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HomeMy WebLinkAbout091521-03.4 STUDY SESSION MEMORANDUM 3.4 TO: Town Council September 15, 2021 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 $360 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 . 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 (USDOT). 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 Town staff has reviewed information distributed by the 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. ARPA Status Update 2 September 15, 2021 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 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 obligate 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 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. 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. ARPA Status Update 3 September 15, 2021 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). Replacing Lost Public Sector 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 been expected to occur in the absence of the pandemic. Investments in Water and Sewer Infrastructure CLFR Funds may be used 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, wastewater treatment systems, stormwater systems, water conservation, efficiency, and reuse measures, watershed pilot projects, energy efficiency measures for publicly-owned ARPA Status Update 4 September 15, 2021 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 Town estimates for fiscal years 2019/20 and 2020/21 forecast 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 took steps to mitigate the anticipated 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) permits recipients to use CLFR Funds to replace lost revenue. Revenues are required to be calculated on an entity -wide basis. General Revenues include taxes, current charges, and miscellaneous general revenue. It excludes refunds and other correcting transactions, proceeds from issuance of debt or sale of investments, agency or private trust transactions, and revenue from utilities and insurance trusts. It 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 future calendar years against the last full fiscal year prior to the COVID-19 public health emergency, which is 2018/19 . (For ARPA purposes, the USDOT requires that all agencies present financial data on a calendar year, rather than fiscal year basis. Because the Town reports on a July 1 – June 30 fiscal year basis, Finance staff must split fiscal years and re -organize past and future fiscal data to assign revenue and expense information into either January 1 – June 30 or July 1 – December 31 time periods, to present the information in the required format.) 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 either: the average annual revenue growth for the three fiscal years prior to the pandemic; or 4.1% per year, whichever is greater. ARPA Status Update 5 September 15, 2021 For Danville, the average annual revenue growth rate over the three fiscal years prior to the pandemic (2016/17 – 2018/19) was 4.98%. Therefore, this growth rate was used to determine the ARPA alternative revenue scenarios for the succeeding calendar years. The ARPA alternative and actual revenue amounts for calendar years 2020, 2021, 2022 and 2023 are then compared and any diminution in revenue is presumed to have been due to the COVID-19 public health emergency. Table 1 presents the resultant revenue loss analysis as compiled by Town Finance staff, working with two separate independent auditors. Table 1 Actual & Estimated Revenue Loss: 2020-2023 Actual and estimated revenue losses illustrate a high likelihood that the Town’s total revenue loss will equal or exceed the full amount awarded to the Town under the ARPA. This determination is important because the IFR allows recipients broader latitude to use funds that are received to offset lost revenue. An additional total of $675,153 in recoverable ARPA expenses were made between March 3 – June 30, 2021. Eligible Use of Funds to Replace Lost Revenue The USDOT has issued “Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions” (FAQs) which provide the following guidance on how recipients may use funds that are recovered to offset revenue lost due to the pandemic: “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 General Special Other Revenue Fund Recreation Revenue Funds Total Loss 2018/19 Actual $25,555,749 $2,531,713 $11,000,540 $2,760,935 $41,848,937 2020 ARPA $26,828,425 $2,657,792 $11,548,367 $2,898,430 $43,933,014 2020 (Actual) $26,987,484 $742,658 $9,944,879 $1,476,078 $39,151,099 ($4,781,915) 2021 ARPA $28,164,481 $2,790,150 $12,123,476 $3,042,771 $46,120,878 2021 (est./actual) $28,252,641 $1,800,000 $10,490,513 $1,549,881 $42,093,035 ($4,027,843) 2022 ARPA $29,567,072 $2,929,100 $12,727,225 $3,194,301 $48,417,698 2022 (estimated) $29,947,799 $2,531,713 $11,119,944 $1,642,874 $45,242,330 ($3,175,368) 2023 ARPA $31,039,512 $3,074,969 $13,361,040 $3,353,378 $50,828,899 2023 (estimated $31,744,667 $2,683,616 $11,787,140 $1,741,447 $47,956,870 ($2,872,029) ($14,857,156) ARPA Status Update 6 September 15, 2021 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 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 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, public safety, health, or educational services These potential uses would be combined with the other uses described in Section 603(c)(1) of the ARPA. Timing and Performance Requirements All CLFR Funds must be obligated by December 31, 2024 and expended by December 31, 2026. The Town will need to take several steps to ensure that these requirements are met. For capital projects, this will include: • Update the Five-Year Capital Improvement Program (CIP) to include all ARPA funded projects, by December 31, 2024; • Identify additional funding sources needed to fully fund all projects utilizing ARPA funds, and appropriate 100% of project funding by December 31, 2024; • Coordinate design and construction of all ARPA funded CIP projects to complete 100% of all work by no later than December 31, 2026. The Town Council will receive regular updates to ensure that all performance requirements are on track to be met. 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 ARPA Status Update 7 September 15, 2021 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. Current actual and estimated revenues indicate that there is a high likelihood that the Town’s total revenue losses, combined with pandemic related expenses made after March 3, 2021, will equal or exceed the $10,647,738 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 Section 603 of the ARPA; including to replace lost revenue due to the pandemic. CLFR Funds may be used for the following purposes: • 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). The Government Finance Officers Association (GFOA) has also issued guidelines on potential use of ARPA funds for local governments (attachment A). ARPA Status Update 8 September 15, 2021 It is recommended that the Town Council consider utilizing CLFR Funds awarded to Danville to support programs, partnerships and projects that will address high priority needs and help spur economic recovery. Examples include: • Support for businesses 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 support economic recovery and revitalization • Infrastructure improvements that benefit the broader community All CLFR Funds must be obligated by December 31, 2024 and expended by December 31, 2026. Consideration should be given to avoiding creating new programs or constructing new projects that will increase the Town’s ongoing operating and/or maintenance costs. 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. Prepared by: Joseph A. Calabrigo Town Manager Attachments: A – GFOA American Rescue Plan Act Guiding Principles ATTACHMENT A GFOA American Rescue Plan Act Guiding Principles Temporary Nature of ARPA Funds. ARPA funds are non-recurring so their use should be applied primarily to non-recurring expenditures. • Care should be taken to avoid creating new programs or add-ons to existing programs that require an ongoing financial commitment. • Replenishing reserves used to offset revenue declines during the pandemic should be given high priority to rebuild financial flexibility/stability and restore fiscal resiliency. • Use of ARPA funds to cover operating deficits caused by COVID-19 should be considered temporary and additional budget restraint may be necessary to achieve/maintain structural balance in future budgets. • Investment in critical infrastructure is particularly well suited use of ARPA funds because it is a non-recurring expenditure that can be targeted to strategically important long- term assets that provide benefits over many years. However, care should be taken to assess any on-going operating costs that may be associated with the project. ARPA Scanning and Partnering Efforts. State and local jurisdictions should be aware of plans for ARPA funding throughout their communities. • Local jurisdictions should be cognizant of state-level ARPA efforts, especially regarding infrastructure, potential enhancements of state funding resources, and existing or new state law requirements. • Consider regional initiatives, including partnering with other ARPA recipients. It is possible there are many beneficiaries of ARPA funding within your community, such as schools, transportation agencies and local economic development authorities. Be sure to understand what they are planning and augment their efforts; alternatively, creating cooperative spending plans to enhance the structural financial condition of your community. Take Time and Careful Consideration. ARPA funds will be issued in two tranches to local governments. Throughout the years of outlays, and until the end of calendar year 2024, consider how the funds may be used to address rescue efforts and lead to recovery. • Use other dedicated grants and programs first whenever possible and save ARPA funds for priorities not eligible for other federal and state assistance programs. • Whenever possible, expenditures related to the ARPA funding should be spread over the qualifying period (through December 31, 2024) to enhance budgetary and financial stability. • Adequate time should be taken to carefully consider all alternatives for the prudent use of ARPA funding prior to committing the resources to ensure the best use of the temporary funding. The influx of funds will undoubtedly benefit state and local finances, and aid in the recovery from the budgetary, economic, and financial impacts of the pandemic. Rat ing agencies will evaluate a government’s use of the ARPA funds in formulating its credit opinion and, importantly, will consider your government’s level of reserves and structural budget balance, or efforts to return to structural balance, as part of their credit analysis. Finance officers will play a critical role in highlighting the need to use ARPA funds prudently with an eye towards long-term financial stability and sustainable operating performance. The funding provided under ARPA provides a unique opportunity for state and local governments to make strategic investments in long -lived assets, rebuild reserves to enhance financial stability, and cover temporary operating shortfalls until economic conditions and operations normalize.