American Rescue Plan: Guidance on state and local fiscal recovery funds

When the American Rescue Plan was passed, we knew it would make an unprecedented amount of funding available to local government. But the details were quite fuzzy. Although there’s still much to be determined, additional guidance has just been released from the U.S. Department of Treasury. In a nutshell, the emphasis is on broad definition for each jurisdiction to meet local needs.

As a reminder, the American Rescue Plan includes direct aid to both state and local governments directly through the Coronavirus State and Local Fiscal Recovery Funds formula grant program. This formula grant program provides $195.3 billion to states and the District of Columbia, $20 billion to tribal government and $130.2 billion to local governments.

Starting May 10, eligible state, territorial, metropolitan city, county and tribal governments may request Coronavirus State and Local Fiscal Recovery Funds through the Treasury Submission Portal. Below is a summary of the guidance released and how first responders can participate in this funding.

Funding Highlights

The Coronavirus State and Local Fiscal Recovery Funds provide substantial flexibility for each jurisdiction to meet local needs, including support for households, small businesses, impacted industries, essential workers and the communities hardest hit by the crisis.

Treasury expects to distribute these funds directly to each state, territorial, metropolitan city, county and tribal government. Local governments classified as non-entitlement units will receive this funding through their applicable state government. Treasury expects to provide further guidance on distributions to non-entitlement units—defined as less than 50,000 population—next week.

Other payment highlights:

• Local governments should expect to receive funds in two tranches, with 50% provided beginning in May 2021 and the balance delivered 12 months later.
• States will receive funds in two payments (unless they have experienced a net increase in the unemployment rate of more than two percentage points from February 2020 to the latest available data, in which case they will get a single payment with their full allocation).
• U.S. territories will receive a single payment.
• Tribal governments will receive two payments, with the first payment available in May and the second payment, based on employment data, to be delivered in June 2021.

Allowable Uses of Coronavirus State and Local Fiscal Recovery Funds

Within the categories of eligible uses, recipients have broad flexibility to decide how best to use this funding to meet the needs of their communities. Approved uses of American Rescue Plan funding include to:

• Support public health expenditures by funding COVID-19 mitigation efforts, medical expenses, behavioral healthcare, and certain public health and safety staff
• Address negative economic impacts caused by the public health emergency, including economic harms to workers, households, small businesses, impacted industries and the public sector
• Replace lost public sector revenue, using this funding to provide government services to the extent of the reduction in revenue experienced due to the pandemic
• Provide premium pay for essential workers, offering additional support to those who have borne and will bear the greatest health risks because of their service in critical infrastructure sectors
• Invest in water, sewer and broadband infrastructure, making necessary investments to improve access to clean drinking water and support vital wastewater services

Let’s look at some of these categories in more detail.

Supporting the Public Health Response

Recipients may use American Rescue Plan funding to address a broad range of public health needs across COVID-19 mitigation, medical expenses, behavioral healthcare, and public health resources. Among other services, these funds can help support:

• Services and programs to contain and mitigate the spread of COVID-19, including vaccination programs; medical expenses; testing, contact tracing, isolation or quarantine; PPE purchases; support for vulnerable populations to access medical or public health services; public health surveillance (e.g., monitoring for variants); enforcement of public health orders and public communication efforts; enhancement of healthcare capacity, including alternative care facilities; support for prevention, mitigation or other services in congregate living facilities and schools; enhancement of public health data systems; capital investments in public facilities to meet pandemic operational needs; and ventilation improvements in key settings like healthcare facilities.
• Services to address behavioral healthcare needs exacerbated by the pandemic, including mental health treatment, substance misuse treatment, other behavioral health services, hotlines or warmlines, crisis intervention, and services or outreach to promote access to health and social services.
• Payroll and covered benefits expenses for public health, healthcare, human services, public safety and similar employees, to the extent that they work on the COVID-19 response. For public health and safety workers, recipients can use these funds to cover the full payroll and covered benefits costs for employees or operating units or divisions primarily dedicated to the COVID-19 response.

Addressing Negative Economic Impacts

To help alleviate the economic hardships caused by the pandemic, Coronavirus State and Local Fiscal Recovery Funds enable eligible state, local, territorial and tribal governments to provide a wide range of assistance to individuals and households, small businesses and impacted industries, in addition to enabling governments to rebuild public sector capacity.

Funding can be used to rehire public sector staff and replenish unemployment insurance (UI) trust funds, in each case up to pre-pandemic levels. Recipients may also use this funding to build their internal capacity to successfully implement economic relief programs, with investments in data analysis, targeted outreach, technology infrastructure and impact evaluations.

Serving the Hardest Hit Communities and Families

Coronavirus State and Local Fiscal Recovery Funds allow for a broad range of uses to address the disproportionate public health and economic impacts of the crisis on the hardest-hit communities, populations and households. Eligible services include addressing health disparities and the social determinants of health through funding for:

• Community health workers
• Public benefits navigators
• Remediation of lead hazards
• Community violence intervention programs

Other Uses for American Rescue Plan Funds

State, local, territorial, and tribal governments facing budget shortfalls may use Coronavirus State and Local Fiscal Recovery Funds to replace lost public sector revenue to avoid cuts to government services. Funds can also be used to provide premium pay for essential workers, including public health and safety staff.

Ineligible uses remain consistent with original guidance: States and territories cannot use this funding to offset a reduction in revenue and funding cannot be used to make a deposit in a pension fund.

Advocate for Your Share

Approved uses for Coronavirus State and Local Fiscal Recovery Funds provide many opportunities for public safety agencies to tap into much-needed funding. This opportunity won’t come along again for a long time, so it’s important to prioritize, gather needed information to justify your requests and prepare now to have the best shot at funding. For more information, read our guide on four tips to advocate for your share.

Additional Resources

• U.S. Department of Treasury – Coronavirus State and Local Fiscal Recovery Funds Portal
• Fact Sheet (5/10/21) – Coronavirus State and Local Fiscal Recovery Funds - U.S. Department of Treasury
• Frequently Asked Questions (5/10/21) – Coronavirus State and Local Fiscal Recovery Funds