Flexibility Act could provide expanded federal funding opportunities
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Potential flexibility in ARP Fiscal Recovery Funds highlights importance of strategic planning for state and local governments

There are numerous reasons why governmental entities have been taking a “go slow” approach to using their allocation of the $350 billion in Fiscal Recovery Funds (FRF) for eligible state, local, territorial and tribal governments included in the American Rescue Plan Act of 2021 (ARP) enacted on March 11, 2021. These reasons include:

  • Allowing time for community stakeholder input and purposeful prioritization and planning
  • The U.S. Department of the Treasury (Treasury) has not yet issued final rules
  • Governments are waiting to see what funding opportunities would be available in the Infrastructure Investment and Jobs Act (IIJA) and Build Back Better Act (BBB)
  • Most recently, momentum is growing on what is known as the “Flexibility Act”

Flexibility Act could be transformational for communities

The House is evaluating the State, Local, Tribal, and Territorial Fiscal Recovery, Infrastructure, and Disaster Relief Flexibility Act (Flexibility Act) legislation that the Senate passed on Oct. 19, 2021. If the House approves the current Flexibility Act, it would allow states, tribes, territories and localities to use certain COVID-19 relief funds for new categories of spending, including for natural disasters and new types of infrastructure projects. Specifically:

  • Recipients may use funds for emergency relief from natural disasters and associated negative economic impacts of natural disasters; and  
  • Recipients may use a portion of their COVID-19 relief funds for designated infrastructure projects, such as nationally significant freight and highway projects

In addition, the bill would allow recipients to obligate COVID-19 relief funds on these types of projects until Sept. 30, 2026, instead of the current law’s deadline of Dec. 31, 2024.

The Flexibility Act would also:

  • Modify eligibility and allocation requirements for funding set aside for counties and Indian tribes that are near public lands
  • Establish a process for government entities to decline COVID-19 relief funds and require any declined funds to be used to reduce the federal deficit
  • Permit use of FRF for the provision of government services up to an amount equal to the greater of the amount of calculated revenue loss or $10 million. (Under the ARP’s interim final rule, only the amount of documented revenue loss can be used for this purpose.) Many local governments received less than $10 million in FRF, so this legislation would allow use of the funds with fewer restrictions

The Flexibility Act would require the Secretary of the Treasury, in consultation with the Secretary of Transportation, to issue guidance or promulgate a rule to carry out the amendments made by this legislation within 60 days of the date of enactment, including updating reporting requirements on the use of ARP funds.

As mentioned previously, the Flexibility Act has passed the Senate and is currently under consideration in the House. With 121 bipartisan House co-sponsors as of Dec. 2, 2021, the legislation appears to be gaining momentum toward the President’s desk.

What does this mean for local governments?

Considering this potential change to the ARP, along with the recently enacted IIJA and the BBB that is in the Senate, governmental units should take a holistic and strategic approach to revisit long-term goals, then examine how these federal dollars could be put toward achieving those goals.

Baker Tilly’s comprehensive federal funding solution, COMPASS, can help.

Our interactive advisory model meets each community where you are today in your funding journey and planning process. We collaborate with your leaders to establish goals and priorities, identify and align resources and develop and execute a strategic funding plan, all while managing compliance and monitoring plan progress. Our ongoing collaboration with your community results in greater success toward a more resilient future.

Connect with our state and local government specialists to learn more about Baker Tilly COMPASS.

Daniel A. Hedden
Partner, CPA
Tom L. Kaleko
Principal, CIPMA
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