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The American Rescue Plan Act of 2021 is Here! What’s Next for Governments?

Where’s the money going? We’re here to explain. Don’t underestimate the impact that proper, well thought out spending of the American Rescue Plan Act fund can have on your government’s future. Take a look at these frequently asked questions, considerations, and next steps from our experts related to Section 603: Coronavirus Local Fiscal Recovery Fund.

How Much was Appropriated?

$130,200,000,000, to remain available through December 31, 2024, for making payments under this section to metropolitan cities, nonentitlement units of local government, and counties to mitigate the fiscal effects stemming from COVID-19.

When Will the Funding Be Paid by the Federal Government?

To the extent practicable, with respect to each metropolitan city for which an amount is allocated, each state for which an amount is allocated for distribution to nonentitlement units of local government, and each county for which an amount is allocated, the Secretary will pay from such allocation the First Tranche Amount for such city, state, or county no later than 60 days after the date of enactment of the bill. The First Tranche is 50 percent of the amount so allocated to such metropolitan city, state, or county (as applicable).

The Second Tranche Amount for such city, state, or county will not be paid earlier than 12 months after the date on which the First Tranche Amount is paid to the city, state, or county.

How Will the Appropriated Amounts be Divided?

Metropolitan Cities

Allocation to Metropolitan Cities: $45,570,000,000 (130,200,000,000-19,530,000,000 to Nonentitlement Units of a Local Governments-$65,100,000,000 to Counties). Metropolitan city’ has the meaning given that term in section 102(a)(4) of the Housing and Community Development Act of 1974 (42 U.S.C. 5302(a)(4)) and includes cities that relinquish or defer their status as a metropolitan city for purposes of receiving allocations under section 106 of such Act (42 U.S.C. 5306) for fiscal year 2021.

The Secretary will allocate and pay to each metropolitan city an amount determined for the metropolitan city consistent with the formula under section 106(b) of the Housing and Community Development Act of 1974 (42 U.S.C. 5306(b)), except that, in applying such formula, the Secretary shall substitute ‘all metropolitan cities’ for ‘all metropolitan areas’ each place it appears

  • Determine the amount to be allocated to each metropolitan cities which shall be the greater of an amount that bears the same ratio to the allocation for all metropolitan cities as either -
    • The average of the ratios between:
      • The population of that city and the population of all metropolitan cities;
      • the extent of poverty in that city and the extent of poverty in all metropolitan cities; and
      • the extent of housing overcrowding in that city and the extent of housing overcrowding in all metropolitan cities. OR
    • The average of the ratios between:
      • The extent of growth lag in that city and the extent of growth lag in all metropolitan cities;
      • the extent of poverty in that city and the extent of poverty in all metropolitan cities; and
      • the age of housing in that city and the age of housing in all metropolitan cities.

The term “metropolitan city” means (A) a city within a metropolitan area which is the central city of such area, as defined and used by the Office of Management and Budget, or (B) any other city, within a metropolitan area, which has a population of fifty thousand or more.

Nonentitlement Units of a Local Government

Reserved $19,530,000,000 to make payments to states for distribution by the state to nonentitlement units of local government in the state. The term nonentitlement unit of local government ‘city’, as that term is defined in section 102(a)(5) of the Housing and Community Development Act of 1974 (42 U.S.C. 5302(a)(5))), that is not a metropolitan city.

First Gets Allocated to the States

The amount will be allocated to each state which bears the same proportion to such reserved amount as the total population of all areas that are nonmetropolitan cities in the state bears to the total population of all areas that are nonmetropolitan cities in all such states.

Then Gets Allocated by the State to the Nonentitlement Unit Based on Pro-rata Percentage

The state shall distribute to each nonentitlement unit of local government in the state an amount that bears the same proportion to the amount of such payment as the population of the nonentitlement unit of local government bears to the total population of all the nonentitlement units of local government in the state.

Is There a Maximum Amount a Nonentitlement Unit of Local Government Can Receive?

May not exceed the amount equal to 75 percent of the most recent budget for the nonentitlement unit of local government as of January 27, 2020.

Any amount not distributed to a nonentitlement until of local government must be returned to the Secretary.

How Long Will it Take for the State to Make a Payment to the Nonentitlement Unit of Local Government?

Not later than 30 days after a state receives a payment for nonentitlement distributions.

EXCEPTION: If an authorized officer of a state required to make distributions certifies in writing to the Secretary before the end of the 30-day distribution period that it would constitute an excessive administrative burden for the state to meet the terms with respect to 1 or more such distributions the officer may request, and the Secretary will grant, an extension of not more than 30 days.

An additional extension after 60 days may be granted ONLY IF:

  1. The authorized officer making such request provides a written plan to the Secretary specifying, for each distribution for which an additional extension is requested, when the state expects to make such distribution and the actions the state has taken and will take in order to make all such distributions before the end of the distribution period and,
  2. the Secretary determines that such plan is reasonably designed to distribute all such funds to nonentitlement units of local government by the end of the distribution period (as so extended).

What if the State Does Not Make the Payment to the Nonentitlement Unit of Local Government in Time?

If on the last date of the distribution period the state has failed to make all distributions to the nonentitlement unit an amount equal to the amount of such payment that remains undistributed as of such date will be booked as a debt of such state owed to the Federal Government, and be paid back from the state’s allocation provided under section 602(b)(3)(B)(iii), and shall be deposited into the general fund of the Treasury.

Counties

The Secretary will allocate $65,100,000,000 to make payments directly to counties in an amount that bears the same proportion to the total amount reserved as the population of each such county bears to the total population of all such entities

Is There a Minimum Amount that Must be Distributed?

No county that is an ‘urban county’ can receive less than the amount the county would otherwise receive if the amount paid were allocated to metropolitan cities and urban counties under section 106(b) of the Housing and Community Development Act of 1974.

Do All Counties Receive Funding?

In the case of an amount to be paid to a county that is not a unit of general local government, the amount is instead paid to the state in which such county is located, and such state distributes the amount to each unit of general local government within such county in an amount that bears the same proportion to the amount to be paid to such county as the population of such units of general local government bears to the total population of such county.

Where do Consolidated Governments Fit in?

A unit of general local government that has formed a consolidated government, or that is geographically contained (in full or in part) within the boundaries of another unit of general local government may receive a distribution under metropolitan cities, nonentitlement units of a local government, or counties as applicable, based on the respective formulas.

What are the Ways that Metropolitan Cities, Nonentitlement Units of a Local Government, and Counties can Use the Funding?

They can only use the funds provided to cover costs incurred by the metropolitan city, nonentitlement unit of local government, or county, by December 31, 2024, for the following items:

  • To respond to the public health emergency with respect to the Coronavirus Disease 2019 (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.
  • To respond to workers performing essential work during the COVID–19 public health emergency by providing premium pay to eligible workers of the metropolitan city, nonentitlement unit of local government, or county that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work.
    • An eligible worker means workers needed to maintain continuity of operations of essential critical infrastructure sectors and additional sectors as each chief executive officer of a metropolitan city, nonentitlement unit of local government, or county may designate as critical to protect the health and well-being of the residents of their metropolitan city, nonentitlement unit of local government, or county.
    • Premium pay is an amount of up to $13 per hour that is paid to an eligible worker in addition to wages the eligible worker otherwise receives. Such amount cannot exceed $25,000 with respect to any single eligible worker.
  • For the provision of government services to the extent of the reduction in revenue of such metropolitan city, nonentitlement unit of local government, or county due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the metropolitan city, nonentitlement unit of local government, or county prior to the emergency.
  • Or to make necessary investments in water, sewer, or broadband infrastructure.

What Can’t the Funds be Used for?

No metropolitan city, nonentitlement unit of local government, or county may use funds made available under this section for deposit into any pension fund.

What if the Funds are Used Outside the Designated Areas?

Any metropolitan city, nonentitlement unit of local government, or county that has failed to use the funds as directed will be required to repay to the Secretary an amount equal to the amount of funds used in violation.

Can the Metropolitan City, Nonentitlement Unit of Local Government, or County Transfer any Funds?

A metropolitan city, nonentitlement unit of local government, or county receiving a payment from funds made available may transfer such funds to the state in which such entity is located.

Are There Any Special Reporting Requirements Once the Funds are Received?

Any metropolitan city, nonentitlement unit of local government, or county receiving funds must provide to the Secretary periodic reports providing a detailed accounting of the uses of such funds by such metropolitan city, nonentitlement unit of local government, or county and including such other information as the Secretary may require for the administration of this section.

Will Adjustments be Made to the Funding?

The amounts otherwise determined for allocation and payment for metropolitan cities, nonentitlement units of a local government, and counties may be adjusted by the Secretary on a pro-rata basis to the extent necessary to ensure that all available funds are distributed to metropolitan cities, counties, and states in accordance with the requirements specified.

If you need further guidance on this topic, we’re here to help. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.