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The promise and peril of ARP for local governments

The American Rescue Plan Act (ARP) comes as a welcome rescue for local government. But as professional managers, we at Management Partners know the challenge is to balance immediate stakeholder desires with investments that will help you in the long term.

Quite simply, ARP one-time monies will create pressure to fund new programs and initiatives, either via local government or through local not-for-profit organization referenced in the legislation. As a first step, we strongly suggest that local governments adopt principles to ensure that ARP funding makes your government financially sustainable in the future, even as you deploy these one-time resources to help your community. Some suggestions:

  1. As you respond to the human needs such as homelessness, hunger, eviction and foreclosure assistance, utility assistance, small business assistance or rent relief, do so with one-time or short-term initiatives instead of creating new programs.
  2. Understand restrictions on use of the funds but also appreciate the opportunities for creative one time uses.
    • Funds cannot be used to directly or indirectly off-set tax reductions or to make deposits into a pension fund.
    • Funds can be used to respond to the public health emergency associated with COVID-19 or negative economic impacts to households, small businesses, not-for-profit organizations, and impacted industries such as tourism, travel, and hospitality.
  3. Take stock of services virtualized during the pandemic and permanently convert those that went remote during the crisis to accommodate employees and constituents alike.
  4. Build or rebuild financial reserves to account for revenue shortfalls and extra costs associated with COVID-19. Fully fund your general fund or special reserves for times of economic uncertainty and for liability or shock losses. Complete an analysis that develops recommended reserve levels for operating and capital funding (as appropriate) for all enterprise and internal service funds.
  5. Promote fiscal and environmental sustainability by addressing deferred maintenance and enhancing infrastructure to increase productivity, reduce operating costs and improve quality of life.
  6. Get your capital improvement plan in order. ARP includes $10 billion in grants for capital investments.
  7. Think ahead four years. ARP expenditures can be made until the end of 2024.

You know that it is critical to make the most of these funds through targeted, intentional spending to address the greatest needs. This opportunity is too good to waste. Adopting principles that balance the use of these one-time funds between human needs and financial sustainability is prudent management.

Baker Tilly has helped local governments respond to the financial shock of COVID-19 throughout the pandemic, and we have decades of experience making organizations fiscally sustainable. We can help you examine the opportunities and risks associated with ARP and create a plan to spend the funds to produce maximum long-term benefit.

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