The COVID-19 pandemic caused detrimental revenue shortages for local governments. However, it also identified an online imperative—a need for local governments to enable contactless government experiences for socially distanced citizens. Even as our communities re-open, citizens hope to keep the digital access to local government services they have gained in the past several months, such as tools to watch live streams of public meetings, and are hoping such access expands.
How can budget and resource-constrained communities meet the digital optimization demands of citizens? The Coronavirus Aid, Relief, and Economic Security (CARES) Act ushered in an initial wave of federal funding in 2020, and in 2021, the government has made more funds available from the American Rescue Plan Act (ARPA). However, some communities are shying away from using ARPA funds to purchase technology solutions out of a concern that the government’s necessary reporting requirement may be logistically burdensome.
This article aims to clarify the fundamental expectations for local governments eligible to receive ARPA funds and help them plan to comply with reporting and documentation mandates.
What is ARPA and How to Use Available Funds ARPA Background
On March 11, 2021, President Biden signed the $1.9 trillion ARPA. It will bring much-needed relief for states and local governments and includes some opportunities to leverage funds for IT-addressable areas of need uncovered by the pandemic.
- Counties: Any county, parish, or area defined as a county equivalent by the Census Bureau
- Metropolitan Cities: Any city designated as a “Metropolitan City” by the office of management and budget or any non-metropolitan city with a population of 50,000 or more
- Non-Entitlement Unit (NEU) of Local Government: Any non-metropolitan city with a population of less than 50,000
How Can Local Governments Use ARPA Funds?
Payments should cover costs incurred by December 31, 2024, within the following areas:
(A) Aid impacted industries (mostly service-oriented)
To respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality
(B) Payment for essential workers
To respond to workers performing essential work during the COVID–19 public health emergency by providing premium pay to eligible workers of the metropolitan city, a non-entitlement unit of local government, or county that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work
(C) Aid impacted industries (mostly service-oriented)
For the provision of government services to the extent of the reduction in revenue of such metropolitan city, a non-entitlement unit of local government, or county due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the metropolitan city, a non-entitlement unit of local government, or county before the emergency
(D) Investing in public works and the internet
To make necessary investments in water, sewer, or broadband infrastructure.
Cities have until December 31, 2024, to allocate the money and up to the end of 2026 to spend it and for all projects to be completed, so they have time to conduct a needs assessment and allocate funds accordingly.
For communities with secured ARPA funds, it will be vital to justify using dollars to fund digital optimization efforts and provide required reporting to ensure program compliance, transparency, and ethical accounting.
Step 1: Resources, Processes, and People Needed to Achieve Success
Just like any significant strategic investment, your administration’s successful implementation of ARPA funds will require a dedicated team of accountable leaders and an action plan. Taking what you learned from your community’s first round of CARES Act funds (if applicable), put a strategic plan in place that includes the following cornerstones:
- Validate Your Eligibility Determination
According to the U.S. Treasury (The Treasury), the following government entities are eligible to receive ARPA funding:
- States and the District of Columbia
- Tribal governments
- Metropolitan cities
- Non-entitlement units (NEU), or smaller local governments
The Treasury will distribute funds directly to each eligible state, territory, metropolitan city, county, or Tribal government. In addition, smaller local governments that are classified as NEUs will receive funds through their applicable state government.
Special-purpose units of local government will not receive funding allocations; however, a state, territory, local, or tribal government may transfer funds to a special-purpose government unit. Special-purpose districts perform specific functions in the community, such as fire, water, sewer, or mosquito abatement districts.
- Create an Expense Tracking System
If budget allows, invest in a technology solution designed for local grant and assistance program fund management.
- Validate Reporting Capabilities
Metropolitan cities will be required to submit one interim report to the U.S. Treasury and, after that, quarterly project and expenditure reports through the end of the award period on December 31, 2026.
The interim report will include a recipient’s expenditures by category at the summary level from the award date to July 31, 2021. Recipients must submit their interim report to Treasury by August 31, 2021.
A Note for NEUs
ARPA includes special usage and reporting requirements for small municipalities or the 19,000 non-metropolitan cities with fewer than 50,000 citizens. Unfortunately, some of the leaders in these communities may argue they are the least well-staffed to manage such additional burdens. Instead of letting seemingly complex requirements dissuade you from taking critical digital optimization steps, this section aims to demystify the necessary reporting capabilities so that small markets do not miss out on big, positive digital transformations.
NEUs must send annual reports to the federal government starting in October 2021.
NEUs are not required to submit an interim report. However, cities will need a valid DUNS number to meet the reporting requirements for the Coronavirus Local Fiscal Recovery Fund.
A DUNS number is a unique nine-character number used to identify an organization and is issued by Dun & Bradstreet. The federal government uses the DUNS number to track how federal money is allocated. Registering for a DUNS number is free of charge. Entities without a valid DUNS number should click here to begin the registration process.
NEUs also risk triggering the Single Audit Act, which requires external audits when an entity spends federal grant dollars over a certain threshold, a process that could require an additional expense or resources.
Additional guidance for NEUs was released on May 24, 2021, and can be found here.
- Appoint an Inspector General for ARPA Funds
This individual will ensure compliance and transparency and help manage any audit requests from federal or state leaders.
- Collaborate with Your Risk Management Team
You should work with your risk management department to thoroughly vet all potential vendors to ensure any claims they make that their services or systems are ARPA-eligible are accurate and validated.
- Talk to Your Neighbors
Talk to leaders in neighboring communities to determine how they are spending their ARPA allotment and how they are documenting and justifying expenses. Not only can you Q/A your internal processes, but you may learn about infrastructure investments that benefit your nearby community.
The Risk of Non-Compliance
CARES Act funding was partly subject to the Single Audit Act, and analysts anticipate the same will be true for ARPA compliance. It will be critical to have a compliance management strategy to avoid missteps such as a duplication of benefits or reporting errors. Failure to properly document your use of the funds or appoint them could result in the need to return allocated dollars.
Step 2: Ensuring Long-Term Solvency and Sustainability
A risk some local governments may make if they do not pay strict attention to ARPA’s guidelines is to overinvest in services or solutions that they cannot sustain long term. Avoid such risks with these assurances:
- Build a Revenue Projection Model
Municipal treasurers or financial officers should build a five-to-ten-year financial forecast to demonstrate fiscal sustainability once ARPA funds have been exhausted. The model should include expected revenue and current service costs.
Build a solid forecast of baseline revenue and current service costs for at least the next 5 to 10 years. A good forecast is the first step in planning for fiscal sustainability beyond the ARP.
- Document Your Spending
The interim final rule states that though funds must be obligated by December 31, 2024, they can be used through the end of the reporting period on December 31, 2026. Therefore, ensure funds you earmark are spent accordingly.
Step 3: Prove the Connection between Digital Optimization and Revenue Generation
Digital transformation is foundational to economic development. Local governments should allocate ARPA funds for key programs, infrastructure enhancements and offset budget shortfalls that developed during the COVID-19 pandemic. The next tier of crucial use-cases for ARPA funds must include a consideration of revenue-generating technology investments that enable not just COVID-19 recovery but long-term adaptability to the new ways that citizens and businesses expect to interact with local governments.
Economists understand what can cripple an economy. They also know what can save it. Based on what effectively catalyzes economic resurgence at the local level, despite lack of funding and on-site staff, local governments need to focus on stimulating internal innovation, even if it means reallocating some of their decimated budgets. If any positive conclusions can be drawn from a global pandemic, it is that this necessary prioritization of innovation offers long-term benefits of administrative efficiency and citizen satisfaction for local governments.
Local government leaders realize that when citizens are desperate for support from their local leaders, they cannot simply freeze all spending. They must, instead, reallocate budget dollars to prioritize those programs and services that will have the greatest impact on mitigating the impact of the health crisis. In this way, COVID-19 has created an unexpected opportunity for local leaders to push for long-overdue technology upgrades and system modernizations that will finally give citizens engagement experiences on par with those they expect from the private sector.
Prioritize Technology that will Help Your Community Bridge the Digital Divide
In addition to the possibility of using ARPA funds to improve broadband infrastructure, digital access means greater access to those populations traditionally underserved and underrepresented. Have bold conversations with community and neighborhood leaders to understand what online services, if made available online, could better support such possibilities and open up revenue-generating possibilities for your administration.
Step 3: Reporting Requirements
The federal Single Audit Act requires that any government spending $750,000 or more in federal awards in a year must commission and submit an external audit to verify it spent the money according to the statutory guidelines. Accordingly, metropolitan cities will be required to submit one interim report and quarterly project and expenditure reports through the end of the award period on December 31, 2026.
The interim report will include a recipient’s expenditures by category at the summary level from the date of award to July 31, 2021, and, for States and territories, information related to distributions to non-entitlement units. Recipients must submit their interim report to Treasury by August 31, 2021.
Non-entitlement units of local government are not required to submit an interim report. However, cities will need a valid DUNS number to meet the reporting requirements for the Coronavirus Local Fiscal Recovery Fund.
While federal lawmakers may make some changes to the initial reporting requirements, initial assessments are that the reporting requirements will require significant time, effort, and detail. Some communities predict they may need to hire a dedicated staff member or contract with a dedicated service to meet the compliance requirements without overburdening existing internal financial leaders. Initially, and at a high level, reporting requirements will need to include the following components:
- Total revenue losses at four points in time, ending December 31, 2020
- This figure will impact the portion of the community’s funds eligible for the category defined as government services.
- These calculations may be particularly onerous for communities whose fiscal year does not align with the calendar year
For detailed guidance, refer to these frequently asked questions published by the U.S. Treasury.
ARPA-Eligible Technology Solutions
For communities recovering from COVID-19 and associated revenue losses, an investment now in technology can help recover lost revenue and future-proof your customer service and revenue-generating capabilities long-term. Learn more about the COVID-19 recovery budget-spending paradox here.
If the COVID-19 crisis has revealed your community’s need to begin a strategic digital optimization, click here to learn how CivicPlus® can assist in your recovery efforts.