Federal Issues of Municipal Interest

Municipalities are forbidden from using the funds to directly or indirectly offset a reduction in net tax revenue due to a change in law from March 3, 2021 through the last day of the fiscal year in which the funds provided have been spent.

Also prohibited are using the funds to make a deposit to a pension fund. Treasury’s Interim Final Rule defines a “deposit” as an extraordinary contribution to a pension fund for the purpose of reducing an accrued, unfunded liability. While pension deposits are prohibited, recipients may use funds for routine payroll contributions for employees whose wages and salaries are an eligible use of funds.

Treasury’s Interim Final Rule identifies several other ineligible uses, including funding debt service, legal settlements or judgments, and deposits to rainy day funds or financial reserves.

Also, general infrastructure spending is not covered as an eligible use outside of water, sewer, and broadband investments or above the amount allocated under the revenue loss provision.

While the program offers broad flexibility to recipients to address local conditions, these restrictions will help ensure that funds are used to augment existing activities and address pressing needs.

Use of these funds is generally forward-looking and should not be used to reimburse recipients for costs incurred by local governments in responding to the public health emergency and the negative economic impacts prior to the American Rescue Plan. Further, the funds should not be used for general economic development or workforce development, outside of the negative economic impacts of the pandemic.

The funds may not be utilized to satisfy nonfederal matching requirements for federal programs whose statue or regulations bar the use of federal funds to meet matching requirements.

All 565 New Jersey municipalities, as well as all 21 counties and the state, will receive an allocation from the federal government pursuant to the American Rescue Plan. 47 municipalities defined as metropolitan areas will receive funding directly from the U.S. Treasury and the remaining 518 municipalities will receive their share of the $578,121,375 that will be sent to the state.

Treasury expects to provide a list of final aid amounts for municipalities with a population under 50,000 people next week.

The funds will be distributed in two tranches, half this year and a half next year. There are varying deadlines to expend the funds, which are detailed below.

Special purpose units of government will not receive funding, however, a local government may transfer funds to a special-purpose unit of government that performs specific functions in the community and the Treasury cited fire, water, sewer, or mosquito abatement district.

Because the federal law requires states to make distributions based on population, states may not place additional conditions or requirements on distributions to municipalities with a population under 50,000, beyond those required by the ARPA and Treasury’s implementing regulations and guidance.

For example, states may not impose stricter limitations than permitted by statute or Treasury regulations or guidance on a municipality’s use of funds based on the town’s proposed spending plan or other policies, nor permitted to offset any debt owed by the municipality against its payment.

Further, states may not provide funding on a reimbursement basis (e.g., requiring municipalities to pay for project costs upfront before being reimbursed with Fiscal Recovery Fund payments), because this approach would not comport with the statutory requirement that states make distributions to the municipalities within the statutory timeframe.

The state is permitted to transfer additional funds they have received from the American Rescue Plan to municipalities.

According to the Interim Final Rule, a definition of “General Revenue” is based on, but not identical to, the Census Bureau’s concept of “General Revenue from Own Sources” in Annual Survey of State and Local Government Finance and includes, taxes, current charges, and miscellaneous general revenue. It excludes refunds and correcting transactions, proceeds from the issuance of debt or the sale of investments, agency or private trust transactions, Intergovernmental transfers between state and local governments count as revenue but intergovernmental transfers from the federal government, including Federal transfers made via a state to a locality pursuant to the Coronavirus Relief Grants or the Fiscal Recovery Funds are excluded.

Revenue should be calculated on an entity-wide basis to minimize the administrative burden for recipients and presents a more accurate representation of the net impact of the public health emergency on revenue.

Municipalities should classify revenue sources as they would if responding to the U.S. Census Bureau’s Annual Survey of State and Local Government Finances. According to the Census Bureau’s Government Finance and Employment Classification manual, the following is an example of current charges that would be included in a state or local government’s general revenue from own sources: “Gross revenue of facilities operated by a government (swimming pools, recreational marinas and piers, golf courses, skating rinks, museums, zoos, etc.); auxiliary facilities in public recreation areas (camping areas, refreshment stands, gift shops, etc.); lease or use fees from stadiums, auditoriums, and community and convention centers; and rentals from concessions at such facilities.”

Recipients are permitted to calculate the extent of reduction in revenue as of four points in time: December 31, 2020; December 31, 2021; December 31, 2022; and December 31, 2023.

This approach recognizes that some recipients may experience lagged effects of the pandemic on revenues. Upon receiving Fiscal Recovery Fund payments, recipients may immediately calculate revenue loss for the period ending Dec. 31, 2020. Any pre-pandemic projections are prohibited.

Funds that are obligated by December 31, 2024, for eligible water, sewer, or broadband infrastructure must be completed by December 31, 2026. All other spending must be complete by December 31, 2024. 

Financial records and supporting documents related to the award must be retained for a period of five years after all funds have been expended or returned to the Treasury, whichever is later. This includes those which demonstrate the award funds were used for eligible purposes.

Recipients will be required to submit an interim report, quarterly project and expenditure reports, and annual recovery plan performance reports as specified below, regarding their utilization of Coronavirus State and Local Fiscal Recovery Funds.

Entitlement communities (generally those with a population above 50,000 and received funds directly from the U.S. Treasury) will be required to submit quarterly project and expenditure reports.

This report will include financial data, information on contracts and sub-awards over $50,000, types of projects funded, and other information regarding a recipient’s utilization of award funds. An interim report is due on Aug. 31, 2021.

The reports will include the same general data as those submitted by recipients of the Coronavirus Relief Fund, with some modifications to expenditure categories and the addition of data elements related to specific eligible uses. The initial quarterly Project and Expenditure report will cover two calendar quarters from the date of award to Sept. 30, 2021, and must be submitted to Treasury by Oct. 31, 2021. The subsequent quarterly reports will cover one calendar quarter and must be submitted to the US Dept. of Treasury within 30 days after the end of each calendar quarter.

Municipalities with a population above 250,000 will have to submit an annual Recovery Plan Performance report.

Non-entitlement communities (generally those with a population under 50,000 people and received federal funds from the state) will be required to submit the project and expenditure report annually. The initial annual Project and Expenditure report will cover activity from the date of award to Sept. 30, 2021, and must be submitted to Treasury by Oct. 31, 2021. The subsequent annual reports must be submitted to theUS Dep. of Treasury by Oct. 31 each year.

Eligible entities, at this time entitlement communities, can apply directly for funding through the Treasury portal. To complete a submission on behalf of your municipality, you will be asked to provide the following information:

• Jurisdiction name, taxpayer ID number, DUNS Number, and address
• Authorized representative name, title, and email
• Contact person name, title, phone, and email
• Funds transfer information, including recipient’s financial institution, address  phone, and routing number and account number
• Completed certification document (to be signed by the authorized representative)

Municipalities must submit a request to receive funding even if they have previously applied for other programs through the federal Treasury Submission Portal and municipalities will receive further communications regarding the status of their submission via the email address provided in the Treasury Submission Portal.

As the League has previously shared, metropolitan areas need to have an active number in the Data Universal Numbering System (DUNS) (PDF) and an active registration with the System for Award Management (SAM) database at SAM.gov to receive the payments. The DUNS and SAM registration process may take several business days to complete, and Treasury recommends that eligible entities begin those registration processes if they have not already completed them.

Municipalities with a population under 50,000 will need to have an active registration in the DUNS system.

The Division of Local Government Services is developing a Local Finance Notice to provide guidance to municipalities. As the federal government is continuing to provide updates and guidance and the League will update accordingly.

US Department of Treasury ARP Recipient Compliance and Reporting Responsibilities