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HomeMy WebLinkAbout081021-03.31 August 10, 2021 TO: Mayor and Town Council FROM: Joseph A. Calabrigo, Town Manager SUBJECT: American Rescue Plan Act of 2021 – Status Update BACKGROUND On March 11, 2021, the President signed the American Rescue Plan Act of 2021 (ARPA). The ARPA provides $1.9 trillion in relief funding intended to speed up the United States' recovery from the economic and health effects of the Coronavirus pandemic. Section 9901 of the ARPA amended Title VI of the Social Security Act to add Section 602, which establishes the Coronavirus State Fiscal Recovery Fund, and Section 603, which establishes the Coronavirus Local Fiscal Recovery Fund. The Fiscal Recovery Funds are intended to provide support to state, local and tribal governments in responding to the impact of COVID-19, and in their efforts to contain COVID-19 on their communities, residents and businesses. The ARPA includes $350 billion in relief for state and local governments. This includes $219.8 billion to states, Washington, D.C., tribes, and territories; $10 billion for capital projects to support work, education, and health monitoring; with the remaining $130.2 billion to be evenly divided between counties based on population ($65.1 billion) and cities using a modified Community Development Block Grant formula ($65.1 billion). ARPA funding is intended to assist cities bridge budget shortfalls and mitigate fiscal impacts resulting from the pandemic. This will provide needed financial assistance to the Town in offsetting the revenue reductions and costs that have resulted from the pandemic. The full text of the American Rescue Plan Act of 2021 (HR 1319) may be found at: https://www.congress.gov/bill/117th-congress/house-bill/1319/text . 2 This memorandum summarizes how the ARPA applies to Danville, the range of potential uses for ARPA funds and reporting requirements established by the United States Department of the Treasury. This will set the stage for the Town Council to consider options for how to best use funds awarded to Danville to facilitate economic recovery from the pandemic while providing the greatest possible community benefit. DISCUSSION For the past several months, Town staff has reviewed information distributed by the United States Department of the Treasury (USDOT) and other sources that describe how ARPA funding awarded to Danville may be utilized in order to ensure that the Town complies fully with all of the requirements spelled out in the ARPA. Under the ARPA: 1. Danville is classified as a non-entitlement city/town and is eligible to receive Coronavirus Local Fiscal Recovery Funds (CLFR) Funds under Section 603. 2. Use of the CLFR Funds is guided by the Interim Final Rule (IFR) issued on May 17, 2021 by the USDOT to facilitate implementation of the ARPA. The full text of the IFR may be found at: https://home.treasury.gov/system/files/136/FRF-Interim-Final- Rule.pdf 3. Under the ARPA, Danville has been awarded $10,647,738 in CLFR Funds. 4. CLFR Funds are being disbursed in two tranches, twelve months apart. 5. Funds for non-entitlement cities/towns are disbursed by the USDOT to each state. The states then have 30 days to disburse the first tranche to each city/town, provided that the city/town has submitted the requisite paperwork to the state. 6. Danville submitted the necessary paperwork to the State of California by the June 23, 2021 deadline. 7. With state disbursement of the first tranche on July 19, 2021, Danville received its first payment of $5,323,869, amounting to 50% of the award that the Town will receive. Payment of the remaining 50% is expected to be received in July 2022. 8. The deadline to expend ARPA funds is December 31, 2024. The Town has retained a consultant to assist in complying with all of the ARPA provisions and setting up all of the tracking and reporting that will be required by the USDOT. Permitted uses of ARPA funds The ARPA provides cities/towns with Coronavirus Local Fiscal Recovery Funds (CLFR) Funds to respond to the COVID-19 public health emergency and its economic impacts through four categories of eligible uses. Section 602 established funds for states, territories, and tribal governments while Section 603 established funds for metropolitan cities, non-entitlement units of local government and counties. 3 Section 603(c)(1) of the ARPA provides that CLFR Funds may be used for the following purposes: a) To respond to the public health emergency or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality. b) To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers. c) For the provision of government services to the extent of the reduction in revenue due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency. d) To make necessary investments in water, sewer, or broadband infrastructure. Use of funds is “generally forward looking”. The IFR permits funds to be used to cover costs incurred beginning on March 3, 2021. So, while the ARPA covers loss of revenue from the beginning of the pandemic, expenses incurred in response to the public health emergency may only be recovered prospectively from March 3, 2021. The IFR provides extensive guidance on how funds can be recovered and expended. The following narrative expands upon some of the allowable uses covered by Section 603(c)(1)(a) – (d). Responding to the Public Health Emergency / Negative Economic Impacts • Eligible uses in this category include assistance to households; small businesses and non-profits; and aid to impacted industries. The IFR goes into considerable detail describing the various forms of assistance that can be offered. • Additional uses for Town government purposes include: o public communication efforts o enforcement of public health orders o purchases of PPE o ventilation improvements in congregate settings, health care settings, or other key locations o capital investments in public facilities to meet pandemic operational needs (i.e., physical plant improvements to public hospitals and health clinics or adaptations to public buildings to implement COVID-19 mitigation tactics) o payroll expenses for public safety provided that the recipient can document that the employee’s time is dedicated to responding to the COVID-19 public health emergency The IFR also provides flexibility for recipients to use CLFR Funds for programs or services that are not specifically identified but which meet the objectives described under Section 603(c)(1)(a) – (d). 4 Replacing Lost Public Sector Revenue Recipients may use CLFR Funds to replace lost revenue. The IFR establishes a methodology that allows recipients to compute the extent of their reduction in revenue by comparing their actual revenue to an alternative representing what could have be en expected to occur in the absence of the pandemic. Investments in Water and Sewer Infrastructure Recipients may use CLFR Funds to invest in necessary improvements to water infrastructure. Categories of eligible projects include: construction of publicly-owned treatment works, nonpoint source pollution management, national estuary program projects, decentralized wastewater treatment systems, stormwater systems, water conservation, efficiency, and reuse measures, watershed pilot projects, energy efficiency measures for publicly-owned treatment works, water reuse projects, security measures at publicly-owned treatment works, and technical assistance to ensure compliance with the Clean Water Act. Construction on eligible projects may continue past December 31, 2024, provided that funds have been obligated prior to that date. Investment in Broadband Infrastructure In order to be eligible, broadband projects must reliably deliver at least 100 Mbps download speed, at least 20 Mbps upload speed, and be scalable to a minimum of 100 Mbps download speed and 100 Mbps upload speed. Projects must be designed to serve unserved or underserved households and businesses, defined as those that are not currently served by a wireline connection that reliably delivers at least 25 Mbps download speed and 3 Mbps of upload speed. Determination of Revenue Loss Initial budget estimates for fiscal years 2019/20 and 2020/21 forecast cumulative Town revenue losses in the range of $7.0 - $7.5 million as a result of the economic impacts of the Coronavirus pandemic. In response, the Town Council and Town Manager took steps to mitigate the anticipated revenue loss by reducing municipal services and spending on infrastructure and capital projects. Service level reductions included a 16% reduction in regular and temporary staffing. Section 603(c)(1)(c) permit recipients to use CLFR Funds to replace lost revenue. Revenues are required to be calculated on an entity-wide basis. Per the IFR, General Revenue includes revenue from taxes, current charges, and miscellaneous general revenue. It excludes refunds and other correcting transactions, proceeds from issuance of debt or the sale of investments, agency or private trust 5 transactions, and revenue generated by utilities and insurance trusts. General revenue also includes intergovernmental transfers between state and local governments but excludes intergovernmental transfers from the Federal government. Under the ARPA, the determination of lost revenue is determined by comparing fiscal years 2019/20 through 2022/23 against 2018/19 (the last full fiscal year prior to the COVID-19 public health emergency). Revenue loss is determined by comparing actual revenues received with an alternative revenue scenario representing what could have been expected to occur in the absence of the pandemic. The ARPA alternative revenue scenario is calculated by applying a growth adjustment of 4.1% to the 2018/19 base year to determine an alternative revenue amount for 2019/20. The alternative and actual revenue amounts are then compared and any diminution in revenue is presumed to have been “due to” the COVID-19 public health emergency. This process is repeated to compare ARPA alternative and actual revenue amounts for each succeeding year through 2022/23. Table 1 compares actual 2019/20 revenues and estimated 2020/21 revenues with the ARPA alternative revenue scenario to determine revenue losses for the two years. Estimates are used for 2020/21 pending completion of the 2020/21 CAFR. Table 1 Actual & Estimated Revenue Loss for 2019/20 & 2020/21 ARPA ARPA Actual Scenario Actual Scenario Estimated 2018/19 2019/20 2019/20 2020/21 2020/21 General Fund $25,555,749 $26,603,535 $26,290,456 $27,694,280 $25,594,828 Recreation $2,531,713 $2,635,513 $1,725,499 $2,743,569 $500,000 Special Revenue $9,996,604 $10,406,465 $9,995,204 $10,833,130 $9,325,542 TOTAL $38,084,066 $39,645,513 $38,011,159 $41,270,979 $35,420,370 Annual Revenue Loss ($1,634,354) ($5,850,609) Cumulative Revenue Loss - 2019/20 & 2020/21 ($7,484,962) Based upon the annual 4.1% growth factor, the ARPA alternative revenue scenario will increase to $42,963,089 for 2021/22, and $44,724,575 for 2022/23. The resultant shortfall for each succeeding year is added to the cumulative loss from 2019/20 and 2020/21 up to a maximum of $10,647,738. Based upon most recent forecasts, there is a high likelihood that the Town’s total revenue loss will equal or exceed the full award of CLFR Funds allocated to the Town 6 under the ARPA. This determination is important because the IFR allows recipients somewhat broader latitude to use funds that are received to offset lost revenue. Eligible Use of Funds to Replace Lost Revenue A key question involves how recipients may use funds that are recovered to offset revenue lost due to the pandemic. The USDOT has issued “Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions” which provide the following guidance: “Once a recipient has identified a reduction in revenue, are there any restrictions on how recipients use funds up to the amount of the reduction? The IFR gives recipients broad latitude to use funds for the provision of government services to the extent of reduction in revenue. Government services can include, but are not limited to, maintenance of infrastructure or pay-go spending for building new infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services. However, paying interest or principal on outstanding debt, replenishing rainy day or other reserve funds, or paying settlements or judgments would not be considered provision of a government service, since these uses of funds do not entail direct provision of services to citizens. This restriction on paying interest or principal on any outstanding debt instrument, includes, for example, short-term revenue or tax anticipation notes, or paying fees or costs associated with the issuance of new debt. In addition, the overarching restrictions on all program funds (e.g., restriction on pension deposits, restriction on using funds for non-federal match where barred by regulation or statute) would apply.” This guidance suggests that the range of governmental uses for which these funds may be used is broader than those described in Section 603(c)(1). Funds received to offset reduction in revenues are to be used for direct provision of services to citizens. Potential additional uses for Danville could include: • Maintenance of infrastructure or pay-go spending for building new infrastructure (public works), including roads • Modernizing/upgrading cybersecurity systems • Provision of police services These potential uses would be combined with the other uses described in Section 603(c)(1) of the ARPA. 7 Financial Reporting Financial records and supporting documents related to the award must be retained for a period of five years after all funds have been expended or returned to Treasury, whichever is later. This includes those which demonstrate the award funds were used for eligible purposes in accordance with the ARPA, Treasury’s regulations implementing those sections, and Treasury’s guidance on eligible uses of funds. The Town will be required to submit project and expenditure reports annually. The initial annual report will cover activity from the date of award to September 30, 2021 and must be submitted to Treasury by October 31, 2021. The subsequent annual reports must be submitted to Treasury by October 31 each year. SUMMARY Through the American Rescue Plan Act of 2021, the Town has been awarded a total of $10,647,738 in Coronavirus Local Fiscal Recovery (CLFR) Funds. Use of the CLFR Funds is guided by the Interim Final Rule (IFR) issued by the United States Department of the Treasury. Based upon current staff/consultant estimates, there is a high likelihood that the Town’s total revenue losses will equal or exceed the $10,647,738 in CLFR Funds allocated to the Town. The IFR provides recipients with the ability to utilize funds to: make expenditures for projects, programs and/or provide economic assistance to other segments of the community as described in the ARPA; and to replace lost revenue due to the pandemic. This includes: • To respond to the public health emergency or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality (Category 1). • To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers (Category 1). • To make necessary investments in water, sewer, or broadband infrastructure (Category 1). • For the direct provision of government services to the extent of the reduction in revenue due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency, including maintenance of infrastructure or pay-go spending for building new infrastructure, including roads, modernizing cybersecurity systems and provision of police services (Category 2). 8 The Town Council may consider utilizing CLFR Funds awarded to Danville to support projects, programs and partnerships that will address high priority needs and help spur economic recovery. Options include: • Infrastructure improvements that support economic recovery and revitalization • Support for business and non-profit organizations that serve the community • Support for senior services • Support for mental health and homeless services • Fiberoptic and cybersecurity upgrades • Infrastructure improvements that benefit the broader community CONCLUSION It is recommended that the Town Council accept a status report from staff and provide guidance on potential uses of the CLFR Funds awarded to Danville, with the emphasis on programs, partnerships and projects that will facilitate recovery from the economic and health effects of the Coronavirus pandemic, while providing the broadest possible community benefit.