May cities use ARP funds to finance a previous infrastructure project?

The covered period for the American Rescue Plan Act of 2021 (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) is March 3, 2021 through December 31, 2024, meaning that any CSLFRF funds must be obligated for a program within that time.[1], [2] While the text of the ARP does not specify whether CSLFRF can be used to pay for previous infrastructure investments, the U.S. Department of the Treasury’s (“Treasury”) CSLFRF Final Rule addresses infrastructure investments and the use of funds for government services.

The Final Rule states that “[g]overnment services [which are eligible for funding through CSLFRF’s revenue replacement use category] include, but are not limited to, maintenance or pay-go funded building of infrastructure, including roads.”[3] The Final Rule further clarifies that “government services would not include interest or principal on any outstanding debt instrument, including, for example, short-term revenue or tax anticipation notes, or fees or issuance costs associated with the issuance of new debt.”[4] Additionally, “payments from the [CSLFRF] are intended to be used prospectively” and “may be used to cover costs incurred beginning on March 3, 2021.”[5]

Notably, municipalities may not use CSLFRF funds to pay off a previous infrastructure investment.

However, Treasury’s CSLFRF Frequently Asked Questions (“FAQs”) document clarifies that recipients can apply CSLFRF funds to water, sewer, and broadband infrastructure projects that were initiated prior to March 3, 2021, but only for specific costs incurred after March 3, 2021.[6]