As cities work on their 2025 budgets, take time to ensure that any State and Local Fiscal Recovery Funds (SLFRF) your city received under the American Rescue Plan Act (ARPA) are properly obligated.

Deadlines & reporting

The first major deadline for ARPA-SLFRF is December 31, 2024. By that date, your city must have obligated your ARPA-SLFRF allocation to an eligible project or program. (Source)

You will not have to report to Treasury on your obligations until the report immediately following the deadline. For cities reporting quarterly, that will be the report due January 31, 2025. For cities reporting annually, that will be the report due on April 30, 2025. (Source)

What is an “obligation”?

One of the most important things to remember is that allocation does not necessarily mean obligation. Treasury provides four ways that a city can incur an obligation:

1. Place an order for property and services or enter into contracts, subawards, and similar transactions that require payment. (Source)
2. Enter into an interagency agreement. (Source)
3. Dedicate funds to certain personnel costs for positions that existed and were filled prior to December 31, 2024. (Source)
4. Cover legal and administrative costs associated with the terms, conditions, and requirements of ARPA-SLFRF. (Source)

Cities should review the sources linked above for each of these points to ensure that you are aware of the nuances that apply in each case.

If your city is concerned about meeting the obligation deadline, it appears that the simplest way to allocate funds would be to cover personnel costs that existed and were filled prior to December 31, 2024.

How do obligation requirements impact revenue replacement funds?

While revenue replacement does provide for easier reporting and greater flexibility in using funds, the obligation deadline and requirements still apply. Cities must obligate revenue replacement funds by the deadline as outlined by Treasury.

Properly obligating funds may require more steps than just passing a resolution or putting revenue replacement funds in your water or wastewater fund. Funds need to be under contract for a specific project or program, be dedicated to personnel, or be part of an interlocal agreement to be considered obligated. (Sources: FAQ 17.3, 17.4, 17.15)

Filing reports once funds are fully obligated or spent

Even if your city has expended or obligated all of your ARPA-SLFRF award, you will still be required to complete Project & Expenditure reports following your assigned reporting schedule. Plan to submit reports through April 30, 2027. Treasury may provide closeout instructions in the future. (Source)

Canceled projects, overspending, and underspending

In many cases, if a project is canceled because a contract defaults or a project is ruled ineligible, cities may be able to reallocate funds to programs and projects that were established prior to the obligation deadline of December 31, 2024. (Source: See slides 17-20, FAQ 17.17)

If a project or program overruns its budget, cities may be able to allocate ARPA-SLFRF dollars to that program after December 31, 2024, if the contract was in place before the deadline. Additionally, the contract must expressly allow for change orders and contingence, and the program scope and purpose must not change substantially. (Source: 17.16, 17.17)

If you have a program or project that comes in under budget, you may be able to reallocate those funds to another existing project as long as the program existed prior to the December 31, 2024, deadline. (Source)

Unobligated funds

Funds not obligated before December 31, 2024, or that cannot be reallocated to an eligible project after the 2024 deadline will be required to be returned to Treasury. Treasury has not provided information on that process yet.

Summary

It appears that Treasury has provided cities with multiple avenues to obligate funds and to keep control of funds in case a program or project runs into issues. Please take the time to review Treasury’s guidance prior to December 31 to ensure your city has properly obligated funds.

Some closing thoughts:

• Obligate means more than appropriate. Be sure your ARPA-SLFRF dollars are under contract for a specific project, set to be used for personnel costs, or a part of a qualifying interlocal agreement.
• Obligate funds towards projects, programs, or costs that have a low probability of being cancelled or changed. While there are avenues for shifting funds after the deadline, it would be best to put funds towards costs that won’t change.
• Reporting on obligations won’t be due until your first report after the deadline.
• Review Section 17 of the Treasury’s FAQs as it provides extensive guidance on obligation requirements.