ARPA obligation deadline is December 31, 2024 – Are you ready?

The first major deadline for State and Local Fiscal Recovery Funds (SLFRF) distributed to cities across the country under the American Rescue Plan Act (ARPA) is December 31, 2024. Along with the deadline comes new information and rules from Treasury.

When is the obligation deadline and what is an obligation?

Under the 2022 Final Rule, cities must obligate their SLFRF ARPA funds by December 31, 2024.

The federal government defines obligation as: “[A]n order placed for property and services and entering into contracts, subawards, and similar transactions that require payment.”

This definition of obligation may be different than how your city approaches obligating funds. For ARPA funds to be properly obligated, cities must create a contract, subaward, or similar transaction requiring payment.

Use ARPA funds for general government services

If your city is unsure of how to spend funds or is concerned about meeting the December 31, 2024, deadline, city leaders should consider using ARPA funds for general government services.

Under the Final Rule, cities had the option of claiming their full federal award as “Revenue Replacement” up to $10 million. Cities who claimed revenue replacement are not required to provide a calculation or proof of lost revenues to claim their award as “Revenue Replacement”.

Revenue replacement is the most flexible eligible category for spending ARPA funds. Treasury states that revenue replacement can be used for general government services which include, but are not limited to, “maintenance or pay-go funded building of infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services. The aforementioned list of government services is not exclusive.”

The ability to use ARPA funds for general government services is limited to cities that claimed lost revenues by the close of the April 2022 reporting period. If your city did not claim lost revenues, you must use ARPA funds as outlined in the Final Rule. To check if your city claimed lost revenues, please refer to your city’s reports to Treasury.

New SLFRF Obligation Interim Final Rule

In November 2023, Treasury published a new interim final rule to address questions regarding the definition of “obligation” and to provide additional guidance and clarifications. The new IFR is available on Treasury's website along with a summary document.

Most notably, the IFR contains guidance on how cities can address issues with projects that occur after the obligation deadline of December 31, 2024, but before the expenditure deadline. Below are three key areas of guidance from Treasury:

• Can a recipient enter into a new contract after the obligation deadline with a new contractor to complete a project?
  Treasury is clarifying that after December 31, 2024, recipients are permitted to replace a contract or subaward entered into prior to December 31, 2024, under specific circumstances, which include contractor default or the contractor or subrecipient goes out of business.
• Can a recipient re-obligate funds after the December 31, 2024, deadline?
  Recipients cannot re-obligate funds to a new project after 2024 that does not meet the obligation deadline, such as a new project that does not yet have an order placed for property and services or entered into a contract, subawards, and similar transaction that requires payment.
• Are subrecipients impacted by the obligation deadline?
  No – If the contract was executed prior to the 2024 deadline, the subrecipient does not need to take any additional actions to obligate funds. Neither subrecipients nor contractors need to take additional steps to obligate SLFRF funds after entering into a subaward or contract with the recipient.

Treasury hosted a webinar on the new IFR in November. A recording of the webinar is available on Treasury’s YouTube channel. A copy of the webinar slides is also available.

Impacts on reporting

Treasury has stated they will update the SLFRF Compliance and Reporting Guidelines to incorporate changes from the new IFR. Cities should plan to review the updated guidelines before submitting their April 2024 report.