The American Rescue Plan Act: Analyzing Treasury’s Recent Fiscal Recovery Funds Guidance

The American Rescue Plan Act of 2021 (ARPA) (Pub. L. 117-2) was signed into law by President Biden on March 11, 2021. Overall, ARPA intends to fund ongoing COVID-19 vaccination operations, provide direct relief to families, and support communities struggling to recover across the country.

In total, ARPA provides $1.9 trillion to governments and other entities such as hospitals, public schools, and universities to promote recovery from the pandemic. Specifically for state, local, tribal, and territorial (SLTT) governments, the law allocates $350 billion in Fiscal Recovery Funds (FRF) directly to communities to address the economic impacts of COVID-19 and stimulate long-term economic recovery.

FRF High-level Funding Breakdown

With SLTT governments set to receive initial FRF dollars, the US Treasury Department (Treasury) issued an interim final rule (Rule) and frequently asked questions earlier this week.

How to Receive Your FRF Allocation

States, counties, metropolitan cities, Tribal governments, and territories must submit a request and certification through Treasury’s Submission Portal to receive their FRF allocations. Non-entitlement units of government funding allocations are based on the relative population of the non-entitlement unit and they will receive funding through their respective states. Recipients will receive no less than fifty percent of their allocation initially, with exact timing dependent upon submission of required information via the Treasury portal.

How the FRF Differs from Other COVID-19 Financial Assistance Programs

Total available FRF funding is more than double the amount of Treasury’s Coronavirus Relief Fund (CRF) funding ($350 billion versus $150 billion). While FRF can be seen as complimentary to CRF, there are several key differences that recipients should keep in mind as they plan to use their FRF allocations.

• Localized control. With CRF, funding for local governments was passed through their respective states. However, under the FRF, allocations are being provided to all counties and more than 1,000 metropolitan cities, ensuring that local officials will be able to effectuate greater control over the use of these funds.
• Focus on long-term recovery. Treasury describes FRF as “forward looking” and has established March 3, 2021 as the eligible cost start date, as opposed to the beginning of the pandemic. Additionally, FRF allocations must be obligated to projects by December 31, 2024 and the performance period is extended to December 31, 2026. This allows recipients to execute investments for the long-term as opposed to addressing short-term needs and costs.
• Broad eligibility. ARPA specifically permits recipients to use FRF for water, wastewater and broadband projects and the Treasury guidance opens the door to affordable housing investments. Recipients will also be able to use FRF to address revenue losses attributable to reductions in economic activity due to COVID-19.
• Structured administration of funds. A key administrative difference of FRF versus CRF is the fact that Treasury is applying Uniform Administrative Requirements for Federal Awards (2 CFR 200) in their entirety, as opposed to the very truncated version applicable to CRF. By doing so, Treasury is making clear that they expect a structured approach to administration of FRF funds in part to assure a greater accountability for the use of the funds.
• Reporting requirements. The required reporting framework is built around submission of quarterly reports for most recipients. States, territories, and counties and cities with populations above 250,000 will be required to prepare and submit separate Recovery Plan Performance (RPP) reports. The initial RPP report will be due by August 31, 2021 for the period through July 31, 2021 and annual reports will be due each subsequent year on August 31. The RPP report will include key performance indicators identified by the recipient, some mandatory indicators identified by Treasury, programmatic data in specific eligible use categories, and other specific reporting requirements as noted throughout the Rule.

How to Use Your FRF Allocation

Throughout the recently released Rule and its supporting guidance, Treasury provides a series of non-exclusive examples of eligible uses of FRF allocations, ranging from public health needs and outcomes to negative economic impacts. Of note, the Rule also has a discussion on public sector revenue loss due to COVID-19 and provides a four-step process for estimating losses (using revenues from the last full fiscal year prior to January 27, 2020 as a baseline) that can be addressed using FRF. Conversely, there is also a discussion on the ARPA prohibition of recipients using the FRF to offset reductions in tax revenues – note, this is different than utilizing FRF to address public sector revenue loss due to COVID-19, which is allowable.

A clear theme throughout the Rule is that Treasury places great emphasis on the equitable use of funding – aiming to ensure that FRF funds are used to benefit segments of the population that suffered disproportionate health, economic and social impacts resulting from the COVID-19 pandemic. Two examples of this theme include:

• Premium Pay for Essential Workers. There is the strong push to provide premium pay to essential workers that “faced or face heightened risks due to the character of their work…involving regular in-person interactions or regular physical handling of items that were also handled by others.”
• Use of Qualified Census Tract (QCT) to direct funds. Jurisdictions may consider the use of the QCT to direct FRF funds to locations where at least 50 percent of households have incomes below 60 percent of area median income or have a poverty rate of 25 percent or higher. The QCT concept has been in use for decades through the Low-Income Housing Tax Credit (LIHTC) program and HUD provides a mapping tool to identify QCTs nationwide.

What’s Next?

While the COVID-19 public health emergency and its economic impact has had a dramatic impact on communities across the county, governments have a unique chance to turn the crisis into an opportunity. To best leverage this funding, recipients should, for example, carefully survey COVID-19’s impact on their local economy and key sectors; evaluate their own current financial situation; inventory all available Federal, State, and other financial resources to support their recovery; and identify outstanding needs in their communities. After doing so, governments should work with community partners to develop a comprehensive and strategic long-term recovery plan that leverages the full array of available resources. In our experience, the most impactful recoveries not only address outstanding and immediate needs, but also re-imagine how services, programs, and investments are delivered in the short- and long-term to improve the financial, physical, and social health of communities now and in the future.

Hagerty Can Help

Hagerty is working alongside communities nationwide as they develop and implement recovery plans; evaluate and prioritize available Federal, State, and other resources; as well as employ Federal and State funding, including FEMA Public Assistance, CRF, FRF and other ARPA funding sources.

Hagerty leadership and staff have worked in local, state, and federal government agencies – ranging from former senior executives to financial and programmatic staff. Our team has led, managed, and worked on financial, economic, and natural disasters and crises across the country, so we understand the urgency and pressures our clients face and help them develop and manage solutions based on their unique circumstances and goals.

In the coming weeks and months, we will be providing additional guidance and best practices surrounding the use of FRF and other COVID-19-related financial assistance. Stay tuned to our blog and publications. Also, consider signing up for our monthly Disaster Discourse Newsletter to receive the latest information from our team of experts.

Stan Gimont is a Senior Advisor for Community Recovery with Hagerty. Stan joined Hagerty after 32 years of service with HUD including serving as HUD’s Deputy Assistant Secretary for Grant Programs. With Hagerty, Stan provides strategic advisory support focused on HUD Programs, housing issues, and long-term community recovery.

John Hageman is a Senior Manager in Hagerty’s Recovery Division. Prior to joining Hagerty, John was Chief of Staff for the City of Detroit’s Office of the Chief Financial Officer, helping Detroit recover post-bankruptcy. He also has a background in management consulting with a focus in strategic management, public sector finance and administration, and restructuring, all of which he employed working with the Financial Oversight and Management Board for Puerto Rico (FOMB) as well as during his tenure with the City of Detroit. 

Kristen Kerr is a Managing Associate in Hagerty’s Recovery Division. She has
experience in working in the government administration industry, specifically through process improvement, collaboration, financial analysis, and project management, and is a subject matter expert in various cost recovery services. 

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