Unlike the previous economic stimulus bill, the American Rescue Plan Act (ARPA) provides federal funding to all state and local governments, regardless of size. However, as with most federal funding, there are restrictions on how the money can be spent.

The largest of all funding streams, the Coronavirus State and Local Fiscal Recovery Funds, is a $350 billion top-line allocation – 57% has been allocated to states and 35% to local governments. The distribution formula for this funding is different from the formula used to distribute the Coronavirus Relief Fund previously provided under the CARES Act. Allocation estimates are available on the National Association of Counties website. While the published table can provide governments with an estimate of the amounts they can anticipate receiving, it is important to note they are still subject to change.

How can ARPA funds be used?

The legislation states that the state and local fiscal recovery funds are available for four main purposes and must be used by December 31, 2024:

1. To respond to the public health emergency with respect to COVID-19 or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality.
2. To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work.
3. For the provision of 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 of the entity prior to the emergency.
4. To make necessary investments in water, sewer, or broadband infrastructure.

A state or government may also transfer funds to a private nonprofit organization, a tribal organization, a public benefit corporation involved in the transportation of passengers or cargo, or a special-purpose unit of state or local government. A local government can also transfer funds to their state government. The funding does come with restrictions including the inability to use the dollars to make pension deposits.

How will ARPA funds be distributed?

The U.S. Department of the Treasury would oversee and administer these payments to state and local governments, and every county would be eligible to receive a direct allocation from Treasury. Municipalities and counties would now receive funds in two equal tranches – with 50 percent this year and the remaining 50 percent no earlier than 12 months from the first payment. The U.S. Treasury is required to pay first tranche to counties no later than 60-days after enactment, and second payment no earlier than 12 months after the first payment.

Any government receiving these funds is required to provide periodic reports to the Secretary of the Treasury providing a detailed accounting of the uses and, in the case of a state or territory, all modifications to tax revenue sources during the period. A recoupment provision also exists. If a state, county, or municipality doesn’t comply with any provision of this bill, they will be required to repay the U.S. Treasury an equal amount to the funds used in violation of the provisions.

Planning for ARPA funding

In addition to determining how these funds will be spent, you should also be evaluating your government’s internal capacity to administer these federal funds. Be sure you understand, evaluate, and track the various requirements associated with these programs, particularly as additional guidance is issued. If you need guidance, contact SEK’s governmental services team. We’re here to help!

Paid sick and family leave credits

Under the original Family First Coronavirus Response Act (FFCRA), federal, state, and local governments were precluded from taking any credits for wages paid to employees while they were out on sick leave or family leave.

The American Rescue Plan Act made changes to the leave credits, which are effective April 1, 2021 through September 30, 2021. While the requirement to provide paid sick leave and family leave no longer exists, if a state or local government voluntarily offers to pay employees for qualifying sick leave or family leave, they are now eligible for the FFCRA payroll tax credits that were extended as part of the American Rescue Plan Act. If the governmental entity is voluntarily providing paid sick and family leave, they cannot require the employee to use their own sick time in order to obtain the tax credits.

The FFCRA states that government employers with one or more employees may provide paid sick leave to employees who cannot work or telework for a number of COVID-19 related reasons as follows:

• Employee is subject to federal, state, or local quarantine or isolation order
• A health care provider has advised employee to self-quarantine
• Employee has symptoms and is seeking a medical diagnosis
• Employee is caring for an individual who is subject to an order as described above or has been advised by health care provider to self-quarantine
• Employee is caring for a son or daughter whose school or place of care is closed, or childcare provider is unavailable
• Employee is experiencing substantially similar conditions as specified by the Secretary of the Department of Health and Human Services in consultation with the Secretaries of Labor and Treasury

The following were added as additional eligible wages paid to employees as part of the ARPA:

• Time off to obtain a COVID-19 vaccine
• Time off to request a test or COVID-19 diagnosis as requested by an employer
• Time off to recover from an injury, illness, or condition related to receiving a COVID-19 vaccine

The payroll tax credits for qualified sick pay and qualified family leave pay are claimed on the quarterly Form 941 for the quarter in which the payments were made to employees.

Federal government agencies are still prohibited from taking the credits unless they are organized as a 501(c)(1) organization.

Additional programs

Other programs that governmental entities will benefit from as part of the passage of the ARPA include FEMA disaster relief, housing, rental assistance, transportation and infrastructure dollars, among others.

 

Sources:

The National Law Review (https://www.natlawreview.com/article/impact-american-rescue-plan-act-state-and-local-governments#:~:text=Use%20of%20Funds,such%20as%20tourism%20and%20hospitality)

National Association of Counties (https://www.naco.org/resources/featured/state-and-local-coronavirus-fiscal-recovery-funds#table)