The American Rescue Plan Act of 2021: State & Local Funding

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Following widespread calls for greater federal action to provide financial relief to struggling governments across the United States, President Biden and Congress delivered respite to America’s state and local governments by way of the American Rescue Plan Act (the “ARPA” or the “Plan”).

Enacted into law on March 11, 2021 and building on previously enacted aid measures, such as the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), the Plan pumps $350 billion in emergency funding to state and local governments. However, unlike the CARES Act, which limited expenditures to costs directly related or incurred due to the pandemic, ARPA empowers governments to use funding for a broader array of eligible purposes.

New York’s Share

Of the $350 billion available to state and local governments nationwide, New York stands to receive approximately $24 billion. Of that amount, approximately $13 billion has been allocated for New York State, $6 billion for metropolitan cities, $4 billion for counties, $825 million for smaller cities, villages and towns, and $350 million for state capital projects.

The funds will be distributed directly by the U.S. Treasury (“Treasury”) within 60 days of enactment of the law. New York will have an additional 30 days to distribute funds or request an extension. For communities such as cities, villages, and towns, payments cannot exceed 75 percent of a government’s annual budget as of January 27, 2020. The Treasury is allowed to withhold up to 50 percent of the funds during the first distribution and then release the reminder within 12 months.

Both state and local governments are required to submit to Treasury a certification from the governor or other authorized officer of the state attesting that the state, or local government, needs federal assistance to:

  • Respond to the COVID-19 pandemic by addressing its economic effects, including aid to households, small businesses, nonprofits, and industries such as tourism and hospitality;
  • Provide premium pay to essential employees or grants to their employers. Premium pay cannot exceed $13 per hour or $25,000 per worker;
  • Provide government services affected by a revenue reduction resulting from COVID-19; and/or
  • Make necessary investments in water, sewer and broadband infrastructure.

State and local governments can also transfer funds to nonprofit groups, public benefit corporations involved in passenger or cargo transportation, and special-purpose units of state or local governments. However, ARPA makes clear that the funds cannot be used towards pensions or to offset revenue resulting from a tax cut enacted since March 3, 2021. The deadline to spend funds is December 31, 2024.

Other beneficiaries of the Plan include New York’s K-12 Schools (approximately $9 billion), higher education institutions (approximately $3 billion), and the MTA (approximately $6.5 billion).

The key takeaway is that this significant infusion of funding will ensure continued delivery of critical services like public safety, education, and healthcare and enable governments an opportunity to tackle deferred, aging and inadequate infrastructure needs,. As Treasury intends to issue further guidance, the MuniBlog will be monitoring and reporting on this and other efforts and developments at the federal level in response to the growing needs of New York’s municipalities and school districts.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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