Direct, Flexible Federal Aid For All Local Governments Signed By President

Posted on March 15, 2021 by chackbarth

(Update: To help answer some of the many questions we’re getting from our members, NLC shared two additional documents – Estimated State and Local Allocation Spreadsheet Reference Guide and Notes on File Labeled “State and Local Allocation Output 02.25.21) In addition, NLC has established a Q&A portal for your ARP-related questions. They would also appreciate you sharing your ongoing challenges, successes and questions through this portal.)

Following the US House’s action early last week, concurring in the Senate’s changes from the previous weekend to H.R. 1319, the American Rescue Plan Act federal stimulus was signed at the end of the week by President Biden.

Following months of advocacy by the Michigan Municipal League and our partners at the National League of Cities, we were successful in securing a $350 billion provision for aid to state and local governments.  This appropriation includes $130.2 billion of direct and flexible aid for all 19,000 local units of government across the country, regardless of population.  This aid is split evenly between counties and municipalities, at $65 billion each.

Acknowledging the strict spending limitations and lack of support for most local governments from last year’s CARES Act, Congress and the President inserted this key provision in the American Rescue Plan Act following intense lobbying from NLC and countless meetings, calls, and emails from MML staff, leadership, and member communities to Michigan’s congressional delegation over the past year.

The aid to local governments in the bill is divided into two distribution formulas.  Due to the fact that the federal government has very limited experience providing direct aid to local units and the wide variance in local government structures among the each of the states, the aid to local governments will be split with $45.5 billion being sent directly from Treasury to municipalities generally viewed at “entitlement” communities under HUD’s Community Development Block Grant program formula that uses population, poverty, and housing instability to determine estimated allocations.  The remaining $19.5 billion will be sent to each of the states to distribute to their remaining local governments on a per capita basis. Dollars granted under this $19.5 billion allocation are capped at 75% of the municipality’s most recent budget as of January 27, 2020.  The federal language requires each state to send these dollars to their municipalities within 30 days of receipt, unless granted an extension.  Even under an extension, all of these dollars must be distributed within 120 days of receipt of the state will face a financial penalty.  States are prohibited from changing these allocations or imposing additional requirements. 

All of these dollars will be sent by the federal government in two, equal distributions.  The first is required to be disbursed within 60 days of the bill’s enactment and the second, one year after the first distribution.  Municipalities may use these funds through December 31, 2024.

The Department of Treasury will need to issue guidance detailing its interpretation and implementation of eligible uses, but the statutory language specifically authorizes the following uses of these funds:

  • To respond to the pandemic or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality;
  • For premium pay to eligible workers performing essential work (as determined by each recipient government) during the pandemic, providing up to $13 per hour above regular wages;
  • For the provision of government services to the extent of the reduction in revenue due to the pandemic (relative to revenues collected in the most recent full fiscal year prior to the emergency);
  • To make necessary investments in water, sewer, or broadband infrastructure

The language explicitly prohibits funds from:

  • Offsetting, either directly or indirectly, a tax cut made since March 3, 2021;
  • Being deposited into a pension fund.

Clear guidance from US Treasury will be critical to helping local governments determine eligible expenses, but there is no doubt that revenue backfill needed for Michigan’s cities impacted by lost income tax revenue, parking revenue, parks and recreation and event revenue, and the potential coming impacts from expected property tax appeals, among other revenue losses, will all be covered by the critical funding support.  In addition, the language allowing for the investment of these funds in water, sewer, and broadband infrastructure will provide our communities an opportunity to invest in infrastructure that has taken a back seat to other critical budget needs over the past decade.  These dollars provide a historic opportunity for local government to invest in its residents and small businesses and work with community partners and non-profits to promote community wealth building and lift up all areas within our communities.

Coupled with the aid the State of Michigan is estimated to be apportioned under the Act, the state and Michigan’s local governments (counties, cities, villages, and townships) are scheduled to receive approximately $10.3 billion of federal aid under this section. The State of Michigan is estimated to receive approximately $5.655 billion and Michigan local governments an estimated $4.4 billion split between counties ($1.937 billion), metropolitan cities utilizing the modified CDBG formula ($1.782 billion), and all other cities, villages, and townships ($686 million).  The National League of Cities has posted a link to the Congressional committee estimates of the distributions by community in each state.  It should be noted that these figures are purely ESTIMATES developed by congressional staff utilizing the data they had available at the time and are NOT final actual allocations.  The US Treasury and other federal agencies will be responsible for developing final allocation estimates and those are not available at this time.  MML staff have identified concerns with some of the data estimates, especially around the lack of allocation estimates for Michigan’s villages.  We have communicated these discrepancies with our Congressional delegation and directly to Sens. Stabenow and Peters offices and the staff at NLC.  It is our understanding that numerous state issues have been identified and that congressional research staff are reviewing and investigating the various concerns, including those raised by MML.

In addition to the direct, flexible aid to states and local governments described above, the stimulus proposal also provided an additional $10 billion in aid to states to fund critical capital projects directly enabling work, education, and health monitoring, including remote options, in response to the public health emergency with respect to the Coronavirus Disease (COVID–19).  Michigan is estimated to receive an additional $250 million under this provision and early indications are that these dollars will be targeted at further buildout of broadband capacity throughout the state. More details will be forthcoming as US Treasury develops their guidance in the coming weeks.

The League will highlight this issue during our Capital Conference March 16-17, so be sure to register and tune in for the latest updates!

Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and [email protected].

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