Overview of the American Rescue Plan Act of 2021

The American Rescue Plan Act of 2021 (the “ARPA”) became public law in March of 2021. Subtitle M of the ARPA created the Coronavirus State and Local Fiscal Recovery Fund (the “Fund”), which provides for $1.9 trillion in total Coronavirus relief aid. Of the $1.9 trillion, $350 billion will be distributed to the states and local governments. Of the $350 billion, a total of $195 billion will be delivered to the states, with at least $1.25 billion to be evenly distributed among them. The remaining $155 billion will be distributed to the states and local governments pursuant to a formula based on their share of unemployed people.

Pursuant to the ARPA, the Fund will provide $130 billion to be split evenly between cities and counties throughout the United States. Of the $65 billion to be disbursed to U.S. cities, $45 billion will be disbursed to cities with populations over fifty thousand. The remaining $20 billion will be allocated to smaller cities in accordance with population share, with respective allocations to smaller cities being capped at three-quarters of the city’s most recent budget. The $65 billion allocated to counties will be distributed based upon each counties’ population share, with recipients of Community Development Block Grants slated to receive the biggest share pursuant to the Community Development Block Grants formula.

The ARPA sets forth the COVID-19-related uses to which recipients may put the funds. Recipients may use the funds to respond to the Coronavirus public-health emergency or its economic impacts, which includes providing assistance to small businesses, nonprofits and households. States and local governments may also use ARPA funds to provide aid to industries heavily impacted by the Coronavirus, such hospitality, travel and tourism. Funds distributed under the ARPA may also be used to provide premium pay for eligible essential workers. In addition, if the Coronavirus pandemic has caused a state or local government to lose revenue, ARPA funds may be used “for the provision of government services to the extent of the reduction in revenue….” The ARPA further provides for broad use of funds to make necessary investments to water, sewer and broadband infrastructure.

Like most major legislation, however, the ARPA is not without its fair share of restrictions and conditions. For example, funds received pursuant to the ARPA may not be deposited into a pension fund, generally may not be used to match funds received pursuant to other federal programs, and generally may not be used to directly service debt, to satisfy a judgment or settlement, or to contribute to a reserve or “rainy day” fund. Except where the ARPA provides otherwise (for example, with respect to premium pay), recipients may use ARPA funds for costs incurred between March 1, 2021 and December 31, 2024. Funds may also be applied to projects that were planned or began prior to March 3, 2021, as long as the costs were incurred after March 3, 2021. If using funds received under the ARPA for premium pay for eligible workers, the funds may be used for periods prior to March 3, 2021, but must be spent within the covered period.

There are also a multitude of considerations that should be addressed prior to earmarking and expending funds received under the ARPA. Recipients of ARPA funds should, for example, be careful to avoid allocating such temporary funds to programs requiring ongoing financial commitment. States and their subdivisions should also avoid using ARPA funds to cover operating deficits, including those caused by COVID-19. On the other hand, ARPA funds are well suited for investment in critical infrastructure projects. These projects typically involve a significant upfront expenditure of funds, but do not require significant annual capital expenditures. Critical infrastructure projects also tend to produce benefits that extend for years beyond the original expenditure, such as by reducing costs, generating savings, and utilizing new technologies.

Despite its unavoidable restrictions and conditions, the American Rescue Plan Act of 2021 provides states and local governments with a relatively flexible new revenue stream. Recipients may allocate ARPA funds to the immediate needs occasioned by the Coronavirus pandemic, and may also expend such funds in ways that, with proper planning and strategic thought, can provide significant, long-lasting benefits.