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Timing of Funds

What steps should cities take to help minimize the damage of a potential takeback (i.e. a scenario in which a second tranche of ARP funds would be re-allocated to other policy priorities)?

Any takeback of American Rescue Plan Act (“ARP”) funds—in which the Federal Government would hypothetically re-allocate the second tranche of ARP funding towards other priorities—would normally require new legislation. Neither the text of the ARP nor the U.S. Department of the Treasury (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Interim Final Rule (the “Rule”) provide the Secretary of the Treasury with discretion in the distribution of the second tranche of CSLFRF. The ARP states:

The Secretary shall (emphasis added) pay to each metropolitan city for which an amount is allocated under paragraph (1), each State for which an amount is allocated under paragraph (2) for distribution to nonentitlement units of local government, and each county for which an amount is allocated under paragraph (3), the Second Tranche Amount for such city, State, or county not earlier than 12 months after the date on which the First Tranche Amount is paid to the city, State, or county.[1]

The Rule adds:

Section 603 of the Act provides that the Secretary will make payments to local governments in two tranches, with the second tranche being paid twelve months after the first payment. … Splitting payments to States into two tranches will help encourage recipients to adapt, as necessary, to new developments that could arise over the coming twelve months, including potential changes to the nature of the public health emergency and its negative economic impacts.[2]

As the Rule explains, the CSLFRF was split into two tranches to enable flexibility for recipients to respond to the impact of the COVID-19 pandemic as it continues to evolve.

In order to do so, and to lessen the impact of any potential takeback, waiting to allocate or spend the funds contained in the second tranche of CSLFRF would be the most prudent course of action. Additionally, municipalities can plan contingency funding sources for prospective second tranche projects to further reduce the damage of a potential takeback.

However, as noted above, a takeback would be unlikely unless legislation is passed which amends the ARP. Having said that, municipal leaders may consider raising concerns over a possible takeback with their respective Congressional Delegations, perhaps in concert with other recipients of CSLFRF.

Information about reducing the risk of a takeback of funds by Treasury (for example, on grounds of improper oversight or accountability) can be found on the Bloomberg Philanthropies site in the response to the question ‘How can cities increase the likelihood that funds will not be subject to clawbacks?’

Last Updated: June 25, 2021

[1] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, Subtitle M, Section 603b (7)B, amending 42 U.S.C. § 801 et seq., https://www.congress.gov/bill/117th-congress/house-bill/1319/text#HAECAA3A95C4E4FFAB6AA46CE5F9CB2B5.

[2] Treas. Reg. 35 CFR 31 at 102-3, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.