Use or Lose: ARPA Spending Deadline Rapidly Approaching

July 26, 2024
Publications

By Dec. 31, 2024, any Pennsylvania borough, municipality, or local governmental unit that received funds from the American Rescue Plan Act of 2021 (ARPA) will need to have these funds obligated and these obligations must include plans to spend these funds by Dec. 31, 2026.

As background, ARPA was enacted in 2021 and it provided funding to counties, cities and local governmental units to assist in various COVID-19 recovery efforts. According to the Pennsylvania Department of Economic and Community Development (DCED), these funds are being provided for the purposes of: supporting COVID-19 response efforts as well as replace lost revenues, support economic stability for households and businesses, and address systemic public health and economic challenges. As part of the ARPA funding, Pennsylvania local governments began receiving their $6.15 billion portion of the state and local fiscal recovery funds (SLFRF) in the summer of 2021. Since receiving that SLFRF funding, Pennsylvania boroughs, municipalities and local governmental units have been working on determining the best use of these funds.

With this pending deadline rapidly approaching, Pennsylvania boroughs, municipalities and local governmental units have to ensure compliance with the ARPA spending requirements in order to avoid a loss of these funds.

In this article, we will review the potential opportunities and uses for these remaining ARPA funds and the timeframe for identifying and obligating these projects to ensure compliance with the ARPA spending requirements.

Uses

The Pennsylvania DCED website provides important information regarding the permitted uses of spending for these ARPA funds. Specifically, the DCED states that any recipient of these funds may use these funds for the following purposes:

Support public health expenditures, funding for COVID-19 mitigation efforts, medical expenses, behavioral health care and certain public health and safety staff
Address negative economic impacts caused by the public health emergency, including economic harms to workers, households, small businesses, impacted industries and the public sector
Replace lost public sector revenue, using this funding to provide government services to the extent of the reduction in revenue experienced due to the pandemic
Provide premium pay for essential workers, offering additional support to those who have and will bear the greatest health risks because of their service in critical infrastructure sectors
Invest in water, sewer and broadband infrastructure, making necessary investments to improve access to clean drinking water, support vital wastewater and stormwater infrastructure, and to expand access to broadband internet

In order to comply with these spending requirements, Pennsylvania boroughs, municipalities and local governmental units will need to ensure that any identified project qualifies as furthering one of these categories. To further aid Pennsylvania boroughs, municipalities, and local governmental units, the U.S. Department of Treasury has prepared a “Frequently Asked Questions for the Local Fiscal Recovery Funds program,” which may be found on the U.S. Department of Treasury’s website: //home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

Spending Requirements

In accordance with the ARPA spending requirements, the funds must be spent on any costs that were incurred by the borough, municipality or local governmental unit from May 3, 2021, and Dec. 31, 2024. This means that these funds must be obligated for identified projects prior to the Dec. 31, 2024, deadline. Then the funds must actually be spent by Dec. 31, 2026, on these identified projects.

The definition of “obligation” originates from 31 Code of Federal Regulations 25.3 and means an order placed for property and services and entry into contracts, subawards and similar transactions that require payment. Further, upon additional clarification from the U.S. Treasury, as noted in the U.S. Treasury obligation interim final rule quick reference guide, a recipient is also considered to have incurred an obligation by Dec. 31, 2024, with respect to a requirement under federal law or regulation or a provision of the SLFRF award terms and conditions to which the recipient becomes subject as a result of receiving or expending SLFRF funds. Accordingly, under the second part of the definition of obligation set out above, a recipient may use SLFRF funds to cover costs related to: reporting and compliance requirements, including subrecipient monitoring; single audit costs; record retention and internal control requirements; property standards; environmental compliance requirements; and civil rights and nondiscrimination requirements.

Pennsylvania boroughs, municipalities and local governmental units must ensure that any remaining SLFRF funds are obligated as per these requirements by Dec. 31, 2024.

Conclusion

As Pennsylvania borough, municipality and local governmental unit leaders are working to determine the amount of remaining ARPA funds, it is important to keep in mind the permitted uses for the spending of these funds, the ability of the local governmental unit to obligate these funds by Dec. 31, 2024, and the feasibility of being able to spend these funds on those identified projects by Dec. 31, 2026, to ensure compliance with the ARPA spending requirements.

Martha “Frannie” Reilly is co-chair of McNees Wallce & Nurick’s public finance and government services group and chair of the firm’s charitable and nonprofit and environmental, social and governance (ESG) groups. Serving clients from Devon, she advises charitable and nonprofit organizations on fiduciary duties, compliance, planning and other matters. She can be reached at freilly@mcneeslaw.com or 484-329-8036.

Ryan Gonder is a public finance, government services, and state and local tax attorney with the firm. Serving clients from Harrisburg, he leverages his unique combination of professional and educational experiences to truly appreciate clients’ concerns for technical analysis and serve as an effective advocate while providing value to the matter on which he is working. He can be reached at rgonder@mcneeslaw.com and 717-237-5340.  