May a city use ARP funds for public-private partnerships for infrastructure or economic recovery programs, such as community benefit agreements?

Municipalities can use American Rescue Plan Act of 2021 (“ARP”) funding to combat the “negative economic impacts [of COVID-19], including assistance to … small businesses … and nonprofits.”[1] More specifically, the Final Rule grants recipients broad latitude to identify investments in water and sewer infrastructure that are of the highest priority for their own communities.[2] The Final Rule also allows Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) recipients to “transfer funds to other constituent units of government or private entities beyond those specified in the statute.”[3] This, combined with the Final Rule’s favorable reference to community benefit agreements, indicates that the use of CSLFRF for public-private partnerships is likely permissible, although there is no explicit authorization.[4] In such situations, municipalities should look to legal and accounting professionals to determine the appropriate uses for the particular project.  

Further, municipalities may consider geographic location as a factor when implementing infrastructure and economic recovery programs. The Final Rule acknowledges that municipalities may use funds to promote the economic and social advancement of disproportionately impacted populations.[5] The Final Rule authorizes the use of funds where infrastructure and economic recovery programs respond to the public health and negative economic impacts experienced by impacted and disproportionately impacted communities. For example, municipalities may use funds if the services provide disproportionately impacted residents “assistance relocating to neighborhoods with higher levels of economic opportunity.”[6]

Treasury provided additional clarity and compliance guidance on transferring funds to nonprofits and private organizations in its Compliance and Reporting Guidance document. Recipients may transfer funds to private nonprofit organizations as a subrecipient to “carry out an eligible use of [CSLFRF] funds” on behalf of a recipient government (e.g., a recipient government that would like to provide food assistance to impacted households may grant funds to a nonprofit organization to carry out that eligible use).[7] A transferee receiving a transfer from a recipient is considered a subrecipient and must comply with the audit requirements of the Single Audit Act and 2 CFR part 200, subpart F.[8] Treasury encourages municipalities to work with nonprofits and private organizations through partnerships and subgrants.[9]

Last Updated: March 31, 2022