By Erin Enstad, CPA

Coronavirus Recovery Funds for Cities

On March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law. The economic relief package includes $130 billion for local governments—$45.9 billion of which will be allocated to cities with a population of 50,000 or more and $19.5 billion of which will go to cities under 50,000 population.

More funding is great news for local governments. Unfortunately, it also comes with a dose of uncertainty. Although general guidelines about the recovery funds exist, they are somewhat vague. That said, we do expect more detailed guidance to be released in the coming months. In the meantime, here’s what we know right now.

How much will your city receive?

The amounts larger cities (populations over 50,000) receive will be determined by a modified Community Development Grant (CDBG) formula. Smaller cities (less than 50,000 in population) will receive around $100 per capita. The amount your city will receive depends on several factors.

Although you can get an estimate of the amount your city can expect to receive (I’ve included a link to the estimate website at the end of this article), the estimate could change. One reason it could change has to do with your budget. For cities with populations under 50,000, the amounts they receive cannot exceed 75% of the most recent budget as of January 27, 2020.

When will your city receive its funds?

Cities will receive the money in two separate distributions. Cities over 50,000 will receive their money directly from the federal government; cities under 50,000 will receive their money from the state. The estimate in the link below is for the full amount, so it would be divided up between the two distributions.

The first disbursement will come within 60 days after the American Rescue Plan Act was signed into law (March 11, 2021). The state is required to distribute payments no later than 30 days after they receive the money; however, states can ask for an extension if necessary (up to 120 days). If the state doesn’t ask for an extension, cities could expect to receive the first disbursement around June 9, 2021.

The second disbursement will come not earlier than 12 months after the first distribution. Barring extensions, this is estimated to occur around May 10, 2022.

Will your city be required to have a single audit?

Regardless if the money is disbursed by the federal government or the state government, it will be considered federal revenue. Cities that expend more than $750,000 of federal funds during the fiscal year are required to have a single audit.

Keep in mind the $750,000 threshold is what your organization spends, not what it received. So, if your organization received $1 million in federal grants but spent only $500,000 of it in 2020, it won’t be subject to a single audit. This will be important to track since these recovery funds could be spent over multiple years.

What can these funds be used for?

At the moment, there isn’t much guidance on what will be included as an eligible expense under the American Rescue Plan Act. That said, it appears the list of included expenses is broader than what was included under the Coronavirus Relief Funds (CRF). American Rescue Plan Act funds can be used from March 3, 2021, through December 31, 2024.

Here is the current list of eligible uses under the American Rescue Plan Act. We expect future guidance to provide additional details.

Eligible uses

    • Assistance to households, small businesses, nonprofits, and aid to hard-hit industries (tourism, travel and hospitality)

    • Premium pay for essential workers

    • Revenue replacement

    • Investments in water, sewer, or broadband infrastructure

    • Transfers to nonprofit organizations, public benefit corporation, special purpose unit of government, state and tribal organizations

Non-eligible uses

    • Funds cannot be used to directly or indirectly to offset tax reductions or delay a tax or tax increase.

    • Funds cannot be deposited into any pension funds.

What should you do now?

As I mentioned, we expect to the U.S. Treasury to put out additional guidance regarding American Rescue Plan Act funds, on everything from timing to eligible uses. It’s important to stay up to speed on the latest guidance, so you know when to expect your funds and how to use them. This is something we’re following closely at AEM, so don’t hesitate to reach out if we can answer any questions you have. Contact us today!

Links:

For estimates of what cities will receive, click the following link: https://oversight.house.gov/sites/democrats.oversight.house.gov/files/State%20and%20Local%20Allocation%20Output%2003.08.21.xlsx [ Please note that if the city is located in Hennepin County it will not be included on this list, the County will be doing the allocations. ]

Here’s a link to a webinar produced by the League of Minnesota Cities (Road to Recovery Series: Coronavirus Local Fiscal Recovery Fund Introduction) that includes some helpful information: https://www.lmc.org/learning-events/previous-events/recorded-webinars/road-to-recovery-series-coronavirus-local-fiscal-recovery-fund-introduction/

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