The American Rescue Plan (ARP) Act, signed into law by President Joe Biden in March 2021, allocated substantial funding to local governments across the United States to address the economic and public health challenges posed by the COVID-19 pandemic. These funds were intended to assist municipalities in a variety of ways, including aiding in economic recovery, supporting public health efforts, and investing in infrastructure. Local governments have a crucial role to play in efficiently managing and obligating these funds within the stipulated deadline of December 31, 2024. This article examines the importance of ARP spending in local governments and the looming deadlines.
The Intended Targets of ARP Funds for Local Governments
- Economic Recovery: ARP funds offer local governments the opportunity to boost their local economies. By investing in small businesses, workforce development, and employment programs, they can help rebuild communities that have been impacted by the pandemic.
- Public Health Initiatives: The ARP Act provides significant resources for local health departments to enhance vaccination efforts, testing, contact tracing, and healthcare infrastructure. These initiatives are crucial in managing and preventing the spread of COVID-19.
- Infrastructure Investment: Local governments can utilize ARP funds for vital infrastructure projects, including broadband expansion, water and sewer improvements, and transportation upgrades. These investments not only create jobs but also improve the overall quality of life in communities.
- Addressing Educational Challenges: Funds are available to support K-12 schools and colleges, ensuring that students have access to safe and effective learning environments. This includes investments in technology, facilities, and programs to mitigate learning loss due to the pandemic.
The Importance of the Deadlines
Local governments must be mindful of the December 31, 2024, deadline for obligating the ARP funds. In addition, the funds must be fully expended by December 31, 2026. These deadlines were set to ensure that funds are disbursed, allocated, and spent efficiently to address the pandemic’s immediate and long-term impacts. Several reasons highlight the significance of meeting the deadlines:
- Avoiding Clawbacks: The ARP Act allows the U.S. Department of the Treasury to claw back unspent funds after the deadline, meaning that local governments risk losing access to money that could benefit their communities if they fail to allocate the funds in time.
- Economic Recovery: Meeting the deadlines ensures that funds are deployed promptly to stimulate economic recovery, helping businesses and individuals who have been affected by the pandemic.
- Preventing Long-Term Consequences: The impacts of the pandemic, such as learning loss in schools or economic hardship in communities, need to be addressed swiftly. Delays in ARP spending can lead to long-term consequences that may be harder to mitigate in the future.
- Accountability and Transparency: Meeting the deadlines also allows local governments to maintain transparency and accountability in their spending. Proper documentation and reporting are essential to avoid potential audits or investigations.
Recent Amendments to the Plan
- The Department of Treasury has issued the 2023 Interim Final Rule to provide recipients with additional flexibility in expending the ARP funding. The new categories that supplement the existing eligible uses are:
- Emergency Relief from Natural Disasters: Funds can be used to respond to a recent natural disaster, an imminent natural disaster or one that is expected to occur in the future.
- Surface Transportation Projects: Eligible projects are specified in the 2023 Consolidated Appropriations Act.
- Title I Projects: Eligible activities are included under the Community Development Block Grant and Indian Community Development Block Grant programs.
On November 20, 2023, the Treasury issued the Obligation Interim Final Rule with the following guidance.
1. The definition of obligation has been expanded to include the following costs that may be incurred as December 31, 2024. The following expenditures should be estimated and reported by April 30, 2024.
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- Reporting and compliance requirements
- Single Audit fees
- Record retention
- Property standards
- Environmental compliance requirements
- Civil right and nondiscrimination requirements.
2. Clarified that subrecipients are not subject to the December 31, 2024 deadline
3. Affirmed that recipients cannot re-obligate or obligate additional ARP funds after December 31, 2024.
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This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
