ARPA Cash: Demolition and Capital Expenses Related to Vacant and Abandoned Buildings

May 13, 2022 | News, Newsletter

By Jeffry D. Harris
Bricker & Eckler LLP

 

Much ballyhoo has accompanied the U.S. Treasury’s publication in January 2022 of its Final Rule[1] in the use of American Rescue Plan Act[2] (ARPA) funds. Local governments across the country are scrambling to deploy their stimulus funds in response to the pandemic, pay essential workers, provide government services, and invest in water, sewer and broadband infrastructure. Buried in the Final Rule and its 403-page clarifying guidance is an express authorization to use funds to address vacant and abandoned buildings, including commercial and industrial structures.

Here, we look at the Treasury’s laundry list of enumerated eligible uses of ARPA funds. The ARPA statute and the Final Rule direct the use of funds according to four buckets, of which the first includes capital expenditures and other services to address vacant or abandoned properties as an eligible use of funds in response to the negative economic impacts of the pandemic.[3]

County land banks have a clear role to play here. Congress took care to specify under the Act that state and local governments could transfer stimulus funds to certain types of entities to implement spending plans, which include county land banks.[4]

When using funds under this first bucket, ARPA recipients must satisfy the Treasury’s two-part framework: (1) there must be a negative public health or economic impact resulting from or exacerbated by COVID; and (2) the response must be designed to address the identified health or economic impact, which such response must be “reasonably proportional” (i.e., the scale of the response as compared to the scale of the harm).[5]

The Treasury threads this needle by expressly listing certain services for vacant or abandoned properties to satisfy the two-part test when such services are undertaken in so-called disproportionately impacted communities.[6]

Simply put, the Treasury presumes as eligible uses of ARPA funds: rehab costs of vacant or abandoned properties, the costs of acquiring and marketing such properties, associated environmental remediation costs, demolishing such properties – across the residential, commercial, and industrial land use spectrum – and converting such properties to affordable housing.[7]

So long as those services are directed at disproportionately impacted communities, vacant and abandoned property remediation – including that of commercial and industrial sites – are eligible uses of ARPA funds. Here, disproportionately impacted communities are defined as those “that experienced a disproportionate, or meaningfully more severe, impact from the pandemic” with Qualified Census Tracts and low-income households (LMI) deemed as such.[8] Local governments may also use categorical eligibility to define these communities, including those that quality for TANF, SNAP, free and reduced lunch, SSI, Section 8 vouchers and LIHEAP, among others.[9]

Under the Final Rule, vacant or abandoned properties are defined as “generally those that have been unoccupied for an extended period of time or have no active owner,” with a specific call-out for local governments to make use of their own states’ classifications of such properties.[10]

Vacant and abandoned property services – including demolition of commercial and industrial buildings – must comply with all applicable requirements of the federal Uniform Guidance[11], as well as the Uniform Relocation Act.[12] This includes adhering to certain protocols if ARPA funding is to be used for capital expenditures, which requirements we addressed in an earlier article.

Be careful to not undertake demolition activities that result in a “net reduction in occupiable housing units for low- and moderate-income individuals” in areas in which the need for such housing exceeds available supply.[13] This includes conversion of housing units for LMI populations into housing units “unaffordable to current residents in the community.”[14]

 

[1] 31 C.F.R. Part 35.

[2] H.R. 1319, Public Law 117-2.

[3] U.S. Treasury, Final Rule, Supplementary Information, at pages 4-5: “(a) 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” [emphasis added].

[4] ARPA, Title IX, Sec. 602(c)(3) and Sec. 603(c)(3)): (i) private nonprofit organizations, (ii) public benefit corporations involved in the transportation of passengers or cargo, or (iii) special-purpose units of State or local government.

[5]  See 31 C.F.R. 35.6(b)(1); see also U.S. Treasury, Final Rule, Supplementary Information, at pages 21 – 22, and at page 194.

[6] 31 C.F.R. 35.6(b)(3)(ii)(A)(11)(iv); and see U.S. Treasury, Final Rule, Supplementary Information, at page 134.

[7] Id.  For a deeper discussion as to affordable housing development as an eligible use of ARPA funds – without restriction to disproportionately impacted communities, see our B-sides collection article.

[8] U.S. Treasury, Final Rule, Supplementary Information, at page 38.

[9] Id. at page 41.

[10] U.S. Treasury, Final Rule, Supplementary Information, at page 135; and see footnote 202: “A state or locality may use its existing classifications of what is considered vacant or abandoned property under state law and local ordinances, as well as any corresponding processes for demolition, for these eligible uses.”

[11] 2 C.F.R. Part 200.

[12] U.S. Treasury, Final Rule, Supplementary Information, at page 135, footnote 202: “[R]ecipients should be aware that other federal, state, or local requirements may apply such as compliance with the Uniform Relocation Act (see U.S. Department of Housing and Urban Development, Real Estate Acquisition and Relocation Overview in HUD Programs, https://www.hudexchange.info/programs/relocation/overview/#overview-of-the-ura[.]”

[13] U.S. Treasury, Final Rule, Supplementary Information, at page 136.

[14] Id.

This is for informational purposes only. It is not intended to be legal advice and does not create or imply an attorney-client relationship.

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