Can a municipality use American Rescue Plan Act (“ARP”) funds to pay lost revenue for a partner organization, like the City's Parking Authority, even where the partner organization is a separate entity?

The American Rescue Plan Act of 2021 (“ARP”) allows the transfer of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) from the recipient to certain organizations including non-profits and private organizations. Whether a private organization’s services qualify as an acceptable use of ARP funds for revenue replacement depends on whether that entity satisfies the criteria of an independent or a government entity. 

Specifically, the ARP provides:

A metropolitan city, nonentitlement unit of local government, or county receiving a payment from funds made available under this section may transfer funds to a private nonprofit organization (as that term is defined in paragraph (17) of section 401 of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11360(17)), a public benefit corporation involved in the transportation of passengers or cargo, or a special-purpose unit of State or local government.[1]  

The U.S. Department of Treasury’s (“Treasury”) CSLFRF Interim Final Rule (the “Rule”) notes that the list of transferees listed above is non-exhaustive, and that other constituent units of government may also be eligible.[2] The Rule states:

State, local, territorial, and Tribal governments that receive a Federal award directly from a Federal awarding agency, such as Treasury, are “recipients.” A transferee receiving a transfer from a recipient under sections 602(c)(3) and 603(c)(3) will be a subrecipient. Subrecipients are entities that receive a subaward from a recipient to carry out a program or project on behalf of the recipient with the recipient’s Federal award funding. The recipient remains responsible for monitoring and overseeing the subrecipient’s use of Fiscal Recovery Funds and other activities related to the award to ensure that the subrecipient complies with the statutory and regulatory requirements and the terms and conditions of the award. Recipients also remain responsible for reporting to Treasury on their subrecipients’ use of payments from the Fiscal Recovery Funds for the duration of the award[3]

Any subrecipient of CSLFRF must follow the same regulations and restrictions as the recipient. In addition, the recipient is responsible for monitoring and oversight to ensure that subrecipients’ use of funds falls under an eligible use.[4]

Treasury further addresses this issue in its CSLFRF FAQ (updated June 24, 2021):

1.3. Are special-purpose units of government eligible to receive funds?

Special-purpose units of local government will not receive funding allocations; however, a state, territory, local, or Tribal government may transfer funds to a special-purpose unit of government. Special-purpose districts perform specific functions in the community, such as fire, water, sewer or mosquito abatement district.[5]

Municipalities may also transfer funds to non-profit and private organizations.[6]

Treasury guidance has clarified that parking fees qualify as a Current Charge for the purpose of the Census Bureau’s Annual Survey. Because the Rule’s concept of “General Revenue” includes all Current Charges,[7] parking fees would be included in the Rule’s concept of “General Revenue” for the purposes of the municipality’s revenue loss calculation.[8]

Other Treasury guidance may assist municipalities in determining whether a municipality’s parking authority can be considered a separate entity which provides “government services:”

In determining whether a particular entity is part of a recipient’s government for purposes of measuring a recipient’s government revenue, recipients should identify all the entities included in their government and the general revenue attributable to these entities on a best-efforts basis. Recipients are encouraged to consider how their administrative structure is organized under state and local statutes. In cases in which the autonomy of certain authorities, commissions, boards, districts, or other entities is not readily distinguishable from the recipient’s government, recipients may adopt the Census Bureau’s criteria for judging whether an entity is independent from, or a constituent of, a given government. For an entity to be independent, it generally meets all four of the following conditions:

• The entity is an organized entity and possesses corporate powers, such as perpetual succession, the right to sue and be sued, having a name, the ability to make contracts, and the ability to acquire and dispose of property.
• The entity has governmental character, meaning that it provides public services, or wields authority through a popularly elected governing body or officers appointed by public officials. A high degree of responsibility to the public, demonstrated by public reporting requirements or by accessibility of records for public inspection, also evidences governmental character.
• The entity has substantial fiscal independence, meaning it can determine its budget without review and modification by other governments. For instance, the entity can determine its own taxes, charges, and debt issuance without another government’s supervision.
• The entity has substantial administrative independence, meaning it has a popularly elected governing body, or has a governing body representing two or more governments, or, in the event its governing body is appointed by another government, the entity performs functions that are essentially different from those of, and are not subject to specification by, its creating government.

If an entity does not meet all four of these conditions, a recipient may classify the entity as part of the recipient’s government and assign the portion of General Revenue that corresponds to the entity.[9]

To further assist recipients in applying the forgoing criteria, recipients may refer to the Census Bureau’s Individual State Descriptions: 2017 Census of Governments[10] publication, which lists specific entities and classes of entities classified as either independent (defined by Census as “special purpose governments”) or constituent (defined by Census as “dependent agencies”) on a state-by-state basis. Recipients should note that the Census Bureau’s lists are not exhaustive and that Census classifications are based on an analysis of state and local statutes as of 2017 and subject to the Census Bureau’s judgement.[11]

Last Revised: August 11, 2021