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American Rescue Plan Act (ARPA)

This page provides an overview of the federal American Rescue Plan Act (ARPA), and specifically the Local Fiscal Recovery Fund (LFRF), as it impacts local governments in Washington State, including eligible uses of revenues, how local governments are spending funds, and reporting requirements.

It is part of MRSC's Coronavirus (COVID-19) Resources for Local Governments series.

MRSC has provided a summary and selected examples below, but we highly recommend consulting the U.S. Treasury Department’s Coronavirus State and Local Fiscal Recovery Funds resources.

ARPA also created grant programs for certain other local government programs including libraries, transit, utilities, and other areas, but this page focuses on LFRF and does not discuss those grant programs.



Overview

The American Rescue Plan Act (commonly known as “ARPA” or “ARP”) was signed into law on March 11, 2021 to provide additional financial relief in the wake of the COVID-19 pandemic. ARPA includes a significant amount of “Coronavirus State and Local Fiscal Recovery Funds” (SLFRF) for state and local governments to use over a period of several years. The local portion of these federal funds is referred to as the Coronavirus Local Fiscal Recovery Fund (LFRF).

The U.S. Treasury Department is distributing LFRF funds in two equal installments, or “tranches,” with the first distribution occurring in mid-2021 and the second occurring in mid-2022. Counties and designated “metropolitan” cities receive their distributions directly from the U.S. Treasury Department (“Treasury”), while all other cities and towns – referred to as “non-entitlement units of local government” or “NEUs” – receive their distributions through the State of Washington.


Eligible Uses of Revenues

LFRF funds may be used to cover qualifying costs obligated between March 3, 2021 and December 31, 2024 and expended by December 31, 2026.

The funds may be used for the following purposes:

  • To respond to the public health emergency 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;
  • 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 prior to the emergency; and
  • To make necessary investments in water, sewer, or broadband infrastructure.

The U.S. Treasury Department published an interim rule on May 17, 2021 providing more details about these funding areas (see 86 FR 26786). On January 27, 2022, the Treasury Department adopted the interim rule as final, with amendments providing more flexibility on certain issues (see 87 FR 4338). The final rule takes effect April 1, 2022, but Treasury states that “recipients can choose to take advantage of its flexibilities and simplifications now.”

A brief summary is provided below.

Public Health and Negative Economic Impacts

Local governments may use LFRF funds to for a wide variety of public health needs and to address negative economic impacts caused by the pandemic.

In responding to public health and negative economic impacts, the Final Rule states that Treasury will consider two eligibility requirements: (1) a negative public health impact or harm, and (2) the program, service, or other intervention that responds to the identified impact or harm. Recipients must identify a public health impact on a population or class and responses must be designed to benefit the individual or class that experiences the public health impact or harm.

The economic impacts section in particular has generated many questions. The interim rule states that low- and moderate-income households and populations may be presumed to have experienced negative economic impacts, as well as people who experienced unemployment or increased food or housing insecurity.

The final rule provides specific definitions of “low income” and “moderate income” based on the Department of Health and Human Services (HHS) Federal Poverty Guidelines or the Area Median Income (AMI) as published by the Department of Housing and Urban Development (HUD).

Treasury notes that for the vast majority of communities, the Federal Poverty Guidelines are higher than the AMI and would result in more households and communities being presumed eligible.

Treasury has provided a Tool for Determining Low and Moderate Income Households (Excel file download) to help recipients determine income thresholds for their jurisdiction based on the final rule’s definitions.

The Washington State Constitution prohibits gifts of public funds “except for the necessary support of the poor and infirm.” There is a related prohibition in the State Constitution on the lending of credit by public entities.

Based on our understanding of this provision, MRSC has historically advised that financial contributions by local government entities to private businesses, either in the form of a grant or a loan, are generally prohibited. We have also previously advised that there must be a proper public purpose or public benefit resulting from such expenditures beyond providing financial support to a local business. 

However, the state Attorney General issued two memos early in the pandemic (see March 17, 2020 memo and April 6, 2020 memo) concluding that local governments may provide cash assistance to low-income individuals struggling with COVID-19 and that, with sufficient safeguards in place, small business “loans or grants are likely permissible if a local government can establish a clear nexus between such programs and either protecting the local economy or promoting compliance with public health guidelines.”

We recommend reading the memos carefully and discussing any proposal related to financial assistance with your legal counsel.

For more details on public health and economic expenditures: See Treasury’s SLFRF Overview of the Final Rule: Responding to Public Health and Economic Impacts of COVID-19 (page 12). For the complete final Treasury rule, see Section II.A Public Health and Negative Economic Impacts.

Replacing Lost Public Sector Revenue

Local governments may use LFRF funds to pay for “government services” in an amount equal to the revenue loss experienced by the local government due to the COVID-19 public health emergency (such as a drop in sales tax or business and occupation tax collections).

Government services generally include any service traditionally provided by a government, including construction of roads and other infrastructure, provision of public safety and other services, and health and educational services.

In order to use funds to replace lost revenue, each local government must first determine revenue loss. The final Treasury rule provides a new, simplified allowance. In short, local governments may either:

  • Select a “standard allowance” of up to $10 million to spend on government services for the duration of the period, instead of estimating actual revenue loss; or
  • Calculate actual revenue loss according to the formula provided by Treasury.

Treasury will allow recipients to make a one-time selection between the two methods; once a local government has made its selection it cannot change to the other methodology. Many local governments will likely select the $10 million standard allowance, which may be claimed by any recipient even if they are receiving less than $10 million in total LFRF funds.

For more details on replacing lost public sector revenue: See Treasury’s SLFRF Overview of the Final Rule: Replacing Lost Public Sector Revenue (page 9). For the complete final Treasury rule, see Section II.C Revenue Loss.

Premium Pay (“Hazard Pay”)

Local governments may use LFRF funds to provide premium pay not to exceed $13 per hour (in addition to the regular rate of pay) to certain essential workers, or to fund grants for private employers to provide premium pay to eligible essential workers who perform in-person work. No employee may receive more than $25,000 in total premium pay (for the entire duration of the employee’s performance) using ARPA funds.

The premium pay must be for “eligible workers” performing “essential work,” and it must be “responsive” to such workers.

The final rule states that all employees of the recipient government are “eligible workers” and maintains that “essential work” is:

[W]ork that (1) is not performed while teleworking from a residence and (2) involves either (i) regular, in-person interactions with patients, the public, or coworkers of the individual that is performing the work or (ii) regular physical handling of items that were handled by, or are to be handled by, patients, the public, or coworkers of the individual that is performing the work.

In order to be “responsive,” a worker’s pay must be below a certain threshold (or above that threshold if the recipient provides written justification to Treasury explaining how the premium pay is responsive). Alternatively, recipients may demonstrate responsiveness by showing that an eligible worker is non-exempt under the Fair Labor Standards Act (FLSA) overtime provisions.

For more details on premium pay: See Treasury’s SLFRF Overview of the Final Rule: Premium Pay (page 35). For the complete final Treasury rule, see Section II.B Premium Pay.

While ARPA states that premium pay may be applied retroactively, the Washington state constitution prohibits government agencies from providing retroactive pay to public employees. For more information on this topic, see our blog post Employee Bonuses and the COVID-19 Pandemic.

However, jurisdictions may still provide premium pay for work not yet performed. For an example of such a policy, see:

Water, Sewer, or Broadband Infrastructure

Local governments may use LFRF funds for “necessary investments” in water, sewer, and broadband infrastructure. This includes projects under the Environmental Protection Agency’s Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF), as well as additional eligible projects. Examples include:

  • Drinking water infrastructure projects such as building or upgrading facilities and transmission, distribution, and storage systems, including the replacement of lead service lines;
  • Stormwater projects including culvert repair, resizing, and removal, green roofs, rainwater harvesting collection, and permeable pavement;
  • Wastewater projects, such as construction of publicly owned treatment infrastructures, managing and treating stormwater or subsurface drainage water, facilitating water reuse, and securing publicly owned treatment works; and
  • Broadband infrastructure that prioritizes projects that are designed to serve locations without access to reliable or affordable high-speed broadband service. Upon completion, these projects must reliably meet or exceed symmetrical 100 Mbps download and upload speeds, with exceptions if this is not practical due to project cost, geography, or topography. The broadband service provider must provide affordable access to low-income households.

To be considered “necessary” under the final rule, the infrastructure must be:

  • Responsive to an identified need to achieve or maintain an adequate minimum level of service, which may include a reasonable projection of increased need, whether due to population growth or otherwise;
  • A cost-effective means for meeting that need, taking into account available alternatives; and
  • For investments in infrastructure that supply drinking water in order to meet projected population growth, projected to be sustainable over its estimated useful life.

(The interim rule also stated that the infrastructure project must be unlikely to be made using private funds. The final rule withdrew this requirement due to the difficulty of assessing the likelihood, but recipients are still encouraged to prioritize projects that would provide the greatest public benefit to their respective jurisdictions.)

For more details on eligible infrastructure expenses: See Treasury’s SLFRF Overview of the Final Rule: Water & Sewer Infrastructure (page 37) and Broadband Infrastructure (page 39). For the complete final Treasury rule, see Section II.D. Investments in Water, Sewer, and Broadband Infrastructure.


Ineligible Uses of Revenues

Local governments may not use LFRF funds for:

  • Deposit into any pension fund;
  • Debt service, even if the expenses would otherwise be eligible (such as broadband infrastructure);
  • Replenishing financial reserves such as rainy day funds;
  • Satisfaction of settlements or judgments, unless the settlement requires the recipient to provide services or incur other costs that are an eligible use of LFRF funds;
  • Programs, services, or capital expenditures that undermine efforts to stop the spread of COVID-19; or
  • Expenses that violate the award terms and conditions or other laws and regulations (such as laws regarding procurement, contracting, conflicts of interest, environmental standards, or civil rights).

ARPA also prohibits states and territories from using SLFRF revenues to offset, directly or indirectly, a reduction in net tax revenue resulting from a change in law, regulation, or administrative interpretation. However, this provision does not apply to local governments.


Accounting and Financial Reporting

Local governments should carefully document their use of ARPA funds, as well as electronic copies of the guidance used in program creation, design, and implementation, as such guidance (such as the interim rule) may have evolved over time.

The State Auditor’s Office (SAO) has indicated that local governments should consult their award information they received from Treasury or the State of Washington to determine where to code the LFRF revenues. Also see the SAO COVID-19 Guidance Toolkit.

Practice Tip: There is no requirement to start a new fund for LFRF revenues. However, some jurisdictions have created a separate fund to make accounting and reporting easier. For instance, see:

  • Lakewood Ordinance No. 759 (2021) – Adopting policies and priorities for ARPA funds and approving initial expenditures; includes subsequent ordinance establishing ARPA special revenue fund to make it easier to track and report revenues

Counties and Metropolitan Cities

Counties and metropolitan cities that receive funding directly from Treasury must provide the following reports to Treasury, depending on their population size and funding received:

  • Population over 250,000: Quarterly project and expenditure reports due by January 31, 2022 and thereafter 30 days after the end of each quarter, with an annual recovery plan performance report due each year by July 31.
  • Population under 250,000 and received MORE than $10 million in LFRF revenues: Quarterly project and expenditure reports due by January 31, 2022 and thereafter 30 days after the end of each quarter. There is no requirement to submit an annual recovery plan performance report.
  • Population under 250,000 and received LESS than $10 million in LFRF revenues: Annual project and expenditure reports due April 30 of each year, with the first report due April 30, 2022.

All counties and metropolitan cities were also required to file interim reports by August 31, 2021 or 60 days after receiving funding, but those deadlines have now passed.

Non-Entitlement Cities and Towns

All “non-entitlement unit” cities and towns that receive funding through the State of Washington must file annual project and expenditure reports to Treasury by April 30 each year. The first report is due April 30, 2022.

Treasury Reporting Portal and Resources

For more information on reporting requirements, see Treasury’s webpage on Recipient Compliance and Reporting Responsibilities, which includes:

  • The full compliance and reporting guidance
  • Guidance for submitting the various reports using Treasury’s portal
  • A recovery plan template for metropolitan cities and counties over 250,000 population

Also see Treasury’s Statement Regarding Compliance with the SLFRF Interim Final Rule and Final Rule, which provides guidance on the transition from compliance with the interim rule to the final rule.


Subrecipient Agreements

The final rule clarifies that when a LFRF recipient provides funds to another entity to carry out eligible uses of the funds and serve beneficiaries, that entity becomes a subrecipient and must comply with the Uniform Guidance (2 CFR 200) and provisions that govern procurement and subgranting of federal funds.

For examples, see:

  • Clallam County ARPA Subrecipient Agreement (August 10, 2021) – Contract for economic development council to administer small business/nonprofit grants. Includes summary, contract, and Treasury guidance; see Attachments D and E at very end for scope of work and administrative costs
  • King County COVID-19 Relief Grants and Contracting – Webpage provides grant information for current subrecipient grantees and contractors, including: sample checklist to determine if an entity is a contractor or subrecipient; subrecipient pre-award risk assessment questionnaire; risk assessment scoring template; subrecipient monitoring plan; and subrecipient training materials
  • Pasco ARPA Subrecipient Agreement (July 6, 2021) – Contract for chamber of commerce to develop and implement bilingual business support program includes adopting resolution

Examples of Local ARPA Spending and Documents

Below are selected examples of how cities and counties are expending funds, soliciting public input, or providing updates related to ARPA.

Some organizations are attempting to provide more extensive tracking of local government ARPA expenditures, including:

City ARPA Webpages

County ARPA Webpages

Ordinances and Resolutions

  • Island County Resolution No. C-52-21 (August 17, 2021) – Provides ARPA-funded premium pay to certain employees for work performed after the resolution was adopted
  • Lakewood Ordinance No. 759 (September 20, 2021) – Identifying policies and priorities for the use of ARPA funds, approving initial expenditures, and establishing city ARPA program; includes subsequent ordinance establishing special revenue fund
  • Moses Lake Resolution No. 3858 and Ordinance No. 2977 (June 22, 2021) – Authorizing acceptance of ARPA funds and establishing a Coronavirus Local Fiscal Recovery Fund for the purpose of receipting ARPA revenues

Last Modified: February 23, 2022