How should municipalities structure project funding sources to optimize federal leverage?

The White House recommends that municipalities identify their community needs and develop a project pipeline.[1] When developing a project pipeline, municipalities should: (1) consider opportunities to leverage existing funding opportunities “to help prepare for the transformative investments included” in the Infrastructure Investment and Jobs Act (“IIJA);[2] (2) prioritize application for restrictive infrastructure grants; (3) consider applicable grant matching requirements; (4) avoid duplication of benefits; and (5) develop and monitor project budgets.  

Prepare for IIJA Investments

The White House recommends that municipalities leverage American Rescue Plan Act of 2021 (“ARP”) funding to help prepare for resources available under the IIJA. For example, funding may be available under the ARP to train the “workers needed to build high quality infrastructure; hir[e] back the public sector workers needed to help manage potential federal investments; and get[] a jump start on water, sewer, and broadband projects that could complement investments from the infrastructure law.”[3]

Prioritize Restrictive Infrastructure Grants

In general, municipalities may be able to optimize federal leverage by prioritizing the usage of funding sources with more stringent limitations on allowable expenditures, prior to utilizing less restrictive sources of federal funding that allow for greater flexibility in allowable usage, such as Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”). This prioritization allows municipalities to preserve more flexible funding for activities not covered by the more restrictive funding source, thus optimizing overall federal funding available. For example, municipalities may consider pursuing reimbursement for eligible COVID-19 related costs under the Federal Emergency Management Agency (“FEMA”) Public Assistance (“PA”) program, as opposed to utilizing CSLFRF. FEMA has published COVID-19 guidance, which may help applicants determine whether their needs fall into eligible PA categories.[4] Municipalities may also review the FEMA Fact Sheet on coordinating public assistance and other sources of federal funding.[5] 

Consider Grant Matching Requirements

Municipalities should examine the program requirements for grants available under the IIJA, and identify grants that require a non-federal match. Municipalities should then identify and apply for grants that may satisfy the IIJA’s non-federal match requirement, like funding available under the CSLFRF. [6]

Avoid Duplication of Benefits

If municipalities wish to pursue multiple funding sources for a project, they will need to ensure that the project is eligible for each funding source. Additionally, municipalities must analyze all specifications, requirements, and deadlines for each of the federal funding sources to be used for any given project. Municipalities should be aware that many grant programs established under the IIJA have not yet released definitive program details and deadlines, which may pose challenges for applicants that are trying to simultaneously leverage multiple funding sources while avoiding duplication of benefits.[7]  

Develop and Monitor Project Budgets

Project budgets are generally mandatory in any case where an applicant elects to pursue multiple federal funding sources.[8] As a good practice, applicants should specifically differentiate between funding sources as separate line items or categories and clearly delineate how each funding source (public, private, federal, or other) contributes to the overall project or project component in their budgets, which will also help to maintain organized files in case of an audit during or after the project is completed.

Funded municipalities or other applicants must responsibly steward any awarded federal funds. Each government unit should focus on ensuring detailed tracking of project costs and preventing any duplication of benefits derived from federal funding. In addition, as a good practice, municipalities should understand how each funding source disburses funds and potential resulting impacts on their planned projects. Where a project would be large enough to span multiple fiscal years, funded municipalities should understand the impact of funding different sources on fiscal reports, reserve impacts, bond rating, or other financial reporting effects.