Like private businesses across the country, most local governments have experienced revenue shortfalls due to the pandemic. As part of the American Rescue Plan Act (ARPA) approved March 10, 2021, governments will receive two payments to help make up for those losses. Many governments already started receiving payments this summer.
The funds can be used for: 1) replacing lost revenue due to the pandemic; 2) offering COVID-19 assistance to businesses and residents; 3) providing premium pay for essential workers, and 4) delivering certain capital improvement and infrastructure projects.
If your local government is planning to use ARPA funds for new capital improvement projects, it may be challenging to manage that influx into your current capital improvement plan. Rather than relying on Excel and other manual steps, ClearGov’s Capital Budgeting solution automates the way you collect, create, and communicate your capital improvement plan (CIP).
What You Need To Know About ARPA Funds
Here’s a breakdown of how state and local ARPA funds will be distributed.
The state portion of the funding is approximately $195 billion. Of that, $25.5 billion will be distributed equally among all 50 states and the District of Columbia. A formula based on each state’s unemployment rate will determine how the remainder of the funds will be distributed.
Local Government Funding
The local portion of the funding is approximately $130 billion; the city portion is $65 billion, and the county portion is $65 billion.
A modified CDBG (Community Development Block Grant) formula will allocate $45.5 billion to metropolitan cities (population over 50,000). The remaining $19.5 billion will be allocated to smaller jurisdictions (population under 50,000) based on population share, but will not exceed 75% of their most recent budget as of January 27, 2020.
For counties, the county share of population will determine how the $65 billion will be allocated, with CDBG recipients receiving the larger share.
When To Expect Funds
Under ARPA, payments to local governments will be made in two tranches, with the first half occurring 60 days after enactment, and the second half one year later.
Many state and local governments began receiving their first payment this summer.
Deadline To Use Funds
ARPA funding must be spent by the end of calendar year 2024.
What ARPA Funds Can Be Spent On
ARPA funds can be transformational for state and local governments in their pandemic recovery efforts. The ARPA’s guidelines for appropriate use are broad, so elected officials will have many options for using the relief funding, including:
- Revenue replacement for government services proportionate to the reduction in revenue as a result of COVID-19.
- Premium pay for essential workers, including those in public safety, public health, health care, and human services.
- Financial assistance for households, small businesses, and the hardest hit industries in their communities.
- Investment in water, sewer, and broadband infrastructure.
What Funds CANNOT Be Spent On
Fortunately, there are not a lot of restrictions on the use of ARPA funds. State and local governments may not use funds:
- To offset tax reductions or delay a tax/tax increase, whether directly or indirectly.
- To be deposited into any pension fund.
How ARPA Funds Can Be Used For Water, Sewer & Broadband Infrastructure Capital Projects
Critical infrastructure improvements are a sound use of ARPA funds since these capital projects are non-recurring expenses. However, ongoing operating costs must be taken into consideration when planning these capital improvement projects.
ARPA guidelines specify that funds used for capital projects fall into water, sewer, or broadband infrastructure improvements. General infrastructure spending is not an eligible use.
Water & Sewer Uses
State and local governments can use ARPA funding on a wide range of water and sewer infrastructure projects supported by the U.S. Environmental Protection Agency’s Clean Water State Revolving Fund (SRF) and Drinking Water State Revolving Fund.
Under the Clean Water SRF, eligible projects include:
- Construction of publicly owned treatment works
- Nonpoint source pollution management programs
- National estuary program projects
- Decentralized wastewater treatment systems
- Systems to manage, reduce, treat, or recapture stormwater
- Water conservation, efficiency, and reuse
- Watershed pilot projects
- Energy efficiency for publicly owned treatment works
- Water reuse projects
- Security measures at publicly owned treatment works
- Technical assistance for publicly owned treatment works
Under the Drinking Water SRF, eligible uses include projects around six primary categories, including:
- Treatment (improve drinking water)
- Transmission and distribution (pipe rehabilitation, replacement, or installation)
- Source (well rehabilitation and development of new sources)
- Storage (installation or rehabilitation of storage tanks)
- Consolidation (connecting multiple water systems)
- Creation of new systems
With more people working from home and some schools still conducting remote learning, investment in broadband infrastructure may be a priority for state and local governments. Like water and sewer capital projects, ongoing operating costs must be considered when using ARPA funds for broadband infrastructure improvements.
The eligible uses for broadband infrastructure are extensive. Governments should prioritize “necessary” broadband infrastructure, while building or improving systems with modern technologies in mind.
ARPA guidelines define necessary as, “broadband service to unserved or underserved populations to reach an adequate level to permit a household to work or attend school, and that are unlikely to be met with private sources of funds.” Unserved or underserved populations are defined as places that “lack access to a wireline connection capable of reliably delivering at least 25 Mbps download and 3 Mbps upload.”
The National League of Cities has developed a more extensive overview about using ARPA funds for broadband infrastructure projects, and exact ARPA language can be found in the official Treasury FAQ document beginning in Section 6.
Using ClearGov Capital Budgeting To Optimize ARPA Fund Usage
ARPA funds can be used on existing water, sewer, or broadband capital projects, OR can be used to start new projects. Since state and local governments have until 2024 to use ARPA funds, those wanting to use them for capital improvement projects will need to plan their capital budget several years out.
Many governments still rely on legacy systems like Excel to create their capital budget. But Excel’s limitations make it error-prone, and the manual entry and consolidation is tedious and time-consuming.
ClearGov’s Capital Budgeting solution was designed to overcome these limitations by automating and streamlining the entire capital process, from start to finish.
ClearGov makes capital budgeting as easy as 1-2-3:
- Collect – Department heads are invited to submit their capital request for water, sewer, or broadband projects using pre-built request forms or easily customized forms
- Create – Using customizable criteria, the requests are automatically prioritized and organized on an intuitive dashboard. Dedicated project pages are automatically created for each project.
- Communicate – Reports are easily exported, or you can share your capital projects website to communicate your plan to the public.
One of the main advantages of ClearGov is the ability to produce multi-year, multi-scenario plans with ease. No more creating multiple Excel spreadsheets to compare plans, manually manipulating data, and struggling to get council members to understand how each potential plan impacts the rest of the budget.
With ClearGov, you can automatically create multiple scenarios over multiple years in order to easily identify the optimal use of ARPA funds. The software also generates visually engaging graphics so stakeholders can easily see how ARPA funds are allocated in each scenario, and how the plan will impact the overall budget.
Budget Better with ClearGov
Whether your government has already received its ARPA payment, or you’re still patiently waiting, early planning is key in order to make the most of your funds by the 2024 deadline. If you’re planning to use funds for capital improvements and you’re still using legacy systems like Excel, schedule a quick ClearGov demo to see how our Capital Budgeting solution can help you budget better and optimize your ARPA usage.
To see an example of how a local government is allocating funds and using ClearGov to communicate those plans with constituents, check out the city of Malden, MA’s Transparency page.