CC 2021-07-27_11a American Rescue Plan Act Funding
MEMORANDUM
TO: CITY COUNCIL
FROM: WHITNEY MCDONALD, CITY MANAGER
BILL ROBESON, ASSISTANT CM/PUBLIC WORKS DIRECTOR
NICOLE VALENTINE, ADMINISTRATIVE SERVICES DIRECTOR
DON RHOADS, CONSULTANT, MANAGEMENT PARTNERS
SUBJECT: REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING
THE CITY’S UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF
EXCESS AVAILABLE FUND BALANCE; AND ALLOCATION OF
AMERICAN RESCUE PLAN ACT FUNDING
DATE: JULY 27, 2021
SUMMARY OF ACTION:
Review and provide direction on the following items:
1. Reducing the City’s CalPERS Unfunded Accrued Liability (UAL),
2. Allocating excess available Fund Balance,
3. Providing guidance on priorities for an expenditure Framework for the City’s American
Rescue Plan Act (ARPA) Funding Decisions and appropriating funds.
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
The City’s Unfunded Accrued Liability (UAL) equals approximately $17.9 million.
Reducing the Reserve fund balance in FY 2021-22 by $1,751,000 to complete four (4)
additional street repair projects will bring the projected fund balance to 20%, consistent
with City policy. ARPA funds in the amount of $4,300,241 are expected to be received
during FYs 2021-22 and 2022-23. One-half of this amount was received on July 13, 2021,
and the other half is expected 12 months later. It is recommended that Council appropriate
$2,493,950 of ARPA funds for identified projects.
RECOMMENDATION:
It is recommended the City Council: 1) Receive and file the report of UAL options and
provide direction, as appropriate, to pursue one or more desired options; 2) Appropriate
$1,751,000 of the Reserve Fund Balance towards the Pavement Management Program;
3) Adopt a Resolution accepting the receipt of all funds available to the City pursuant to
the American Rescue Plan Act (ARPA) of 2021 and authorize the City Manager or her
designee to execute all documents as necessary for the funding; 4) Appropriate
Item 11.a. - Page 1
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 2
$2,493,950 of American Rescue Plan Act (ARPA) Funds to Water, Sewer, and
Stormwater Infrastructure projects; and (4) create an ad-hoc committee to evaluate
options and provide future recommendations for allocating the remaining ARPA funds to
programs and projects consistent with US Treasury guidance.
BACKGROUND:
UAL
Because past earnings have not matched assumptions used by CalPERS to determine the
amount of funding needed to cover pension obligations for member agencies, most
CalPERS pension plans have liabilities that exceed the market value of assets in the plan,
creating an Unfunded Actuarial Liability (UAL). The chart below shows historical rates of
return on CalPERS investments over the last twenty years, indicating tremendous volatility
over those years.
During the time period of the above chart, the expected rate of return has ranged from a
high of 8.25% to the current expectation of 7.0%. In any year that the rate of return falls
below these earnings expectations, the UAL will likely increase. This factor has been the
primary driver of the increasing UAL over the years. Additionally, other factors, such as
changes to mortality assumptions and shorter amortization of gains and losses, have also
increased the UAL.
Note that the rate shown for 2021 of 21.3% is preliminary at this point. This is very good
earnings news, of course, and will likely have a positive impact on the UAL. However,
CalPERS has indicated they may use this high return as an opportunity to strengthen the
overall health of the plan by lowering the discount rate from 7.0% to 6.8%. This means that,
while the plan will be in a stronger fiscal position overall, the UAL will likely not decrease as
much as it could have otherwise.
Item 11.a. - Page 2
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 3
Because of these factors, the City has a projected UAL of $17.9 million as of June 30, 2021.
This total includes amounts from all six City pension plans, though primarily from the Tier 1
Plans, as follows:
In an effort to reduce the City’s CalPERS UAL, the City Council decided during the FY 2018-
2020 Biennial Budget hearings to make two prepayments on the UAL. The first prepayment
of $3 million was made in July 2018 and a second prepayment of $2 million was made in
July 2019. The future realized savings from these investments will be approximately
$423,000 annually on average for the next 29 years. This report will provide an overview of
alternatives available to the City for reduction of the City’s UAL.
Excess Reserves
During the FY 2021-23 Biennial Budget hearings, staff recommended bringing forward a
future agenda item to address the fund balance above the 20% Fund Balance Goal Limit
and to appropriate funds, if applicable. At the end of FY 2021-22, the projected fund
balance is approximately $2,154,000 greater than the 20% goal. Because the act of
allocating excess reserves adds to budgeted expenditures the amount available to spend
while keeping the reserve at 20% is $1,750,000. This is the amount staff will recommend
appropriating in this report.
ARPA
On March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA) of
2021 into law. The $1.9 trillion economic recovery package, based on President Biden’s
American Rescue Plan, is intended to provide financial aid to families, governments,
businesses, schools, non-profits and others impacted by the COVID-19 public health
crisis. To support the immediate pandemic response, bring back jobs, and lay the
groundwork for a strong and equitable recovery, ARPA established the Coronavirus State
and Local Recovery Fund, designed to deliver $350 billion to state, local, territorial, and
Unfunded
Liability
Miscellaneous Plan Tier 1 13,129,725$
Miscellaneous Plan Tier 2 15,265
Miscellaneous Plan PEPRA 28,733
Safety Police Plan Tier 1 4,654,970
Safety Police Plan Tier 2 48,898
Safety Police Plan PEPRA 13,007
17,890,598$
Unfunded Liability of each Plan at 6/30/21
Item 11.a. - Page 3
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 4
Tribal governments to bolster their response to the COVID-19 emergency and recover
from the economic impacts caused by the public health crisis. This legislation provided
$27 billion in federal money to the State of California. The State will allocate $1.2 billion
to non-entitlement units of local government (NEUs). As an NEU, Arroyo Grande is
eligible to receive $4,300,241. The City received the first tranche of funding on July 13,
2021, totaling $2,150,121 and the balance will be delivered 12 months later.
The U.S. Treasury issued an Interim Final Rule with guidance on the funding allocation
methodology, distribution process, and reporting requirements as well as Frequently
Asked Questions to assist jurisdictions in interpreting the policy language. The Treasury
accepted comments on the Interim Final Rule through July 16, 2021, and thereafter will
issue the Final Rule that will govern the program.
ANALYSIS OF ISSUES
Options for the City’s CalPERS Unfunded Accrued Liability (UAL)
There are several options available to the City for reducing its UAL that will be discussed in
this section. These alternatives include:
• Making only required UAL payments each year;
• Making additional direct payments to CalPERS;
• Establishing a Section 115 Irrevocable Trust;
• Issuing Pension Obligation Bonds (POBs).
Making only required UAL payments each year
The first option to consider is to simply make the annual payment currently required by
CalPERS to amortize the UAL. As the chart below shows, this year’s payment of $1,918,541
was paid on July 2, 2021. The annual payment is expected to rise to just over $2 million by
2030 before declining rapidly in the following years. Under this scenario, if all current
actuarial assumptions hold, the UAL would be fully amortized over 23 years and fully paid
off by 2044. This option is currently built into the City’s budget.
Item 11.a. - Page 4
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 5
Pros/Cons of making only required UAL payments each year
Pros:
o Smallest impact on the City’s budget in the short-term
o Provides for the most short-term flexibility to fund other City priorities
o No further action needed
Cons:
o Most expensive long-term option
o Like a 30-year vs 15-year home mortgage, the longer the payment plan, the
higher the total interest costs will be over time
Making additional direct payments to CalPERS
If the City chooses to pay down the UAL more aggressively than the required annual
payment, there are different approaches that can be taken to accomplish this goal. The first
approach would be to make additional ad-hoc payments to CalPERS as the City did in 2018
with a $3 million payment and again in 2019 with another $2 million dollars’ payment towards
the reduction of the UAL. This approach could be continued, in which case with Council
would decide each year what amount to pay, if any, in addition to the required annual UAL
payment. Funds for this approach would typically come from excess General Fund reserves
or other appropriate one-time sources. As noted earlier, savings from the $5 million sent to
Item 11.a. - Page 5
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 6
CalPERS in 2018 and 2019 will average $423,000 annually, generating a rate of return on
investment of 7.1%.
Another approach to making additional UAL payments would be to save interest costs by
selecting an amortization schedule that is shorter than what CalPERS requires. This can be
done by either using CalPERS’ “fresh start” program where they eliminate all current
amortization bases and start new with a shorter amortization time period, or, more informally,
by mirroring the payments required under the fresh start program but not changing current
amortization bases. The primary disadvantage of the fresh start program is that it locks the
City into a higher annual UAL payment, which reduces budgetary flexibility in future years.
The chart below shows the payment schedule that could be applied should the City choose
to implement the CalPERS “fresh start” program and pay down the UAL at a more
aggressive 15-year pace rather than the required schedule that amortizes the liability over
23 years. With this plan, payments would start at just over $2 million, rather than the required
$1.8 million, and drop off to about $1.4 million annually in 2031. The drop off occurs due to
the Police portion of the UAL being paid off sooner that than of Miscellaneous employees.
The Police Safety Plan UAL is significantly less than the Miscellaneous Plan UAL because
the $5 million in payments made in 2018 and 2019 noted earlier were applied to the Police
Safety Plan to maximize savings for the General Fund. The total savings over the new 15-
year payoff schedule would be $3 million. While implementing the fresh start program locks
in these higher payments, similar savings can be achieved with more flexibility to adjust
payments if needed by making additional UAL payments each year similar to what would
be required under the fresh start program without formally joining the program.
Item 11.a. - Page 6
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 7
Pros/Cons of Making additional direct payments to CalPERS
Pros:
o Reduces overall pension costs
o City Council controls the timing and size of any additional contributions, which allows
for greater flexibility to fund other City priorities that may arise (this would not be the
case if the “fresh start” option were chosen)
Cons:
o Takes available funding away from other City priorities
o If “fresh start” option is chosen, this would lock in higher UAL payments in the near
and mid-term.
Establishing a Section 115 Irrevocable Trust
Another vehicle for reducing the UAL is the establishment of a Section 115 Trust, which
refers to Title 26, Section 115 of the Internal Revenue Code. This type of Trust is considered
irrevocable in that once the City moves funds into the Trust it can only be used for its
intended purpose, which in this case is the payment of pension obligations. This can mean
paying down the UAL but can also mean paying current pension costs if the budgetary need
arises.
Item 11.a. - Page 7
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 8
The two primary reasons for establishing a Section 115 Trust are 1) to maintain local control
over assets allocated to pension funding, and 2) to use as a pension rate stabilization fund.
In both cases, Section 115 Trusts have the advantage of the potential for higher returns than
can be generated by the City’s investment portfolio. This is because funds deposited into
the Trust can be invested in a much broader range of securities than a city can invest in
under state law. For example, whereas the City’s investment portfolio, consisting of
certificates of deposit, federal agency securities, and deposits in the Local Agency
Investment Fund, earned a weighted average of 1.09% over the past year, the most
conservative investment fund offered by the Public Agency Retirement System’s Section
115 Trust program earned 9.09% last year and 4.12% over the past ten years.
It is also important to note, however, that with this greater investment flexibility comes
greater investment loss risk. Section 115 Trust investment funds typically include a wide
variety of equities that will experience losses at times. Given the long-term funding needs of
pension obligations, however, the goal is not to chase earnings but to out-perform the City’s
investment earnings rates in the long run.
Local control, as opposed to control by CalPERS, of pension assets can be considered
desirable if an agency believes CalPERS may not be managing pension assets prudently.
CalPERS has received criticism in the past due their perceived overly optimistic long-term
earning assumptions that, when not met, resulted in growing unfunded pension liabilities.
While much of this criticism may be warranted, CalPERS has enacted a number of changes
in the past few years that have resulted in the application of more conservative actuarial
assumptions. Significant assumption changes include lowering the expected earnings rate
from 7.5% to 7.0%, reducing the amortization period of new changes from 30 to 20 years,
and updating mortality tables to reflect longer life spans. Though these changes have
created higher pension costs, over the long run they should put the fund in a much more
solid fiscal position, which would result in more predictable and ultimately more affordable
pension rates. Because of this more fiscally conservative position taken by the CalPERS
Board lately, the case for establishing a Section 115 Trust because of mistrust in the
prudence of CalPERS investment and actuarial practices seems less strong.
The case for using a Section 115 Trust as a pension rate stabilization fund is stronger.
Looking all the way back to great economic disruptions, such as the dot com bust, 9/11, the
Great Recession, and the Covid-19 Pandemic, cities now have long experience dealing with
volatile pension rates as shown in the CalPERS Rate of Return History chart earlier in this
report. When these rates climb much faster than expected, this can delay or completely
derail other important community priorities. Using funds set aside in a Section 115 Trust as
a buffer against rate spikes can keep other budget priorities on track.
For example, if the required annual UAL payment is $1.8 million (as it is for Arroyo Grande
this fiscal year) and, due to an unforeseen drop in market conditions, the payment is
Item 11.a. - Page 8
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 9
expected to increase by $500,000 the following year, this additional amount could come
from the Section 115 Trust instead of the City’s available fund balance or from emergency
reserves. Of course, the City does not need a Section 115 Trust to allocate an additional
$500,000 to the UAL payment from other existing City reserves. However, as noted above,
the funds set aside in the Trust would likely, over the long-term, earn a higher rate of return
than funds sitting in a City reserve. Using a Section 115 Trust as a pension rate stabilization
fund, therefore, has the potential to create more predictable pension cost budgeting while
enjoying a higher rate of return on Trust assets.
There is additional administrative burden and cost related to establishing and maintaining a
Section 115 Trust due to the fact that the City would be assuming investment and
management responsibilities for the dollars in the Trust rather than passing that
responsibility on to CalPERS. Normally an Investment Committee would be established to
make recommendations to Council regarding which investment fund to participate in and
whether to make investment changes in the future. The committee can comprise individuals
of the Council’s choosing often includes one or two Council members, the Administrative
Services Director, and sometimes knowledgeable members of the community. This
committee would receive monthly or quarterly reports on fund performance and would
typically meet at least quarterly. Administrative fees for professional management of the
fixed income and/or equity funds selected by the Council would be approximately $30,000
annually for a Trust containing $5 million.
Pros/Cons of Establishing a Section 115 Irrevocable Trust
Pros:
o Alternative to sending funds to CalPERS
o Maintain greater local control of pension assets
o Stabilize budgeting for pension costs
o Reduce City’s unfunded pension liability (UL)
o Higher potential earnings than City can achieve
Cons:
o City retains fiduciary responsibility for the program
o Potential for negative investment performance
o Assets in Trust can only be used for pension liabilities
o Though assets can be accessed at any time as long as assets are used to
fund the City’s pension obligations
o Administrative overhead can be a burden on City staff
o Typically, an investment committee is established to oversee investment of
Trust assets; regular reporting must be prepared
Item 11.a. - Page 9
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 10
Issuing Pension Obligation Bonds (POBs)
Another tool for reducing the overall cost of the UAL is the issuance of Pension Obligation
Bonds, which essentially replaces all or a portion of an agency’s UAL with bonded debt.
Unlike the previous options that use City assets to reduce liabilities, issuing a POB
essentially exchanges one form of debt for another. In one sense, it exchanges an actuarial
liability – one that fluctuates annually depending on market performance and assumption
changes made by CalPERS actuaries – with accounting debt that has a fixed interest rate
and payment schedule. The attraction to this approach is that if POBs can be issued at a
rate lower than the current 7% discount rate assumption used by CalPERS to calculate the
UAL, overall interest costs could be reduced. However, since it is not possible to know up
front how the market will perform over the life of the POBs or predict what actuarial
assumptions (e.g. mortality, retirement age, inflation, salary growth rates, etc.) will be used
in the future, true cost savings will not really be known until the POB is finally paid off.
Major swings in the economy can also impact the success of cost reduction from issuing
POBs. For example, if $10 million in POBs were issued when markets are at historical highs
and this was followed by a large decline in the markets, the $10 million sent to CalPERS to
invest would be worth less and the UAL would likely rise again. Therefore, it is possible for
an agency to completely pay off its UAL with bonded debt only to see a new UAL spring up
on the heels of a drop in the market.
Because of this potential for interest savings over time, however, many agencies have
issued POBs, including 32 issuances totaling $4 billion in 2020 and another $3.3 billion
issued by 19 agencies so far in 2021. Bond issuance costs can range from $280,000 for a
$12 million bond to $400,000 for a $20 million bond and include services such as bond
counsel, financial advisor, disclosure counsel, trustee, rating agency, and underwriter’s
discount. These fees are included in the financing so are not typically paid up front by the
issuing agency.
Pros/Cons of Issuing POBs
Pros:
o Reduce City’s unfunded pension liability (UL)
o Potentially provide cost savings over the term of the bond
o Provides better pension cost budget predictability
Cons:
o Risk that CalPERS earnings could drop below the cost of borrowing
o UAL could still reappear if market conditions or other assumptions deteriorate,
although the UAL would be lower than it would have been without POBs
Item 11.a. - Page 10
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 11
o Issuance costs can range from $280,000 to $400,000 depending on the size of the
bond.
o Government Finance Officers Association (GFOA) recommends against issuing
POB due to possibility bond proceeds may fail to earn more than interest rate
owed over bond term thereby increasing overall liabilities.
UAL Plans of Other Nearby Agencies
For comparison purposes, included here are summaries of what some of the surrounding
communities have implemented or considered regarding management of UALs.
Grover Beach: Currently makes additional UAL payments and may consider a Section
115 Trust or POBs in the future.
San Luis Obispo: Has developed a 20-year strategy that includes: 1) Annual lump sum
payment for UAL in July; 2) Additional annual payments; 3) Section 115 trust to assist
with payments in the future.
Pismo Beach: Makes required UAL payments each year and additional direct payments to
CalPERS every 2 years or so.
Paso Robles: Established a Section 115 Trust several years ago. A one-time,
discretionary payment was made when Trust was established, and additional payments
are made at fiscal year if budgetary surplus exists. Payments are split 50% as a direct
payment to PERS and 50% from the 115 Trust. The Trust currently has a fund balance
of $8.3 million. At this time Paso Robles is not considering POBs.
Atascadero: During the FY 2021-23 budget hearings, the City Council considered
making additional payments against its UAL and establishing a Section 115 Trust but
chose instead to invest in employees and tools/equipment/vehicles. They expect to revisit
the issue next budget cycle or in the event they finish the fiscal year significantly better
than budgeted.
The above discussion of options for reducing the City’s UAL was meant to be a high-level
overview of this topic. Given the complexity of these issues, if Council would like to pursue
one or more of these alternatives, staff would engage with experts in the fields of bond
financing, investment management, financial analysts, and other professionals as
appropriate and return to Council with a more focused and comprehensive analysis and
recommendation.
Item 11.a. - Page 11
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 12
Appropriate $1,751,000 above excess available Fund Balance Goal Limit
At the end of FY 2021-22, the City’s projected fund balance will be approximately
$2,154,000 greater than the City’s 20% Fund Balance Goal Limit. If these funds are
allocated into expenditures, the amount available for spending, while also maintaining the
20% Fund Balance Goal Limit, is $1,750,000.
There are many options available for spending these funds. However, because the
excess reserves are one-time funds and do not represent an ongoing funding source, it
is recommended that they be allocated to one-time projects rather than to fund ongoing
costs, such as new positions or programs. Spending options include an additional UAL
payment and infrastructure projects, such as pavement maintenance or other capital
improvement projects. Decisions regarding projects funded using excess reserves should
also consider staff resource constraints.
Should Council decide to apply $1,750,000 to further reducing the City’s UAL the savings
could amount to $120,000 to $140,000 annually depending on the terms. However, in
light of the City’s recent $5 million investment in reducing its UAL, staff recommends
investing excess reserves in maintaining the City’s infrastructure, specifically pavement
maintenance.
At its April 27, 2021 meeting, Council considered streets selection options from the table
shown below for the 2021 Street Repairs Project.
Option 1 - Correct
Base Failures Only
(Digouts)
Option 2 - Correct
Base Failures
(Digouts)
and Alligator Cracking
Street Segment Expected Service Life
3 - 5 Years
Expected Service Life
5 - 7 Years
Valley Rd - Sunrise Terrace to Bridge $ 113,000 $ 149,000
Corbett Cyn Rd - Rte 227 to City Limits 183,000 184,000
Fair Oaks Ave - S Halcyon to Bridge 167,000 230,000
Wesley Street - End Street to W Branch 79,000 95,000
Vernon Street - End Street to W Branch 91,000 132,000
S Elm Street - The Pike to City Limits 64,000 166,000
E Grand Ave - Halcyon to ECR 289,000 382,000
N Halcyon Rd - ECR to E Grand Ave 230,000 351,000
S Elm Street - Ash St to Farroll Ave 330,000 525,000
S Elm Street - Farroll Ave to The Pike 37,000 162,000
Rancho Pkwy - James Wy to W Branch 489,000 713,000
Total $ 1,216,000 $ 1,338,000
Item 11.a. - Page 12
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 13
At that meeting, Council approved staff’s recommendation of Option 2 - Correct Base
Failures (Digouts) and Alligator Cracking, which is intended to provide the highest
estimated service life while stretching the amount of available budget. Due to funding
constraints, four identified street segments were not included in the 2021 Street Repairs
Project, shown below the line under Option 2 above.
The cost to complete the four street segments that fall below the line in Option 2 is
estimated at $1,751,000 (about $4.02/square foot). If these four street segments were to
receive no maintenance and continue to deteriorate, the cost to reconstruct them is
estimated at $9,738,780 (about $22.37/square foot). These figures are presented in the
table below, which demonstrates how completing the four street segments now offers the
greatest return on investment for the City at this time.
The additional four street segments can easily be added to the current approved project.
PEI, the design engineer, had conducted field quantity calculations and prepared
preliminary design sheets for these additional segments as part of the original analysis of
potential streets for the annual pavement management project. Therefore, adding the
streets to the bid documents will require minimal staff time. Performing dig out repairs to
these four street segments will avoid more costly expanded repairs or reconstruction in
the near future. However, in order to maintain an overall pavement condition index of
“Fair” an annual budget increase of approximately $4.6 million will be needed.
Utilizing the City’s excess reserves to fund additional street repairs supports the Council’s
adopted FY2021-23 Goal of Investing in City Infrastructure and Facilities by identifying
and pursuing funding for pavement maintenance.
2021 Street Repairs, PW 2021
L W SF
Correct Base Failures
(Digouts)
and Alligator Cracking Reconstruction * Difference
N Halcyon Rd - ECR to E Grand Ave 1,630 37 60,310 351,000 1,349,135 998,135
S Elm Street - Ash St to Farroll Ave 1,450 62 89,900 525,000 2,011,063 1,486,063
S Elm Street - Farroll Ave to The Pike 1,510 62 93,620 162,000 2,094,279 1,932,279
Rancho Pkwy - James Way to W Branch 4,560 42 191,520 713,000 4,284,302 3,571,302
Cost to Repair Now 9,150 435,350 1,751,000 9,738,780 7,987,780
Price per Square Foot to Repair Now $4.02
Price per Square Foot to Reconstruct * $19.23 - $25.51
(say $22.37 avg - does not include inflation)
Item 11.a. - Page 13
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 14
Priorities for an expenditure Framework that drives the City’s American Rescue
Plan Act (ARPA) Funding Decisions
The Coronavirus State and Local Fiscal Recovery Fund provides eligible state, local,
territorial, and Tribal governments with a substantial infusion of resources to meet
pandemic response needs and rebuild a stronger, more equitable economy as the country
recovers from the public health crisis. Within the categories of eligible uses, recipients
have broad flexibility to decide how best to use the funding to meet the needs of their
communities.
Recipients may use these funds 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 revenues, using this funding to provide government
services to the extent of the reduction in revenue experienced during 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, support vital wastewater
and stormwater infrastructure, and to expand access to broadband internet
Ineligible Uses
The following is a list of examples of costs that would not be eligible expenditures of
payments from the Fund:
• Offset tax cuts implemented during the public health crisis
• Deposits into pension funds or rainy day funds
• Funding debt services and legal services
Timeline
Arroyo Grande has until December 31, 2024, to commit ARPA funds by way of
contract/PO. Interim US Treasury rules currently list December 31, 2026, as the deadline
to spend these monies.
Reporting Requirements
The City’s ARPA funds are subject to annual project and expenditure reports, which
include financial data, information on contracts and subawards over $50,000, and other
information regarding utilization of funds. These reports will be similar to what was
Item 11.a. - Page 14
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 15
required for the CARES Act Coronavirus Relief Fund. The first report, which is due
October 31, 2021, will cover spending from the date the City receives its first tranche of
ARPA funds through September 30, 2021.
The Resolution accepting the Receipt of all Funds available to the City and authorizing
the City Manager or her designee to execute all documents for funding award and
reporting will allow staff to complete all necessary reporting requirements as required by
the U.S. Treasury.
Opportunities
City staff recommends allocating a significant portion of the ARPA funding to invest in
water, sewer, and stormwater infrastructure.
Staff recommends investing $2,493,950 of the ARPA funds in water, sewer, and
stormwater infrastructure projects as detailed below. Utilizing ARPA funds in this manner
will support Council’s FY2021-23 Goal of Investing in City Infrastructure and Facilities by
identifying and pursuing short-term funding mechanisms for infrastructure maintenance
needs.
Water and Sewer Projects
During the FY 2021-23 Budget hearing on June 8, 2021 the Enterprise Fund Deficits were
discussed. The City’s two enterprise fund programs, Water and Sewer, are currently
running a deficit each fiscal year and, without a rate adjustment, will exhaust their available
working capital within the next three to four years. A Water and Sewer rate study was well
underway and nearly complete last year when the pandemic began. Because of this, the
conclusion of that study and any recommended rate setting action resulting from that study
were put on hold. Staff has restarted this effort and will be bringing the rate study to the City
Council in the coming months. In order keep necessary rate increases to a minimum staff
recommends using ARPA funds for the following Water and Sewer capital improvement
program projects to help offset the increase in costs to rate payers.
Below is a list of the Water Infrastructure project descriptions:
• Reservoir No. 4 Exterior Coating: Application of new exterior coating system at
Reservoir 4. (Water System Master Plan Project A-3.)
Water Infrastructure Projects
Reservoir No. 4 Exterior Coating 147,500
Phased Main Replacement Fair Oaks - Elm to Alder 232,750
Andre Drive/Los Ciervos Ct. Interconnect 100,000
480,250
Item 11.a. - Page 15
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 16
• Phased Main Replacement Fair Oaks – Elm to Alder: This project will replace the
existing 4-inch pipes with new 8-inch pipes along Fair Oaks Avenue between Elm
Street and Alder Street. (Water System Master Plan Project A-4 and B-6)
• Andre Drive/Los Ciervos Ct. Interconnect: This project will help provide much needed
redundancy of the Rancho Grande pressure zone distribution system. The City
became aware of this deficiency of the system after the Water System Master Plan
was adopted.
The Trenchless Sewer Rehabilitation project will bundle 5 locations into one project to
cured-in-place pipe rehabilitation along the entire length of the sections to reduce
infiltration, root intrusion, and maintenance requirements, as well as probability of failure.
Stormwater Projects
All costs associated with Stormwater projects and infrastructure are paid for by the
general fund or sales tax fund. The following Stormwater projects are included in the
Capital Improvement Plan and funded through the Sales Tax Fund:
Below is a list of the Stormwater Infrastructure project descriptions:
• Corrugated Metal Pipe (CMP) Lining: The 5 year CIP budget total for CMP Lining
is $500,000 and will repair approximately 0.7 mile of deteriorating corrugated metal
pipes in the City. The City has a total of 2.57 miles of CMP within the City limits.
Deterioration of underground CMPs results in leaks that soften the surrounding soil
and lead to voids underneath the surface. Eventually the top soil and asphalt may
collapse into a sinkhole which is both dangerous and expensive to repair. If repairs
to a deteriorating CMP is performed before there is significant undermining of the
pipe or failure of the pipe, lining of the pipe is a feasible and cost effective option
(25 to 30 percent less than traditional trenching methods). If repairs or lining are
not performed and the CMP has a significant failure, the cost for repair can exceed
as much as four times the amount of proactive repair or lining.
Sewer Infrastructure Projects
Trenchless Sewer Rehabilitation
S. Alpine, S. Halcyon Rd., Wood Pl., Vernon St. & Woodland Dr.267,200
Stormwater Infrastructure Projects
Corrugated Metal Pipe (CMP) Lining 500,000
Storm Drain System at 251 East Grand Avenue (Chevron Station)410,000
Oak Park Boulevard/El Camino Real Storm Drain System 400,000
Trash Capture Devices 214,000
Stormwater Master Plan Update/Watershed Management Plan 172,500
Stormwater GIS Layer (incoroporate into the Stormwater Master Plan Update)50,000
1,746,500
Item 11.a. - Page 16
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 17
• Storm Drain System at 251 East Grand Avenue (Chevron Station): Realignment of
a City-owned storm drain pipe currently located under private property that has
failed and requires replacement.
• Oak Park Boulevard/El Camino Real Storm Drain System: Design and construction
of permanent drainage improvements as follow up to emergency repairs
completed for the area.
• Trash Capture Devices: The 5 year CIP budget total includes $214,000 to
implement trash capture devices as mandated by the MS4 Stormwater Permit
required by the State. The State Water Resources Control Board states that final
compliance is completed 10 years after implementing permit effective date or no
later than December 2030.
• Stormwater Master Plan Update/Watershed Management Plan: The purpose of
this stormwater master plan and watershed management plan is to provide a
thorough review of the drainage needs and deficiencies within the City limits and
to propose a set of coordinated drainage improvement projects to meet these
needs. Because the implementation of projects is partially derived from the
establishment of policies and enabling ordinances governing the development of
property, drainage policies are examined and appropriate revisions recommended.
The Watershed Management Plan will also provide alternate compliance options
for development projects’ runoff stormwater requirements. These plans will also
identify specific stormwater projects to be incorporated into the City’s CIP,
including estimated costs.
o Stormwater GIS Layer ($50,000): In order to successfully complete the
Stormwater Master Plan Update/Watershed Management Plan, updates
are necessary to the City’s stormwater GIS layer. City staff proposes to
include the services and costs necessary to complete these updates in the
master plan/management plan scope of work, to be completed by a
consultant. This item was not included in the CIP but it has been determined
to be necessary in order to successfully complete the Stormwater Master
Plan.
If Council approves these Stormwater projects to be funded using ARPA Funds,
$1,190,500 will be returned to the Sales Tax Fund 218 balance in FY 2021-23 and would
be available for future allocation to other City priorities.
Water Infrastructure Projects 480,250
Sewer Infrastructure Projects 267,200
Stormwater Infrastructure Projects 1,746,500
2,493,950
Item 11.a. - Page 17
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 18
Revenue Loss – General Government Services
In order to determine the amount of revenue that may be used under the "revenue loss"
provisions, a recipient agency must calculate its revenue loss under the provisions of
ARPA and implementing rules issued by the US Department of the Treasury. The League
of California Cities and the California Society of Municipal Finance Officers (CSMFO)
created an ARPA revenue loss calculator that staff has used to determine the City’s
revenue loss for the period January 1, 2020 – December 31, 2020. The City’s total
revenue loss revenue loss during this period that could be applied to government services
equals $95,000. These funds may be allocated to programs at Council’s discretion. Staff
is not recommending appropriation of these funds to specific uses at this time.
Use of Remaining ARPA Funds
The remaining funds to be allocated at a future Council meeting total $1,806,291,
including the $95,000 in identified revenue loss funds.
Staff proposes to create an ad-hoc ARPA sub-committee to review and make
recommendations to Council for the potential use of the remaining funds. It is
recommended that the City consider all options available through the Treasury guidelines,
with key considerations including:
• Avoid funding items that could be funded by other state or federal sources
• Be strategic and measured, considering the time horizon to spend the dollars
(2024) and staffing constraints to initiate and complete projects
• Remain flexible, as the City’s needs may evolve over time
• Prioritize projects that are consistent with Council’s adopted FY2021-23 Goals
The committee may wish to focus on spending options that will help address the negative
economic impacts caused by the public health emergency, including economic harms to
workers, households, small businesses, impacted industries, and the public sector, one
of the allowed ARPA categories. For instance, the following uses would be consistent
with Council’s adopted FY2021-23 Goals and may be considered by the committee:
• Homeless services, such a directed funding for 5Cities Homeless Coalition
services or support for identified regional homelessness projects
• Economic development efforts, such as funding for an East Grand Avenue Specific
Plan that will support revitalization of this important economic corridor
• Affordable housing programs
Other categories that may also be of interest may include:
• Broadband infrastructure projects allowed under the category of water, sewer, and
broadband projects
• Additional water and/or sewer capital projects;
Item 11.a. - Page 18
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 19
• Modernization and efficiency projects, such as human resources programs that will
minimize reliance on hard-copy paperwork and will streamline onboarding of new
employees, potentially allowed under the category of public health expenditures or
using lost revenue funds
Many factors pay a role in the allocation and priorities around the ARPA Funding
expenditure framework. Taking a measured approach to consider all eligible options with
the remaining allocation will help the City to meet all three Goals and Priorities Identified
for FY 2021-23 which include: Investing in the Future, Investing in City Infrastructure and
Facilities, and Investing in People.
ALTERNATIVES:
The following action is provided for City Council consideration:
1. It is recommended that the City Council: (1) Receive and file the report of UAL options
and provide direction, as appropriate, to pursue one or more desired options; (2)
Appropriate $1,751,000 of the Reserve Fund Balance towards the Pavement
Management Program; (3) Adopt a Resolution accepting the receipt of all funds
available to the City pursuant to the American Rescue Plan Act (ARPA) of 2021 and
authorize the City Manager or her designee to execute all documents as necessary for
the funding; (4)Appropriate $2,493,950 of American Rescue Plan Act (ARPA) Funds to
Water, Sewer, and Stormwater Infrastructure projects; and (4) create an ad-hoc
committee to evaluate options and provide future recommendations for allocating the
remaining ARPA funds to programs and projects consistent with US Treasury guidance.
2. Appropriate a different amount of the Reserve Fund Balance or fund different projects,
such as a UAL pre-payment, using Reserve Fund Balance;
3. Appropriate the ARPA funds to other programs or for other amounts, or provide
direction to staff to return with additional information regarding specific funding
recommendations;
4. Provide direction to pursue one of the three options for addressing UAL other than
continuing the current course of paying the minimum required by CalPERS each year;
5. Provide further direction to staff.
ADVANTAGES:
The recommendations in the Staff Report include spending strategies that will support
Council’s adopted FY2021-23 Goals of Investing in the Future, Investing in City
Infrastructure and Facilities, and Investing in People and will accomplish the following:
• Maintain a substantial investment in improvements to the City’s infrastructure and
facilities;
Item 11.a. - Page 19
CITY COUNCIL
REVIEW AND PROVIDE DIRECTION ON OPTIONS FOR REDUCING THE CITY’S
UNFUNDED ACCRUED LIABILITY; APPROPRIATION OF EXCESS AVAILABLE FUND
BALANCE; AND ALLOCATION OF AMERICAN RESCUE PLAN ACT FUNDING
JULY 27, 2021
PAGE 20
• Continue meeting the City’s UAL payment obligations; and
• Maintain reserves at or above the City’s policy levels.
DISADVANTAGES:
Significant cost increases related to pensions and insurance are still threats that will require
close monitoring. Significant street repairs still remain within the City. The ARPA Funds have
a deadline to complete and spend funds, and not allocating some funds will shorten the time
for the initiation or completion of future projects.
ENVIROMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted at City Hall and on the City’s website in accordance with
Government Code Section 54954.2.
Attachments:
1. Proposed Resolution – Accepting Receipt of ARPA Funds in the amount of $4,300,241
and Authorizing the City Manager or her Designee to Execute all documents
2. ARPA Fact Sheet;
3. Interim Final Rule can be found here: https://www.govinfo.gov/content/pkg/FR-2021-
05-17/pdf/2021-10283.pdf
Item 11.a. - Page 20
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
ARROYO GRANDE ACCEPTING THE RECEIPT OF ALL
FUNDS AVAILABLE TO THE CITY PURSUANT TO THE
AMERICAN RESCUE ACT (ARPA) OF 2021 IN THE
AMOUNT OF $4,300,241 FOR FISCAL YEAR 2020-21
THROUGH 2023-24 AND AUTHORIZE THE CITY
MANAGER OR HER DESIGNEE TO EXECUTE ALL
DOCUMENTS FOR FUNDING AWARD AND REPORTING
WHEREAS, in accordance with Section 8.12.060 of the Arroyo Grande Municipal Code
the City Manager, in his capacity as the Director of Emergency Services proclaimed a
local emergency on March 17, 2020, regarding the COVID-19 pandemic; and
WHEREAS, the City Council ratified the emergency proclamation through adoption of
Resolution No. 4974 at its regular meeting on March 24, 2020; and
WHEREAS, on March 19, 2020, the Governor of California issued a statewide Executive
Order, N-33-20, which required Californians to remain at their home or place of residence,
except as necessary to carry out essential activities; and
WHEREAS, the COVID-19 pandemic has had continued impacts to the economic well-
being of the local community and the City has continued to provide an ongoing response
to this pandemic locally; and
WHEREAS, on March 11, 2021, the President of the United States signed into law the
American Rescue Plan ACT (“ARPA”), which included $362 billion in federal fiscal
recovery aid to state and local governments; and
WHEREAS, on May 10, 2021 the US Treasury issued funding allocations for State and
Local Aid of which the funding allocation award to the City of Arroyo Grande is
$4,300,241; and
WHEREAS, in order to receive the State and Local Aid funding allocation the City must
complete the Acceptance of Award documentation and provide to the US Treasury; and
WHEREAS, as a condition of acceptance of the State and Local Aid, Arroyo Grande will
be required to provide periodic reporting to the US Treasure on the uses (expenditures)
of said funding.
NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ARROYO GRANDE DOES
HEREBY RESOLVE AS FOLLOWS:
SECTION 1. Accept the American Rescue Plan Act State and Local Aid of $4,300,241
for FY 2020-21 through FY 2023-24.
Attachment 1
Item 11.a. - Page 21
RESOLUTION NO.
PAGE 2
SECTION 2. The City Manager, or her designee, is the authorized representative of the
City of Arroyo Grande for the purpose of administering documents related to accepting
the ARPA funds defined herein as well as reporting on the ARPA funds.
On motion of Council Member , seconded by Council Member , and on
the following roll call vote, to wit:
AYES:
NOES:
ABSENT:
the foregoing Resolution was passed and adopted this 27th day of July, 2021.
Item 11.a. - Page 22
RESOLUTION NO.
PAGE 2
____
CAREN RAY RUSSOM, MAYOR
ATTEST:
________
JESSICA MATSON, CITY CLERK
APPROVED AS TO CONTENT:
_______________
WHITNEY MCDONALD, CITY MANAGER
APPROVED AS TO FORM:
__
TIMOTHY J. CARMEL, CITY ATTORNEY
Item 11.a. - Page 23
1
FACT SHEET: The Coronavirus State and Local Fiscal Recovery Funds Will Deliver
$350 Billion for State, Local, Territorial, and Tribal Governments to Respond to the
COVID-19 Emergency and Bring Back Jobs
May 10, 2021
Aid to state, local, territorial, and Tribal governments will help turn the tide on the pandemic, address its
economic fallout, and lay the foundation for a strong and equitable recovery
Today, the U.S. Department of the Treasury announced the launch of the Coronavirus State and Local
Fiscal Recovery Funds, established by the American Rescue Plan Act of 2021, to provide $350 billion in
emergency funding for eligible state, local, territorial, and Tribal governments. Treasury also released
details on how these funds can be used to respond to acute pandemic response needs, fill revenue
shortfalls among these governments, and support the communities and populations hardest-hit by the
COVID-19 crisis. With the launch of the Coronavirus State and Local Fiscal Recovery Funds, eligible
jurisdictions will be able to access this funding in the coming days to address these needs.
State, local, territorial, and Tribal governments have been on the frontlines of responding to the
immense public health and economic needs created by this crisis – from standing up vaccination sites to
supporting small businesses – even as these governments confronted revenue shortfalls during the
downturn. As a result, these governments have endured unprecedented strains, forcing many to make
untenable choices between laying off educators, firefighters, and other frontline workers or failing to
provide other services that communities rely on. Faced with these challenges, state and local
governments have cut over 1 million jobs since the beginning of the crisis. The experience of prior
economic downturns has shown that budget pressures like these often result in prolonged fiscal
austerity that can slow an economic recovery.
To support the immediate pandemic response, bring back jobs, and lay the groundwork for a strong and
equitable recovery, the American Rescue Plan Act of 2021 established the Coronavirus State and Local
Fiscal Recovery Funds, designed to deliver $350 billion to state, local, territorial, and Tribal governments
to bolster their response to the COVID-19 emergency and its economic impacts. Today, Treasury is
launching this much-needed relief to:
•Support urgent COVID-19 response efforts to continue to decrease spread of the virus and bring
the pandemic under control;
•Replace lost public sector revenue to strengthen support for vital public services and help retain
jobs;
•Support immediate economic stabilization for households and businesses; and,
•Address systemic public health and economic challenges that have contributed to the inequal
impact of the pandemic on certain populations.
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. These funds also deliver resources that
recipients can invest in building, maintaining, or upgrading their water, sewer, and broadband
infrastructure.
Attachment 2
Item 11.a. - Page 24
2
Starting today, eligible state, territorial, metropolitan city, county, and Tribal governments may request
Coronavirus State and Local Fiscal Recovery Funds through the Treasury Submission Portal. Concurrent
with this program launch, Treasury has published an Interim Final Rule that implements the provisions
of this program.
FUNDING AMOUNTS
The American Rescue Plan provides a total of $350 billion in Coronavirus State and Local Fiscal Recovery
Funds to help eligible state, local, territorial, and Tribal governments meet their present needs and build
the foundation for a strong recovery. Congress has allocated this funding to tens of thousands of
jurisdictions. These allocations include:
Type
Amount
($ billions)
States & District of Columbia $195.3
Counties $65.1
Metropolitan Cites $45.6
Tribal Governments $20.0
Territories $4.5
Non-Entitlement Units of
Local Government
$19.5
Treasury expects to distribute these funds directly to each state, territorial, metropolitan city, county,
and Tribal government. Local governments that are 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 next week.
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 that have experienced a net increase in the
unemployment rate of more than 2 percentage points from February 2020 to the latest available data as
of the date of certification will receive their full allocation of funds in a single payment; other states will
receive funds in two equal tranches. Governments of 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.
USES OF FUNDING
Coronavirus State and Local Fiscal Recovery Funds provide eligible state, local, territorial, and Tribal
governments with a substantial infusion of resources to meet pandemic response needs and rebuild a
stronger, more equitable economy as the country recovers. 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. Recipients may use Coronavirus State and Local Fiscal Recovery Funds to:
Item 11.a. - Page 25
3
• 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; and,
• Invest in water, sewer, and broadband infrastructure, making necessary investments to
improve access to clean drinking water, support vital wastewater and stormwater
infrastructure, and to expand access to broadband internet.
Within these overall categories, Treasury’s Interim Final Rule provides guidelines and principles for
determining the types of programs and services that this funding can support, together with examples
of allowable uses that recipients may consider. As described below, Treasury has also designed these
provisions to take into consideration the disproportionate impacts of the COVID-19 public health
emergency on those hardest-hit by the pandemic.
1. Supporting the public health response
Mitigating the impact of COVID-19 continues to require an unprecedented public health response from
state, local, territorial, and Tribal governments. Coronavirus State and Local Fiscal Recovery Funds
provide resources to meet these needs through the provision of care for those impacted by the virus
and through services that address disparities in public health that have been exacerbated by the
pandemic. Recipients may use this 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
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
Ventilation improvements in key settings
like healthcare facilities
Item 11.a. - Page 26
4
• 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
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.
2. Addressing the negative economic impacts caused by the public health emergency
The COVID-19 public health emergency resulted in significant economic hardship for many Americans.
As businesses closed, consumers stayed home, schools shifted to remote education, and travel declined
precipitously, over 20 million jobs were lost between February and April 2020. Although many have
since returned to work, as of April 2021, the economy remains more than 8 million jobs below its pre-
pandemic peak, and more than 3 million workers have dropped out of the labor market altogether since
February 2020.
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 rehire public sector staff and rebuild capacity. Among these uses include:
• Delivering assistance to workers and families, including aid to unemployed workers and job
training, as well as aid to households facing food, housing, or other financial insecurity. In
addition, these funds can support survivor’s benefits for family members of COVID-19 victims.
• Supporting small businesses, helping them to address financial challenges caused by the
pandemic and to make investments in COVID-19 prevention and mitigation tactics, as well as to
provide technical assistance. To achieve these goals, recipients may employ this funding to
execute a broad array of loan, grant, in-kind assistance, and counseling programs to enable
small businesses to rebound from the downturn.
• Speeding the recovery of the tourism, travel, and hospitality sectors, supporting industries that
were particularly hard-hit by the COVID-19 emergency and are just now beginning to mend.
Similarly impacted sectors within a local area are also eligible for support.
• Rebuilding public sector capacity, by rehiring public sector staff and replenishing
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.
Item 11.a. - Page 27
5
3. Serving the hardest-hit communities and families
While the pandemic has affected communities across the country, it has disproportionately impacted
low-income families and communities of color and has exacerbated systemic health and economic
inequities. Low-income and socially vulnerable communities have experienced the most severe health
impacts. For example, counties with high poverty rates also have the highest rates of infections and
deaths, with 223 deaths per 100,000 compared to the U.S. average of 175 deaths per 100,000.
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, and
community violence intervention programs;
• Investments in housing and neighborhoods, such as services to address individuals
experiencing homelessness, affordable housing development, housing vouchers, and residential
counseling and housing navigation assistance to facilitate moves to neighborhoods with high
economic opportunity;
• Addressing educational disparities through new or expanded early learning services, providing
additional resources to high-poverty school districts, and offering educational services like
tutoring or afterschool programs as well as services to address social, emotional, and mental
health needs; and,
• Promoting healthy childhood environments, including new or expanded high quality childcare,
home visiting programs for families with young children, and enhanced services for child
welfare-involved families and foster youth.
Governments may use Coronavirus State and Local Fiscal Recovery Funds to support these additional
services if they are provided:
• within a Qualified Census Tract (a low-income area as designated by the Department of Housing
and Urban Development);
• to families living in Qualified Census Tracts;
• by a Tribal government; or,
• to other populations, households, or geographic areas disproportionately impacted by the
pandemic.
4. Replacing lost public sector revenue
State, local, territorial, and Tribal governments that are facing budget shortfalls may use Coronavirus
State and Local Fiscal Recovery Funds to avoid cuts to government services. With these additional
resources, recipients can continue to provide valuable public services and ensure that fiscal austerity
measures do not hamper the broader economic recovery.
Item 11.a. - Page 28
6
Many state, local, territorial, and Tribal governments have experienced significant budget shortfalls,
which can yield a devastating impact on their respective communities. Faced with budget shortfalls and
pandemic-related uncertainty, state and local governments cut staff in all 50 states. These budget
shortfalls and staff cuts are particularly problematic at present, as these entities are on the front lines of
battling the COVID-19 pandemic and helping citizens weather the economic downturn.
Recipients may use these funds to replace lost revenue. Treasury’s Interim Final Rule establishes a
methodology that each recipient can use to calculate its reduction in revenue. Specifically, recipients
will 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.
Analysis of this expected trend begins with the last full fiscal year prior to the public health emergency
and projects forward at either (a) the recipient’s average annual revenue growth over the three full
fiscal years prior to the public health emergency or (b) 4.1%, the national average state and local
revenue growth rate from 2015-18 (the latest available data).
For administrative convenience, Treasury’s Interim Final Rule allows recipients to presume that any
diminution in actual revenue relative to the expected trend is due to the COVID-19 public health
emergency. Upon receiving Coronavirus State and Local Fiscal Recovery Funds, recipients may
immediately calculate the reduction in revenue that occurred in 2020 and deploy funds to address any
shortfall. Recipients will have the opportunity to re-calculate revenue loss at several points through the
program, supporting those entities that experience a lagged impact of the crisis on revenues.
Importantly, once a shortfall in revenue is identified, recipients will have broad latitude to use this
funding to support government services, up to this amount of lost revenue.
5. Providing premium pay for essential workers
Coronavirus State and Local Fiscal Recovery Funds provide resources for eligible state, local, territorial,
and Tribal governments to recognize the heroic contributions of essential workers. Since the start of the
public health emergency, essential workers have put their physical well-being at risk to meet the daily
needs of their communities and to provide care for others.
Many of these essential workers have not received compensation for the heightened risks they have
faced and continue to face. Recipients may use this funding to provide premium pay directly, or through
grants to private employers, to a broad range of essential workers who must be physically present at
their jobs including, among others:
Staff at nursing homes, hospitals,
and home-care settings
Workers at farms, food production
facilities, grocery stores, and restaurants
Janitors and sanitation workers
Public health and safety staff
Truck drivers, transit staff, and
warehouse workers
Childcare workers, educators, and school
staff
Social service and human services staff
Treasury’s Interim Final Rule emphasizes the need for recipients to prioritize premium pay for lower
income workers. Premium pay that would increase a worker’s total pay above 150% of the greater of
the state or county average annual wage requires specific justification for how it responds to the needs
of these workers.
Item 11.a. - Page 29
7
In addition, employers are both permitted and encouraged to use Coronavirus State and Local Fiscal
Recovery Funds to offer retrospective premium pay, recognizing that many essential workers have not
yet received additional compensation for work performed. Staff working for third-party contractors in
eligible sectors are also eligible for premium pay.
6. Investing in water and sewer infrastructure
Recipients may use Coronavirus State and Local Fiscal Recovery Funds to invest in necessary
improvements to their water and sewer infrastructures, including projects that address the impacts of
climate change.
Recipients may use this funding to invest in an array of drinking water infrastructure projects, such as
building or upgrading facilities and transmission, distribution, and storage systems, including the
replacement of lead service lines.
Recipients may also use this funding to invest in wastewater infrastructure projects, including
constructing publicly-owned treatment infrastructure, managing and treating stormwater or subsurface
drainage water, facilitating water reuse, and securing publicly-owned treatment works.
To help jurisdictions expedite their execution of these essential investments, Treasury’s Interim Final
Rule aligns types of eligible projects with the wide range of projects that can be supported by the
Environmental Protection Agency’s Clean Water State Revolving Fund and Drinking Water State
Revolving Fund. Recipients retain substantial flexibility to identify those water and sewer infrastructure
investments that are of the highest priority for their own communities.
Treasury’s Interim Final Rule also encourages recipients to ensure that water, sewer, and broadband
projects use strong labor standards, including project labor agreements and community benefits
agreements that offer wages at or above the prevailing rate and include local hire provisions.
7. Investing in broadband infrastructure
The pandemic has underscored the importance of access to universal, high-speed, reliable, and
affordable broadband coverage. Over the past year, millions of Americans relied on the internet to
participate in remote school, healthcare, and work.
Yet, by at least one measure, 30 million Americans live in areas where there is no broadband service or
where existing services do not deliver minimally acceptable speeds. For millions of other Americans, the
high cost of broadband access may place it out of reach. The American Rescue Plan aims to help remedy
these shortfalls, providing recipients with flexibility to use Coronavirus State and Local Fiscal Recovery
Funds to invest in broadband infrastructure.
Recognizing the acute need in certain communities, Treasury’s Interim Final Rule provides that
investments in broadband be made in areas that are currently unserved or underserved—in other
words, lacking a wireline connection that reliably delivers minimum speeds of 25 Mbps download and 3
Mbps upload. Recipients are also encouraged to prioritize projects that achieve last-mile connections to
households and businesses.
Using these funds, recipients generally should build broadband infrastructure with modern technologies
in mind, specifically those projects that deliver services offering reliable 100 Mbps download and 100
Item 11.a. - Page 30
8
Mbps upload speeds, unless impracticable due to topography, geography, or financial cost. In addition,
recipients are encouraged to pursue fiber optic investments.
In view of the wide disparities in broadband access, assistance to households to support internet access
or digital literacy is an eligible use to respond to the public health and negative economic impacts of the
pandemic, as detailed above.
8. Ineligible Uses
Coronavirus State and Local Fiscal Recovery Funds provide substantial resources to help eligible state,
local, territorial, and Tribal governments manage the public health and economic consequences of
COVID-19. Recipients have considerable flexibility to use these funds to address the diverse needs of
their communities.
To ensure that these funds are used for their intended purposes, the American Rescue Plan Act also
specifies two ineligible uses of funds:
• States and territories may not use this funding to directly or indirectly offset a reduction in net
tax revenue due to a change in law from March 3, 2021 through the last day of the fiscal year
in which the funds provided have been spent. The American Rescue Plan ensures that funds
needed to provide vital services and support public employees, small businesses, and families
struggling to make it through the pandemic are not used to fund reductions in net tax revenue.
Treasury’s Interim Final Rule implements this requirement. If a state or territory cuts taxes, they
must demonstrate how they paid for the tax cuts from sources other than Coronavirus State
Fiscal Recovery Funds—by enacting policies to raise other sources of revenue, by cutting
spending, or through higher revenue due to economic growth. If the funds provided have been
used to offset tax cuts, the amount used for this purpose must be paid back to the Treasury.
• No recipient may use this funding to make a deposit to a pension fund. Treasury’s Interim
Final Rule defines a “deposit” as an extraordinary contribution to a pension fund for the purpose
of reducing an accrued, unfunded liability. While pension deposits are prohibited, recipients
may use funds for routine payroll contributions for employees whose wages and salaries are an
eligible use of funds.
Treasury’s Interim Final Rule identifies several other ineligible uses, including funding debt service, legal
settlements or judgments, and deposits to rainy day funds or financial reserves. Further, general
infrastructure spending is not covered as an eligible use outside of water, sewer, and broadband
investments or above the amount allocated under the revenue loss provision. While the program offers
broad flexibility to recipients to address local conditions, these restrictions will help ensure that funds
are used to augment existing activities and address pressing needs.
Item 11.a. - Page 31
THIS PAGE INTENTIONALLY LEFT BLANK
Item 11.a. - Page 32