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American Rescue Plan Act: Much needed funding for municipalities; COBRA expansion

Updated: Jun 29, 2022

The American Rescue Plan Act of 2021 (H.R. 1319 – the “ARPA”) was signed into law by President Biden on March 11, 2021. This law provides large appropriations of federal funds to States and local governments to address the economic fallout related to the COVID-19 pandemic. Of particular interest to local governments is Section 603 of the ARPA, which details certain funds that will be distributed to “nonentitlement units of local government,” or those Missouri municipalities with a population of less than 50,000. These funds will be distributed to the State of Missouri by May 10th. The State will then distribute the funds in two installments, with the first installment of money—50% of the total money disbursed for cities—being paid to cities by June 9th, 2021. The State can apply for a 30-day extension, and the ARPA further allows additional extensions to be granted by the Secretary of the Treasury if the State is unable to make timely distributions. See ARPA § 603(b)(2)(C)(ii)(II). The second installment—the remaining 50%—should be distributed within 12 months after the first installment. No city action is required for Missouri to distribute the ARPA funds to your municipality.

The potential uses and limitations placed on ARPA funds are currently set out in Section 603(c) of ARPA, but the language is rather vague. Specifically, section 603(c) provides in pertinent part:

(c) Requirements.—

(1) USE OF FUNDS.—Subject to paragraph (2), and except as provided in paragraphs (3) and (4), a…nonentitlement unit of local government…shall only use the funds provided under a payment made under this section to cover costs incurred by the…nonentitlement unit of local government…by December 31, 2024

(A) 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;

(B) to respond to workers performing essential work during the COVID–19 public health emergency by providing premium pay to eligible workers of the…nonentitlement unit of local government…that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work;

(C) for the provision of government services to the extent of the reduction in revenue of such…nonentitlement unit of local government…due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the…nonentitlement unit of local government…; or

(D) to make necessary investments in water, sewer, or broadband infrastructure.

(2) PENSION FUNDS.—No…nonentitlement unit of local government…may use funds made available under this section for deposit into any pension fund.

ARPA § 603(c) (emphasis added). We anticipate that in the next few months the Department of the Treasury will release guidance on these limitations to further clarify how the ARPA funds may be utilized. At that time, we will provide a more extensive overview of the uses and limitations on ARPA funds.

It is also important to note that ARPA provides for a cap on the amount of money that a city is eligible to receive. The amount distributed to a city cannot exceed 75% of “the most recent budget…as of January 27, 2020.” See ARPA § 603(b)(2)(C)(iii). Your city should review your most recent budget to see how this cap may affect the amount of funds allocated to your city. We recommend that you compare your analysis of your city’s budget, applying the 75% cap, to this chart published by the National League of Cities, which describes the estimated allocation of money to each Missouri city. Additional guidance may be released by the Treasury in the near future to explain how this cap will apply, but for now, it seems that such a limit could result in your city receiving less money than is otherwise available under the ARPA appropriation.

Furthermore, there is concern that Republican Attorneys General will file an ARPA-related lawsuit based on claims that part of ARPA intrudes upon states’ ability to establish their own budgetary and taxation systems. Without addressing the merits of this reading of ARPA, it should be noted that this challenge appears to be related to the portion of ARPA that dictates the appropriation be kept at the state level, rather than providing for an appropriation that flows from the states to the cities. If this lawsuit is filed, there is a possibility that it could delay disbursement of funds to cities. However, it is presently unclear if such a lawsuit will be pursued and what effect it may have on disbursement timelines.

Lastly, cities should be aware that ARPA expands COBRA benefits and makes employers pay for it. Cities must provide a notice of these benefits to their employees. Currently, the Department of Labor is drafting form notices, which are expected to be released by April 10. Expanded COBRA benefits will last from April 1, 2021 to September 30, 2021. See ARPA § 9501.

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