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 of 2021 (“ARP”) funds—in which the federal government would hypothetically re-allocate the second tranche of ARP funding towards other priorities—would 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”) Final Rule provide the Secretary of the Treasury with discretion in the distribution of the second tranche of CSLFRF. The ARP states:

The Secretary shall 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 non-entitlement 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 Final Rule adds:

[T]he final rule provides that Treasury expects to make all second tranche payments to states available beginning 12 months from the date that funding was first made available by Treasury (May 10, 2021) regardless of when each individual state submitted its initial certification[2]… splitting payments for most states provides consistency with payments to local governments and encourages states to adapt their use of funds to developments that arise in the course of the economic recovery. Moreover, [CSLFRF] funds may be used for costs incurred during the period of performance. Recipients may use their jurisdiction’s budgeting and procurement practices and laws to determine how and when second tranche funds may be obligated.[3]

As the Final 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.

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 that amends the ARP. However, municipal leaders may consider raising concerns over a possible takeback with their respective Congressional delegations, perhaps in concert with other recipients of CSLFRF.

Section I of the Final Rule discusses remediation and recoupment of ARP funds, but these discussions primarily refer to the process of recouping funds in the event of a violation of law, rather than a takeback of funds.[4]

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 a question that addresses how cities can increase the likelihood that funds will not be subject to clawbacks.[5]

Last Updated: April 1, 2022