporting the use of the dollars. Detroit has hired an “ARPA CFO,” and Baltimore has established a 10-person ARPA office.

In Chicago, the Civic Consulting Alliance and consulting partners assisted the city in setting up an ARPA governance structure and project management office (PMO) encompassing every aspect of implementation. The effort involves standardizing, centralizing and summarizing information for some 70 initiatives, as well as anticipating and mitigating business process bottlenecks (e.g., hiring and contracting) that could slow progress.

With deadlines for obligating and expending funds, elaborate compliance rules, and the prospect of audits and clawbacks, attention to detail is critical. EY-Parthenon is helping Chicago to have detailed project plans and budgets; real-time cash flow monitoring; continuous progress and performance reporting; and clear command, control and communication lines. Fully realized, the PMO will eliminate implementation roadblocks, identify and quickly resolve risks and issues, and reallocate funds if progress slows or priorities change.

How cities are getting creative

The flexibility of SLFRF funding is an invitation to innovate, and the city leaders we spoke with are thinking creatively. Here are some of the ideas they told us about:

  • Revenue replacement funds are for maintaining current services, and as such, they can free up unrestricted general fund or other local dollars. Madison is using that flexibility to restore fund balance it used in 2021 due to the economic impacts of the pandemic.
  • Madison is also planning to use SLFRF dollars, matched by private and philanthropic money, to endow its homeless shelters and start a security deposit loan fund.
  • Both Tulsa and Denver are exploring using SLFRF funds for “Pay for Success” projects. In a Pay for Success (sometimes called social impact bond) financing model, investors in a social intervention are repaid only if the intervention achieves promised outcomes. A recent evaluation of Denver’s Supportive Housing Social Impact Bond showed that more than half the city’s cost to serve 250 people was offset by reduced need for emergency medical care, jail, detox and other public services.
  • Denver is also leveraging SLFRF dollars to develop a better strategy for filling gaps in mental health services, bringing together community partners to think about the issue in a new way.
  • Detroit is focusing its ARPA-funded home repair program (Renew Detroit) on a new approach to replace 1,500 homeowners’ roofs. The city is also spending $100 million on a new Skills for Life program that employs Detroiters in neighborhood revitalization projects and helps them obtain a GED or other credential and full-time employment paying $15/hour or more.
  • Two cities reported that they are looking at offering SLFRF-funded premium pay as a bargaining chip in labor negotiations. 

Lessons from our discussions

  1. Create an ARPA financial blueprint that establishes spending parameters, prepares for contingencies and plans for when the federal money goes away.
  2. Establish clear criteria for selecting projects that promote equity, sustainability, feasibility and other local priorities.
  3. Target community engagement to historically underrepresented communities and continue the engagement to connect people in need to relief and recovery resources.
  4. Put in place a governance structure and project management regimen that support successful implementation, compliance, results and reporting.
  5. Boost the impact of ARPA funding through creativity and collaboration.

[Download this case study]

Summary

The flexibility of SLFRF funding is an invitation to innovate. City leaders have a unique opportunity to think creatively and make practical, sustainable investments at the same time. Good planning, decision-making, and implementation are essential.

About this article

Andrew Kleine
By 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.

Upvote