The American Rescue Plan: State and Local Funding

April 23, 2021

On March 11, President Biden signed the American Rescue Plan Act of 2021 (ARP) into law. The $1.9 trillion stimulus bill included direct payments to some individuals and relief to state and local governments. The ARP, through its Coronavirus State and Local Fiscal Recovery Funds (Subtitle M—Sec. 9901), provides a total of $362 billion for governments to recoup lost revenue, meet increased costs, and mitigate economic harm. Funds will be distributed by the Treasury. This is the second round of significant funding to states provided during the COVID public health emergency. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided $150 billion to state and local governments. ARP’s enrolled text can be viewed here.

Office of Recovery Programs

The U.S. Treasury Department recently unveiled a new office to oversee the implementation of economic relief programs, including nearly $420 billion in programs under the ARP. The new office will report to Deputy Treasury Secretary Wally Adeyemo and will be led by Jacob Leibenluft, a counselor to Treasury Secretary Janet Yellen, who will work closely with Gene Sperling, the White House rescue plan coordinator. “Many of these programs are new to Treasury and have until now been located in disparate parts of Treasury,” Adeyemo said. “In order to ensure they’re administered effectively and create one point of entry for grantees, we’re establishing an umbrella office, the Office of Recovery Programs.” Leibenluft said the office would “work around the clock to engage with stakeholders, understand the needs in communities across the country, and swiftly implement relief for those who need it most.”

State and Local Fiscal Recovery Funds General Guidelines

ARP allocations to governments must be used for COVID response efforts or mitigating negative economic effects. This includes assistance to households, small businesses, and nonprofits. Industries especially impacted by COVID—tourism, travel, and hospitality—may also receive ARP funds from governments. Additionally, ARP state and local funding may be used to provide up to $13 per hour wages to eligible essential workers, offset revenue lost due to COVID, and investments in water, sewer, or broadband infrastructure. Recipient governments may transfer its relief to private nonprofit organizations, tribal organizations, transportation/cargo-oriented public benefit corporations, or governmental special-purpose units. ARP relief may not be deposited into pension funds. ARP funds are available through December 31, 2024. Governments are required to submit periodic reports to the Treasury; noncompliance forces the repayment of funds used in the violation. The Treasury has yet to release complete guidance, but previous guidance from the CARES Act’s Coronavirus Relief Fund may provide insight. To date, we have seen no public release by the Department of Treasury on the how state and local governments are spending the Coronavirus Relief Funds. 

State Fiscal Recovery Fund

The State Fiscal Recovery Fund provides $219.8 billion to states, territories, and tribes. Of the $195.3 billion in state funding, $25.5 billion will be equally divided between the states and the District of Columbia. D.C. will receive an additional $1.25 billion after unfair allocation in the CARES Act. The remaining funds—$169 billion—is allocated based on the states’ share of unemployed workers from October to December 2020. States will receive their funds within 60 days of submitting a certification to the Treasury. The Treasury Secretary reserves the right to withhold 50% of funds for up to 12 months after the certification of need if additional justification is required. If a second certification of need is submitted, the Secretary is required to release the withheld funds. States are prohibited from using funds to directly or indirectly offset any tax cut made after March 3, 2021.

Local Fiscal Recovery Fund

The Local Fiscal Recovery Fund provides $130.2 billion to metropolitan cities, municipalities, and counties. Of the $130.2 billion, $65.1 billion is allocated to municipalities. Municipalities with over 50,000 people will receive $45.57 billion in direct federal aid through a modified CDBG formula. Municipalities with populations below 50,000 will receive $19.53 billion in state-distributed federal aid. Funds distributed by states will be based on population and capped at 75% of the municipality’s most recent budget as of January 27, 2020. State-distributed funds must be disbursed within 120 days of receiving the funding, but it is up to governors and state legislatures to determine fund distribution. The Local Fiscal Recovery Fund also provides $65.1 billion in direct federal aid to counties. Funds distributed to counties will be based on population. The Local Fiscal Recovery Fund will be disbursed in two equal tranches; the first tranche will be distributed within 60 days of enactment, and the second tranche will be distributed one year thereafter.

Coronavirus Capital Projects Fund

The ARP also created the Coronavirus Capital Projects Fund, which directs $10 billion to “critical capital projects directly enabling work, education, and health monitoring, including remote options, in response to the public health emergency with respect to the Coronavirus Disease.” Of the $10 billion, each state—plus D.C. and Puerto Rico—will receive $100 million. The remaining territories will split $100 million. Tribal governments and Hawaiian tribes will split $100 million equally. The remaining $4.7 billion in funds will be disbursed to the states, D.C., and Puerto Rico using a formula that is 50% based on population, 25% based on rural population, and 25% based on households 150% below the poverty line. The Treasury must establish a Coronavirus Capital Projects grant application process within 60 days of enactment.

Local Assistance and Tribal Consistency Fund

Finally, the ARP creates a $2 billion Local Assistance and Tribal Consistency Fund, which will allocate $1.5 billion to revenue-sharing counties in states, D.C., Puerto Rico, Guam, and the Virgin Islands over FY 2022 and 2023. The Consistency Fund also provides tribal governments with $500 million. The Department of Treasury will determine the funding formula based on the economic conditions of counties and tribes. Counties may use the funding for any governmental purpose, excluding lobbying activity. Like the Fiscal Recovery Funds, the fund requires periodic reports from counties. Noncompliance will result in recoupment.

Go Further:

National Association of Counties, ARP Legislative Analysis

US Treasury, ARP Fact Sheet

State and Local Fiscal Recovery Funds Fact Sheet