On March 11, President Biden signed into law the American Rescue Plan Act of 2021. While Congress has passed a number of COVID-relief bills since the pandemic’s inception, the American Rescue Plan Act is one of three major pieces of legislation that has infused substantial amounts of federal cash into the economy, including state and local governments.

Funding Flexibility: Addressing Unique Challenges

The previous two funding bills, the CARES Act of 2020 and the Consolidated Appropriations Act of 2021, each provided varying levels of funding to state and local governments and had different restrictions on how those funds could be spent. State and local governments had expressed some frustrations with respect to those restrictions, which is understandable. After all, no two governments were impacted by the pandemic in the exact same way and each had their own set of unique fiscal challenges. A cookie-cutter approach to eligibility would be destined to leave some states out in the cold. So, when discussions began on an economic stimulus bill that would seek to speed up the recovery from the ongoing recession, governors leaned on their congressional delegations to ensure a maximum amount of flexibility for any funds that they would receive.

While congress didn’t exactly write a blank check to state and local governments, they did pass a bill that contained $350 billion in emergency funding for eligible state, local, territorial, and tribal governments. The money will be managed through the Coronavirus State and Local Fiscal Recovery Fund via the Department of Treasury. 

Earlier this week, Treasury released additional details on how these funds can be used by state and local governments to respond to pandemic response needs, fill revenue shortfalls among these governments, and support the communities and populations hardest-hit by the COVID-19 crisis. As requested, these funds come with maximum flexibility for each jurisdiction to meet its own COVID-related needs, including support for small businesses, impacted industries, and assistance to individual households. 

• Public heath response: Communities may use their funding to enhance local healthcare capacity, make capital investments in public facilities to meet operational needs and make ventilation improvements in critical buildings such as healthcare facilities, among others.
• Public sector/lost revenue: Communities may use these funds to avoid cuts in critical government services as well as for premium pay for essential workers who risked their own wellbeing to meet the needs of their community during the pandemic.

However, Congress didn’t stop with strictly COVID related expenditures. In what could be a warm-up lap to a much larger infrastructure package in the coming months, the American Rescue Plan went beyond funding projects associated with the impacts of the pandemic and specifically stated that recipients can use this funding to invest in building, maintaining, or upgrading their water, sewage, and broadband infrastructure.

Excerpt from Department of Treasury Guidance:

Recipients may use this funding to invest in an array of drinking water infrastructure projects, such as building or upgrading facilities and transmission, distribution, and storage systems, including the replacement of lead service lines.

Recipients may also use this funding to invest in wastewater infrastructure projects, including constructing publicly owned treatment infrastructure, managing and treating stormwater or subsurface drainage water, facilitating water reuse, and securing publicly owned treatment works.

To help jurisdictions expedite their execution of these essential investments, Treasury’s Interim Final Rule aligns types of eligible projects with the wide range of projects that can be supported by the

Environmental Protection Agency’s Clean Water State Revolving Fund and Drinking Water State Revolving Fund. Recipients retain substantial flexibility to identify those water and sewer infrastructure investments that are of the highest priority for their own communities.

Recognizing the acute need in certain communities, Treasury’s Interim Final Rule provides that investments in broadband be made in areas that are currently unserved or underserved—in other words, lacking a wireline connection that reliably delivers minimum speeds of 25 Mbps download and 3 Mbps upload. Recipients are also encouraged to prioritize projects that achieve last-mile connections to households and businesses. Using these funds, recipients generally should build broadband infrastructure with modern technologies in mind, specifically those projects that deliver services offering reliable 100 Mbps download and 100 Mbps upload speeds, unless impracticable due to topography, geography, or financial cost. In addition, recipients are encouraged to pursue fiber optic investments.

A Rare Opportunity for Community Investments

To be clear, the primary purpose of this funding is to help alleviate the financial burdens that state and local governments have endured during the pandemic, and those burdens have been considerable—crippling in some cases. Every level of government has been faced with revenue shortfalls over the past year.  Such shortfalls have put these governments in the unenviable position of choosing between layoffs of critical municipal staff or cutting back on those very critical services that communities rely on.  Replacing that lost revenue at the state and local level will provide stability for vital public services and help retain jobs that are critical to the community.  That said, rarely does Congress give such specific guidance on other allowable costs. 

Once communities have been able to stabilize their most pressing financial shortfalls, they should take advantage of this incredibly rare opportunity to explore potential upgrades to their water, sewage, and broadband infrastructure.” Jay Harper

Once communities have been able to stabilize their most pressing financial shortfalls, they should take advantage of this incredibly rare opportunity to explore potential upgrades to their water, sewage, and broadband infrastructure.  While we don’t know what a future infrastructure package could look like or how state and local governments will access associated funding, we do know that the American Rescue Plan funds are not distributed through a competitive grant program.  Those funds are authorized, appropriated, and there for the taking.

Allocations for each state, county, and city can be found here at the Coronavirus State and Local Recovery Funds Site.