The U.S. government launched the American Rescue Plan Act (ARPA) in 2021 to help the American people and municipalities overcome financial challenges associated with the COVID-19 pandemic. How exactly can municipalities benefit from new ARPA regulations? Learn more about ARPA funding guidelines and how municipalities can access and utilize funds from this plan. 

What Is the American Rescue Plan Act? 

ARPA is designed to deliver direct relief to the American people and economy. After all, the pandemic caused a myriad of financial struggles for individuals, businesses and local governments. 

There are a few ways ARPA provides this financial support, including:

• Municipal funding through the State and Local Fiscal Recovery Funds program
• Supporting small businesses via grants, lending and investments
• Starting a Small Business Opportunity Fund that provides growth capital to small businesses in economically disadvantaged areas
• Tax credits, direct payments and extended unemployment insurance for individuals.

How Does Municipal Funding Work?

One of the ways municipalities can receive support through ARPA is via the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program. This program is delivering $350 billion in aid to state, local, and tribal governments in order to provide them with support while they recover from pandemic-related financial losses.  

Almost $200 billion was allocated to states and the District of Columbia. More than $65 billion went to counties, another $45.6 to metropolitan cities, $19.5 for smaller governments and the remainder to tribal governments and territories. Eligible entities can apply for funding online.

The municipal funding from ARPA is allocated as follows:

• $45.57 billion is allocated to metropolitan cities using a modified Community Development Block Grant formula calculation.
• $19.53 billion is allocated to smaller communities using a per-capita calculation, with grants capped at 75% of the locality’s most recent budget (as of Jan. 27, 2020).

Local governments receive the funding in two parts. The federal government released half of the funding given to each city starting May 10, 2021 and the second half is available one year after the first is given.

How Can ARPA Funds Be Spent?

ARPA regulations dictate how SLFRF funds can be used. These funds can only be used in the following categories:

• Replace lost public sector revenue (up to the amount of revenue lost due to the pandemic
• Respond to public health and economic impacts of the pandemic
• Provide premium pay for essential workers
• Invest in water, sewer and broadband infrastructure

Those four allowed uses of funds can then be split into seven summary expenditure categories — public health, negative economic impact, services to disproportionately impacted communities, premium pay, infrastructure, revenue replacement and administrative.

Municipalities are specifically prevented from putting the money into a pension fund.

The Local Government ARPA Investment Tracker, compiled by the Brookings Institute, the National Association of Counties and the National League of Cities, helps understand how these funds are being used by tracking details on thousands of projects.  

Examples of municipal projects using SLFRF funds include:

• A county in the Rocky Mountain region committed $700,000 to supplies, equipment and staffing for additional cleaning, sanitizing and disinfecting necessitated by COVID-19.
• A major city in the Central region of the country committed $816,480 for PPE for municipal personnel.
• A major community in the South committed $2 million to upgrade security cameras at each police station and the public safety complex
• A city in the North Central region will spend $400,000 to install solar panels across a range of affordable housing options.

Municipalities have to obligate their funds by Dec. 31, 2024, and they have to spend them by Dec. 31, 2026.