MSU Extension Center for Local Government Finance & Policy

The Michigan State University Extension Center for Local Government Finance and Policy (Center) began tracking planning and spending of American Rescue Plan (ARPA) State and Local Fiscal Recovery Funds (SLFRF) at the state and local level in late 2021. This process uses varied methods of data collection to match the breadth of diversity of the funds recipients. State data comes from publicly available information from the U.S. Treasury as well as university databases and discussions with local government representatives via the Center’s long-standing Government Fiscal Sustainability Workgroup. Gathering fund usage data at the local level was much more challenging. The study relies on data gleaned from mandatory Interim Reports, Planning and Expenditure reports, and Recovery Plan Performance Reports,^[1] survey findings from three regional survey instruments, two interviews with the Chief Financial Officer of localities that have been under state oversight as well as several state-level officials responsible for the fiscal oversight of their respective local units of government.

Many factors influence local government spending decisions of SLFRF, including the program rollout timeline. A SLFRF-like program was vigorously requested by state and local officials and their lobbying apparatuses long before the program was announced.  However, it is one thing to request federal relief resources and it’s a whole other thing for every community across the country to identify qualifying projects and make investments. Major program challenges include: determining allowable activities in a dynamic environment where the most recent version of the Treasury’s Compliance and Reporting Guidance for SLFRF is on version 4.1 as of June 17, 2022; identifying projects that can be leveraged with other state and/or federal funding in an environment where information about these supplemental resources are unknown; a widely held feeling that these resources come with a “gotcha” string which is causing unease and inertia; the cognitive dissonance experienced with identifying “transformative” projects that will “drive equity”^[2] with SLFR funds at the same time as being “fiscally responsible” with this “one-time-money” and only investing in projects that will not require any additional resources to support ambitious projects.

Eventually all Michigan local governments receiving funds will be required to report SLFRF funded projects to the Treasury, accounting for the full $4.4 billion. As of now, the P&E reports collected by the Center reflect $3.4 billion dollars in SLFRF program allocations across 61 local units of government and 226 unique projects (some without any funds obligated as of writing). The 61 units reporting range from localities like Cass County (population 51,787) and Tuscola County (population 52,245), each receiving just over $10 million in funds, to large metropolitan localities like Wayne County (population 1.7 million) and the City of Detroit (population 670,031), who received $340 million and $827 million, respectively. Of the $3.4 billion these units have available to spend, only $218 million have been obligated in total. Of the 7 major Treasury spend categories (Revenue Replacement, Negative Economic Impacts, Public Health, Administration and Other, Infrastructure, Services to Disproportionately Impacted Communities, and Premium Pay), revenue replacement was the largest category for obligated and expended project funds at 35% of all obligations (and 54% of those expended). This is unsurprising, given the broad latitude given by the Treasury to categorize spending as “revenue replacement”. This category is only likely to increase in the next reporting period following changes in the Final Rule making this allocation category the most straightforward way to allocate funds before the 2024 deadline. Regional survey results gathered for this report support this finding, with 75% of local government representatives across 20 Michigan counties indicating that their communities intend to take the standard allowance for lost revenue.

The remaining categories had proportions of obligated project funds as follows (Table 4): Negative Economic Impacts (18%), Public Health (14%), Administration and Other (12%), Infrastructure (9%), Services to Disproportionately Impacted Communities (8%), and Premium Pay (3%). Figures 6 and 7 provide breakdowns of project types in the categories of Public Health and Negative Economic Impacts. Expenditures in the Administration and Other category highlight the need most communities feel to hire additional staff or consultants to oversee fund usage or to assist in the lost revenue calculations. This highlighted survey results that indicated that the number one type of support needed by local governments is help with documentation of fund usage per Treasury’s guidelines.

It is important to note, however, that for the majority of the recipients, it is very early in the process of planning and spending. Subsequent reports are therefore likely to contain a more complete picture. This situation will continue until all the funds are spent in 2026.

[1] Tier 1: States, U.S. territories, metropolitan cities and counties with a population greater than 250,000 residents and tier 2: Metropolitan cities and counties with a population below 250,000 residents which received more than $10 million in SLFRF funding. Michigan has 64 local units that were required to submit their first P&E report for the reporting period March-Dec 2021 by January 31, 2022. This report focuses on these local units as these are the localities with the most accurate and detailed information about their ARPA plans and spending.

[2] https://home.treasury.gov/system/files/136/SLFRF-Equity-Webinar.pdf. Accessed July 6, 2022.