How Congress Could Unlock More ARPA Funds for Infrastructure

State and local government advocates are urging House lawmakers to pass a Senate-approved bill that would provide states and localities greater flexibility in how they can use federal coronavirus relief funds that they’re receiving under the American Rescue Plan Act.

Notably, the bipartisan legislation would provide greater freedom for states, cities and counties to direct tens of millions of dollars of the aid towards infrastructure projects. 

Funding recipients would be able to use up to $10 million, or 30%—whichever amount is greater—of their payments under ARPA’s main state and local aid program on a wide variety of transportation projects, covering roads and transit, and on the types of spending allowed under the Community Development Block Grant program. 

For many places, a 30% share of an ARPA allotment is a sizable sum of money. For instance, 66 cities are in line to receive awards totaling over $100 million, and 47 counties over $200 million, according to Treasury Department figures.

Additionally, the legislation would allow state and local governments to use up to $10 million of their aid to cover the cost of general government services without undertaking a revenue loss analysis now required under the relief law. That promises to be especially appealing for smaller localities that, in some cases, might find the process of calculating losses to be a heavy lift.

The bill would also clear the way for ARPA funds to be used for relief programs following natural disasters, like wildfires and floods.

“This flexibility legislation would be huge for counties,” said Jessica Jennings, the National Association of Counties’ associate legislative director for transportation and infrastructure. 

“I would say this is just as important as the infrastructure bill to us, because we already have those direct funds,” Jennings added, referring to the $1.2 trillion infrastructure legislation that President Biden plans to sign Monday.

Provisions like those in the flexibility legislation emerged with bipartisan support during the Senate amendment process for the infrastructure bill over the summer, but were left out amid disagreements over amending the public works package. 

Then, in October, the Senate passed the spending flexibility measure on its own by unanimous consent. Sens. John Cornyn, a Texas Republican, and Alex Padilla, a California Democrat, teamed up as the lead sponsors of the bill. 

For the measure to get to Biden’s desk, it will need to clear the House. A version of the proposal in that chamber had 81 cosponsors as of Friday, including 49 Republicans.

On Nov. 8, seven groups representing state and local government—including those that advocate on behalf of cities, counties, mayors and governors—sent a letter to House leaders calling on them to take action on the bill. “We believe that this new legislation would both streamline and strengthen this historic program,” they wrote.

Jennings said that NACo is not pushing to get the legislation embedded in the nearly $2 trillion domestic spending package that Democrats are trying to muscle through Congress. 

Instead, a possibility is that the legislation could be included in a continuing resolution extending funding to keep the federal government operating. Biden on Sept. 30, the day the federal fiscal year ended, signed a stopgap funding measure set to expire Dec. 3.

'They want to make sure they get it right'

ARPA provided $350 billion in state and local aid under what’s known as the Coronavirus State and Local Fiscal Recovery Funds program. Treasury issued rules in May to guide how states and localities can use the money. But a final version of those regulations is still forthcoming.

The rules and the law itself outline categories under which states and localities can spend the pandemic aid. Possibilities include public health expenses, addressing economic fallout from the pandemic, providing premium pay for certain public workers, and investing in sewer, water and broadband infrastructure.

There’s also a provision that allows for the funding to go towards backfilling revenue losses that stem from the pandemic. States and localities have a great deal of latitude in how they can spend the money that falls under this category. But they have to calculate qualifying revenue losses using a method that some officials and observers have described as cumbersome.

The pending bill would let governments use up to $10 million on general services, like they can under this revenue loss category, but they’d be able to skip the revenue loss calculation.

Elizabeth Kellar, director of public policy for the International City/County Management Association, noted that some cities and counties have been staying on the sidelines with ARPA spending, waiting for the final regulations to be nailed down.

“They want to make sure they get it right,” she said, noting that some communities have had bad experiences in the past where they ran up disaster relief costs that ended up being deemed ineligible for federal funding, often because they didn’t have adequate documentation.

“That’s what I love about this bill,” Kellar added. “It does clarify a number of questions, and it also does allow for some uses that were not necessarily envisioned in the original ARPA act.”

With the ARPA aid, spending on infrastructure outside of water, sewers and broadband generally isn’t permitted, unless it’s done with dollars that fall under the revenue loss category.

But Brittney Kohler, the National League of Cities’ legislative director for transportation and infrastructure, said one of the top questions NLC was hearing from its members as the law was taking shape was: “Can we use this for transportation?”

In addition to allowing for the money to go towards transportation projects, the flexibility legislation would also enable governments to use ARPA dollars to meet certain nonfederal matching fund requirements that are part of federal infrastructure programs.

“That is a huge benefit for local communities that might struggle to come up with that 20% match that’s typical,” Kohler said.

“This bill truly is saying, from the federal government to locals, we believe that you know your community best and that you're able to spend this money in the best possible way,” she added. “That's a shift in thinking and a very clear message, I think, from Congress.”