ARPA Treasury Guidance Begins to Rollout

David J. Robinson
The Montrose Group, LLC

The United States Treasury Department on May 7, 2021, released the first batch of guidance on how local, state, tribal and territory governments can use the $350M in American Rescue Program Act (ARPA) funds.  ARPA provided substantial funding for local, state, tribal and territory governments for the following uses:

• 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;
• to respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers;
• For the provision of government services to the extent of the reduction in revenue due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency; and
• to make necessary investments in water, sewer, or broadband infrastructure.

In addition, Congress clarified two types of uses which do not fall within these four categories. ARPA provides that these eligible uses do not include, and thus funds may not be used for, depositing funds into any pension fund or states and territories, that the eligible uses do not include: “directly or indirectly offset[ting] a reduction in the net tax revenue of [the] State or territory resulting from a change in law, regulation, or administrative interpretation.”

The Treasury draft ARPA rules suggest that public health uses in response to the COVID 19 could include: vaccination programs; medical care; testing; contact tracing; support for isolation or quarantine; supports for vulnerable populations to access medical or public health services; public health surveillance (e.g., monitoring case trends, genomic sequencing for variants); enforcement of public health orders; public communication efforts; enhancement to health care capacity, including through alternative care facilities; purchases of personal protective equipment; support for prevention, mitigation, or other services in congregate living facilities (e.g., nursing homes, incarceration settings, homeless shelters, group living facilities) and other key settings like schools; ventilation improvements in congregate settings, health care settings, or other key locations; enhancement of public health data systems; and other public health responses, capital investments in public facilities to meet pandemic operational needs, such as physical plant improvements to public hospitals and health clinics or adaptations, medical expenses including behavioral health costs triggered by COVID 19, and support of public health services.

The negative impact of COVID 19 on regional economies is also a focus of the Treasury draft rules.  Economic measures supported by the Treasury guidance includes: unemployment assistance; state unemployment insurance costs; household food assistance, rent, mortgage, or utility assistance, counseling and legal aid to prevent eviction or homelessness, cash assistance, emergency assistance for burials, home repairs, weatherization, internet access or digital literacy assistance, job training to address negative, economic or public health impacts experienced due to a worker’s occupation or level of training.  Small business support uses of ARPA suggested by the Treasury guidance includes: loans or grants to mitigate financial hardship such as declines in revenues or impacts of periods of business closure, for example by supporting payroll and benefits costs, costs to retain employees, mortgage, rent, or utilities costs, and other operating costs; loans, grants, or in-kind assistance to implement COVID-19 prevention or mitigation tactics, such as physical plant changes to enable social distancing, enhanced cleaning efforts, barriers or partitions, or COVID-19 vaccination, testing, or contact tracing programs; and technical assistance, counseling, or other services to assist with business planning needs.  In addition, ARPA aid can be provided to tourism, travel, and hospitality and other industries negatively impacted by the pandemic.

Addressing the impact on housing by COVID 19 also is permitted by ARPA and suggested uses from the Treasury guidance includes: services to address homelessness such as supportive housing, and to improve access to stable, affordable housing among unhoused individuals; affordable housing development to increase supply of affordable and high-quality living units; and housing vouchers, residential counseling, or housing navigation assistance to facilitate household moves to neighborhoods with high levels of economic opportunity and mobility for low-income residents, to help residents increase their economic opportunity and reduce concentrated areas of low economic opportunity.  Educational and childcare services are also permitted uses of ARPA funds.

Premium pay for impacted workers under ARPA includes the following occupations: Staff at nursing homes, hospitals, and home care settings; workers at farms, food production facilities, grocery stores, and restaurants; janitors and sanitation workers; truck drivers, transit staff, and warehouse workers; public health and safety staff; childcare workers, educators, and other school staff; and social service and human services staff.  Government revenue losses due to the pandemic are also permitted with ARPA funds.

Funding of water, sewer and broadband programs are critical infrastructure that can be a valid use for ARPA funds according to the U.S. Treasury.  State water and sewer revolving loan programs appear to be a prime use of ARPA funds.  In addition, Treasury recommends ARPA funds be used for projects that improve drinking water infrastructure, such as building or upgrading facilities and transmission, distribution, and storage systems, including replacement of lead service lines, consolidation or establishment of drinking water systems, to construct publicly owned treatment infrastructure, manage and treat stormwater or subsurface drainage water, facilitate water reuse, and secure publicly owned treatment works, among other uses, and for cybersecurity needs to protect water or sewer infrastructure such as developing effective cybersecurity practices and measures at drinking water systems and publicly owned treatment works.

Investments in broadband infrastructure is another major use for ARPA funds based upon the Treasury guidance.  Under the Interim Final Rule, eligible projects are expected to be designed to deliver, upon project completion, service that reliably meets or exceeds symmetrical upload and download speeds of 100 Mbps. eligible projects are expected to focus on locations that are unserved or underserved. The Interim Final Rule treats users as being unserved or underserved if they lack access to a wireline connection capable of reliably delivering at least minimum speeds of 25 Mbps download and 3 Mbps upload as households and businesses lacking this level of access are generally not viewed as being able to originate and receive high-quality voice, data, graphics, and video telecommunications.  To meet the immediate needs of unserved and underserved households and businesses, recipients are encouraged to focus on projects that deliver a physical broadband connection by prioritizing projects that achieve last mile-connections. Treasury also encourages recipients to prioritize support for broadband networks owned, operated by, or affiliated with local governments, non-profits, and co-operatives—providers with less pressure to turn profits and with a commitment to serving entire communities.

The 151 pages of draft rules are open for a comment period with the US Treasury and input can be provided that can alter these draft rules.  Key takeaways from the draft rules are clear:

• local, state, tribal and territorial governments need to focus resources are populations and industries directly impacted by COVID 19 and be prepared to back this up with data;
• public health programs could be a substantial winner for ARPA funding at the local, state, tribal and territorial government level;
• worker assistance could as well gain substantial investments from ARPA funding;
• local government fiscal impacts by changes in the remote worker model may well be the most dramatic impact of COVID 19 from a financial standpoint that will force many local governments to keep ARPA funds in reserve to determine the large scale tax impact from COVID 19;
• infrastructure funding is limited to water, sewer and broadband with ARPA funds and hopes that a broader view of ARPA infrastructure to include roads, highways and bridges do not appear on the ARPA funds horizon but transportation infrastructure may become more affordable of local, state, tribal and territorial governments can use ARPA funds for water and sewer costs and then shift that funding to transportation infrastructure; and
• broadband projects with ARPA funding need to focus on areas substantially underserved for broadband services—suburban and urban communities are unlikely to qualify for most ARPA broadband funding unless it is for digital literacy programs.

Based upon these Interim Draft ARPA rules from the US Treasury, Montrose Group would recommend local, state, tribal and territorial governments utilize ARPA funding for the following key uses:

• address any potential revenue losses by reserving the appropriate amount of ARPA funding for at least a year to determine how remote working will impact tax revenues;
• address large, one-time costs such as unemployment insurance debt owed to the federal government for state governments;
• recognize the industries and workers hit hardest by the pandemic such as hospitality with short term, targeted grants to ensure these important institutions survive the pandemic;
• understand the impact of COVID 19 on the region’s economy before using substantial ARPA funds on a wide range of social service needs that are in reality annual governmental expenses; and
• decide the best use of ARPA funds is to support small business creation, prepare sites for development and create skilled workers through one-time expenses that can produce transformational projects that produce high-wage jobs.

ARPA is an incredible opportunity for local, state, tribal and territorial governments.  However, communities that treat ARPA like a credit card to pay for regular government programs will not only miss a tremendous economic development opportunity they are digging themselves into a fiscal hole when the ARPA funds are gone.

Montrose Group is experienced in advising local communities how best to utilize federal funding such as ARPA and please contact Dave Robinson at drobinson@montrosegroupllc.com if you have questions regarding any project finance or ARPA matters.