Local Government Relief Under the American Rescue Plan Act

On March 10, 2021, Congress passed the American Rescue Plan Act of 2021 (the “Act”), which created a fund to assist state and local governments that have suffered financially because of the COVID-19 pandemic. The Act places certain restrictions on the uses to which eligible agencies can put their relief funds. 

This article provides a summary of those requirements. You may also download our formal Municipal Law Update on the Act by clicking here. Practitioners may also wish to reference the National League of Cities guidance available by clicking here.

What is the American Rescue Plan Act of 2021?

When it became law, the Act became the next in what legal historians will no doubt look back upon as a complex, interconnected series of federal relief measures designed to limit the pandemic’s economic fallout. The Act’s total relief package topped $1.9 trillion in mandatory funding for a variety of initiatives, along with making numerous other changes to tax rules and programs. 

State and local governments, hit hard by the twin problems of significant revenue losses and substantial demand for services, had not received much direct relief in prior bills. The Act allocates $350 billion to assist state, local, and tribal governmental agencies pay certain expenses and replace lost revenues traceable to the pandemic. Of the $350 billion, $65.1 billion is set aside for counties: $19.5 billion is available for towns with fewer than 50,000 residents, and $45.6 billion is earmarked for larger cities.

Qualifying activities and expenditures

The Act sets certain limits on the expenses that can be paid using funds provided by the Act. The following are permitted expenditures:

  1. Pandemic response. The Act specifically allows for its funds to be used to pay costs related to the pandemic itself. This includes mitigation and prevention, medical expenses, behavioral healthcare, health programs, and survival benefits. Also included are costs associated with employing public health and public safety employees, and programs to relieve health disparities.
  2. Economic impacts. The Act reimburses local governments for direct cash and loan interventions, business assistance payments, relief payments to impacted industries and workers, housing and community development costs, and programs associated with homelessness, childcare, and education.
  3. Workforce. The Act includes reimbursements for premium pay provided to essential workers.
  4. Water and sewer projects. The Act provides funds for wastewater treatment plans, pollution control, green infrastructure, stormwater treatment, water reuse, and projects eligible under the Drinking Water State Revolving Fund. Other eligible expenses include cybersecurity, climate change and resilience, and lead service line replacement.
  5. Broadband expansion. Projects that are designed to provide broadband Internet service to unserved and underserved properties are eligible for reimbursement under the Act.
  6. Lost revenue. Lost revenue that can be attributed to the pandemic, other than utilities, is eligible for reimbursement as well. 

The Act also specifically excludes certain activities and expenses from coverage. The following are examples of items that are ineligible for reimbursement under the Act:

  • Pension payments.
  • Infrastructure costs that are not addressed in the Act.
  • Rainy-day funds and financial reserves.
  • Outstanding debt.
  • Revenue losses attributable to tax cuts passed after March 1, 2020.

Cities and towns falling within the Act’s population limit of 50,000 or less will apply for funds through the United States Treasury’s online portal. Larger cities will have access to funds through a state-administered system.

Jones Mayer is here to help

Although the activities and expenses qualifying for relief under the Act are broad, local governments should take care to follow a clear process for analyzing its costs associated with the pandemic before applying for relief. The team at Jones Mayer is happy to answer your questions and advise officials and administrators as they work through this process. 

Please contact Keith F. Collins at kfc@jones-mayer.com or by calling (714) 446-1400 if you would like to know more about the Act and its impact on your agency.