The impact of the American Rescue Plan on local government

The big headlines from the recent passage of the American Rescue Plan (ARP) were around the $1,400 stimulus payments to individuals and the expanded child tax credit. These payments and additional benefits for individuals and families are indeed historic. But for public safety and government leaders, there’s an equally important factor to understand—the impact of the American Rescue Plan on local government.

While designed to help individuals, the ARP is also aimed at providing relief for local and state governments and businesses struggling due to COVID-19, as well as to achieve other priorities of the Biden Administration and Congress. The $1.9 trillion legislation is in addition to nearly $4 trillion in COVID relief provided in 2020.

Covered Costs and Restrictions

The American Rescue Plan provides for aid to both state and local governments directly as well as several grant program opportunities to improve local community’s response and recovery to COVID-19. The latest COVID relief legislation was enacted as part of Congress' fiscal year (FY) 2021 budget.

These funds for state governments, metropolitan cities, municipalities and counties may be used to cover costs incurred to:

• Respond to the public health emergency with respect to 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.
• Provide premium pay to essential workers or grants to eligible employers.
• Provide government services affected by a reduction in revenue of states, territories or tribal governments due to the public health emergency.
• Make investments in water, sewer or broadband infrastructure.

Amounts provided to a locality cannot exceed 75% of the local government’s budget as of Jan. 27, 2020. In addition, two restrictions on the use of funds are outlined in the language:

1. States and territories are barred from using funds either to directly or indirectly offset a reduction in their net tax revenue resulting from a change in law during the covered period that reduces or delays any tax or tax increase.
2. States, territories, metropolitan cities, municipalities and counties are also prohibited from using funds for deposit into any pension fund.

As with most grant programs, the American Rescue Plan requires all states, territories, tribal governments, metropolitan cities, municipalities and counties receiving payments to submit periodic reports with a detailed accounting of the use of funds.

Coronavirus State and Local Fiscal Recovery Funds

Of the approximately $350 billion for fiscal relief, 57% is allocated to states and 35% to local governments. Specifically, the legislation allots $195.3 billion to states and the District of Columbia, breaking down as follows:

• $25.5 billion equally divided to provide each state a minimum of $500 million
• $169 billion allocated based on the state’s share of unemployed workers over a three-month period, from October to December 2020

The impact of the American Rescue Plan on local government will also be substantial, as it provides $130.2 billion to local governments, including:

• $65.1 billion for counties with 200,000 or more
• $45.6 billion for metropolitan cities
• $19.5 billion for cities and counties with populations under 50,000

The ARP also provides $4.5 billion to U.S. territories, $20 billion to tribal governments, and $10 billion for a Coronavirus Capital Projects Fund to carry out projects to support work, education and health monitoring during COVID-19.

To get a sense of how the American Rescue Plan will impact your community, download a breakdown of estimated allocations to state and local governments.

Fund Distribution

Funds administered through the American Rescue Plan will be distributed by the U.S. Department of the Treasury, and all funds must be spent by Dec. 31, 2024.

Payments will be released in two tranches, or portions—the first within 60 days of enactment of the legislation, and the second no earlier than 12 months after the first payment. To receive a payment either under the first or second tranche, local governments must provide the U.S. Treasury with a certification signed by an authorized officer.

Impact on First Responders

Public safety organizations need to be working with their local governments now to advocate needs and access the direct funds to their cities and counties. In addition to the $350 billion allocated directly to local government, the American Rescue Plan also provides additional funding for several grant programs well known to public safety agencies, making it even more important your agency is tapping these programs if possible. They include:  

• Assistance to Firefighters Grants – The ARP Provides $100 million for Assistance to Firefighter Grants and $200 million for Staffing for Adequate Fire and Emergency Response Grants (SAFER)
• Emergency Management Performance Grant - ARPprovides $100 million to state and local emergency management agencies to help communities address COVID-19 and facilitate vaccine rollout.
• Emergency rural development grants for rural healthcare – ARP provides $500 million to establish an emergency pilot program within 150 days after the enactment of the American Rescue Plan to increase capacity for vaccine distribution, purchase medical supplies, reimburse lost revenue, increase telehealth capabilities, construct temporary or permanent structures to provide healthcare services, support staffing needs for vaccine administration and testing, and engage in other efforts to support rural healthcare facilities in addressing COVID.
• Tribal Assistance – ARProvides $772.5 million for tribal government services, public safety and justice, social services, child welfare assistance and other related expenses.

Lexipol’s grants experts continue to monitor these programs and the impact of the American Rescue Plan on local government. As we learn more, we’ll share further guidance and access instructions.

Additional Resources

• Final text of the American Rescue Plan legislation
• Overview of the American Rescue Plan from the National Conference of State Legislatures
• Estimated State and Local Allocation Spreadsheet Reference Guide
• Key Provisions of and Summary of the American Rescue Plan