TO: ADAM PIRRIE, CITY MANAGER
FROM: JEREMY STARKEY, FINANCE DIRECTOR
DATE: NOVEMBER 26, 2024
Reviewed by:
City Manager: AP
SUBJECT:
Title
AMERICAN RESCUE PLAN ACT FUNDING REVENUE LOSS DETERMINATION AND OBLIGATION OF UNSPENT FUNDS (FUNDING SOURCE: AMERICAN RESCUE PLAN ACT FUND)
Body
SUMMARY
On March 11, 2021, the American Rescue Plan Act (ARPA) was signed into law by President Biden. This established the Coronavirus State Fiscal Recovery Fund and Coronavirus Local Fiscal Recovery Fund, which together make up the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program. In May 2021, The United States Department of the Treasury (Treasury) published the Interim Final Rule (2021 IFR) describing eligible and ineligible uses of funds (as well as other program provisions), sought feedback from the public on these program rules, and began to distribute funds.
On January 6, 2022, the Treasury issued its Final Rule, which took effect on April 1, 2022. The 2022 Final Rule delivers broader flexibility and greater simplicity in the program, responsive to feedback received during the comment process. The 2022 final rule provides state and local governments with increased flexibility to pursue a wider range of uses, as well as greater simplicity so governments can focus on responding to the crisis in their communities and maximizing the impact of their funds. Among other clarifications and changes, the 2022 Final Rule offers a standard allowance for revenue loss of up to $10 million. Recipient agencies would have the option to make a one-time decision that selected the standard allowance of up to $10 million, not to exceed the award allocation and in many cases their full award, and use that amount for general government services, with streamlined reporting requirements.
On December 29, 2022 the Consolidated Appropriations Act, 2023 was enacted, which amended the SLFRF program and provided additional flexibility as well as new eligible use categories. This amendment became the 2023 Interim Final Rule (2023 IFR) and went into effect on September 20, 2023.
The Expenditure Categories (EC) listed below includes all eligible uses including those described in the 2023 IFR.
EC 1. Public Health
EC 2. Negative Economic Impacts
EC 3. Public Health-Negative Economic Impact: Public Sector Capacity
EC 4. Premium Pay
EC 5. Water, Sewer, and Broadband Infrastructure
EC 6. Revenue Replacement
EC 7. Administrative
EC 8. Emergency Relief from Natural Disasters
EC 9. Surface Transportation projects
EC 10. Title I projects
In November 2023, the US Treasury issued an additional interim final rule (the Obligation IFR) to amend the definition of “obligation” at 31 CFR 35.3 and to provide related clarifications. Additional guidance clarifying the provisions of the Obligation IFR were published and became effective on March 29, 2024 in Section 17: Obligation of the SLFRF FAQs. Specifically, FAQ 17.6 of the SLFRF FAQ clarifies that interagency agreements between departments and agencies within a recipient’s government do constitute an obligation, as long as the agreement meets certain conditions. These interagency agreements can be used to obligate funds that will be expended in calendar years 2025 and 2026.
RECOMMENDATION
Recommended Action
Staff recommends the City Council:
A. Determine that American Rescue Plan Act Funding allocation of $8,675,598 as Revenue Replacement using the standard allowance;
B. Reallocate unspent American Rescue Plan Act appropriations of $317,364 to a seismic retrofit and ADA improvement project for the Claremont Police Department Facility;
C. Appropriate remaining American Rescue Plan Act Funding in the amount of $150,400 to a seismic retrofit and ADA improvement project for the Claremont Police Department Facility;
D. Appropriate remaining American Rescue Plan Act Funding in the amount of $467,764 to the construction of a new addition for the Police Department women’s locker room;
E. Approve the Inter-Agency Agreement with the Administrative Services Department to obligate unspent American Rescue Plan Act Funding in the amount of $675,450;
F. Approve the Inter-Agency Agreement with the City Manager’s Office to obligate unspent American Rescue Plan Act Funding in the amount of $1,355,528;
G. Approve the Inter-Agency Agreement with the Community Development Department to obligate unspent American Rescue Plan Act Funding in the amount of $345,762;
H. Approve the Inter-Agency Agreement with the Community Services Department to obligate unspent American Rescue Plan Act Funding in the amount of $11,806;
I. Approve the Inter-Agency Agreement with the Financial Services Department to obligate unspent American Rescue Plan Act Funding in the amount of $10,000; and
J. Approve the Inter-Agency Agreement with the Recreation and Human Services Department to obligate unspent American Rescue Plan Act Funding in the amount of $160,000.
Body
ALTERNATIVE TO RECOMMENDATION
In addition to the recommendation, there is the following alternative:
• Request additional information from staff.
FINANCIAL REVIEW
The staff cost to prepare this report is estimated at $5,665 and is included in the operating budget of the Financial Services Department.
ANALYSIS
The City of Claremont received a funding allocation of $8,675,598 in ARPA Funds from the US Treasury in two installments in July 2021 and July 2022. As of the date of this report, the City has recorded that $4,966,430 has been spent with $3,709,169 remaining to be spent by the December 31, 2026 deadline. The table below summarizes the status of these funds.
|
Status of Funds |
Amount |
|
Funds expended (spent) |
$4,966,430 |
|
Funds under contract or to be by 12/31/2024 |
$1,150,622 |
|
Funds obligated through Inter-Agency Agreements |
$2,558,546 |
|
Total: |
$8,675,598 |
Revenue Replacement
The 2022 Final Rule allowed recipients the option to claim up to $10 million of their SLFRF allocation, which Treasury termed the “standard allowance,” to replace lost revenue and use that funding to provide government services in lieu of calculating revenue loss. The standard allowance is available to all recipients and offers a simple, convenient way to determine revenue loss, instead of using the full formula specified in the 2022 Final Rule. Treasury had originally required recipients to make a one-time irrevocable election to take the standard allowance by April 30, 2022 which the 2023 IFR later allowed updates to this determination by April 2023. In both the 2022 and 2023 annual reports submitted to the Treasury, the City made the election to take the standard allowance for the full $8,675,598. This staff report recognizes that the City has made this election effective April 30, 2022.
Reallocation of Unspent ARPA Funds
Under the SLFRF program, recipients must obligate all award funds by December 31, 2024, and expend funds by December 31, 2026. Appropriations to various projects were made by the City Council in previous years which resulted in funds being unspent and projects or programs being discontinued. A summary of the funds available for reallocation are provided in the table below.
|
Program/Project Description |
Reallocate |
|
Business Tax Relief |
$1,859.19 |
|
PACT Funding |
$165,778.88 |
|
Police Dispatch/Patrol Radio Replacements |
$33,281.60 |
|
YAC Improvements Project |
$1,444.52 |
|
ADU Grant Program |
$80,000.00 |
|
Business Grant Program |
$35,000.00 |
|
Totals: |
$317,364.19 |
The amounts listed in the table above are available for reallocation for reasons such as funds remaining from contingencies or are estimated to not be spent based on trends in responses to the programs. Additionally, the funds unspent in the PACT Program are no longer needed due to a staff reduction within the program which ultimately led to the program ending in its original design. A new program was created utilizing another funding source.
These funds are available for reallocation to other eligible ARPA projects and must be obligated prior to December 31, 2024. Staff recommends that these funds be allocated to a seismic retrofit and ADA improvement project for the Claremont Police Department Facility.
Appropriate Remaining ARPA Funds
As reported by staff in October 2024, over $4.7 million had been spent of the total $8.7 million awarded with $4.0 million remaining to be obligated prior to the December 31, 2024 deadline. In reviewing the totality of funds appropriated to various eligible projects and programs, there is a balance of $618,164 that has not been appropriated. Staff is recommending that $150,400 of these funds be allocated to a seismic retrofit and ADA improvement project for the Claremont Police Department Facility. This amount appropriated with the amount reallocated from above will provide a total appropriation of $467,764 for this project.
Staff also recommends that the remaining $467,764 of what has not yet been appropriated, be allocated to the construction of a new addition for the Police Department women’s locker room. It should be noted that the two appropriations of $467,764 each towards these Police Department Facility projects will only fund a portion of each of the projects. Phase 1 costs for the seismic retrofit and ADA improvement project for the Police Department is estimated to be just over $1.2 million and will require additional funding appropriations. The construction of the Police Department women’s locker room is estimated at just over $2.6 million based on 90 percent plans being completed. Additional effort will be made by staff to identify the remaining funding sources for both projects in the months ahead.
In the 2024-26 budget development process, the City Council approved the 2024-26 City Council Priorities and Objectives which included an objective to identify potential sources of funding to complete Police Department facility upgrades. The 2024-26 Budget also included this project as a major goal and work plan item. In the months to follow, staff will provide specific improvements that can be made to the existing Police Department facility using these funds.
Obligation Requirements
In the 2022 Final Rule, obligation means “an order placed for property and services and entering into contracts, subawards, and similar transactions that require payment.” In November 2023, Treasury issued the Obligation IFR to clarify the definition of “obligation” and provided updates to their FAQs, specifically in Section 17. Obligation. Furthermore, it clarified what an obligation “was not”. The Treasury considered some recipients’ comments to revise the rule to define “costs incurred” by reference to recipient appropriation, budget, or allocation processes, and explains that this approach would not provide a standard that could be applied consistently across recipients. Earlier in 2024, the Treasury added FAQ 17.15 that addressed that the same definition of “obligation” applies to funds used under the revenue loss category. With this new understanding, staff has been exploring options that would allow these funds to meet the definition of obligation. FAQ 17.6 clarifies that the Treasury considers an Inter-Agency Agreement (IAA) to be an acceptable means to satisfy an obligation of the SLFRF rules.
As there are funds remaining that have yet to be encumbered or expended, staff has prepared IAAs between the City and the Departments to obligate these funds according to the purposes currently approved and appropriated by the City Council. These IAAs are attached to this staff report (Attachments A-F) and are assigned to the departments that will oversee the use of these funds and the completion of these programs or projects. The various SLFRF rules will not allow any new program or project to be created after December 31, 2024 when the obligation deadline has expired. Only those programs and projects that are included in the attached IAAs are eligible for the use of remaining ARPA funds after the obligation deadline. The Inter-Agency Agreements also provide the City the ability to amend as needed with respect to increasing or decreasing the budgets up and until December 31, 2026.
Interest Earnings
As of the quarter ending September 30, 2024, interest earnings on the awarded ARPA funds on deposit with the City totaled over $437,000. According to the Treasury, interest or investment proceeds earned on ARPA funds are considered unrestricted revenues and are not subject to the eligibility restrictions or compliance requirements of the original award. At a later date, it is likely that staff will recommend the use of these interest proceeds to supplement the budgets of currently underfunded ARPA projects, such as the seismic retrofit and ADA improvement project or the women’s locker room construction at the Police Department.
RELATIONSHIP TO CITY PLANNING DOCUMENTS
Staff has evaluated the agenda item in relationship to the City’s strategic and visioning documents and finds that it applies to the following City Planning Documents: Council Priorities, Sustainable City Plan, Economic Sustainability Plan, General Plan, and the 2024-26 Budget.
CEQA REVIEW
This item is not subject to environmental review under the California Environmental Quality Act (CEQA).
PUBLIC NOTICE PROCESS
The agenda and staff report for this item have been posted on the City website and distributed to interested parties. If you desire a copy, please contact the City Clerk’s Office.
Submitted by:
Jeremy Starkey
Finance Director
Attachments:
A - Inter-Agency Agreement with the Administrative Services Department
B - Inter-Agency Agreement with the City Manager’s Office
C - Inter-Agency Agreement with the Community Development Department
D - Inter-Agency Agreement with the Community Services Department
E - Inter-Agency Agreement with the Financial Services Department
F - Inter-agency Agreement with the Recreation and Human Services Department