New federal regulations could impact state ARPA spending

Gov. Kay Ivey and lawmakers are expected to approve a plan to spend more than $1 billion of the federal American Rescue Plan Act early in the upcoming legislative session.

However, the exact rules for allowable expenses are unclear at this time, several officials told the Alabama Daily News.

“The Treasury Department is closely analyzing recent changes to the allowable uses of state and local financial recovery funds under the American Rescue Plan Act,” the department said in a statement to the Alabama Daily News. “As always, we strive to use these one-time federal funds to invest in our country’s future.”

Language in the federal $1.7 trillion omnibus spending law approved in December has expanded spending opportunities for COVID relief funds first approved in 2021, the Associated Press reported. The newly expanded spending options are expected to go into effect in late February after the US Treasury released updated guidance.

“The omnibus bill contained language that appears to offer more leeway and that opened up differing interpretations of how the money might be spent, but we have received no further guidance from the Treasury Department,” said Sen. Greg Albritton, R-Range, said Alabama Daily News. As chair of the Senate General Fund Committee, Albritton is one of several legislative leaders currently involved in discussions about ARPA spending.

This is the second tranche of ARPA funding to the state. Last year, Ivey and lawmakers prioritized broadband, water and sanitation projects, and healthcare reimbursements in providing $772 million. There was also $400 million in “lost revenue” spent on building prisons.

Speaking on the “In the Weeds with Alabama Daily News” podcast last week, Sen. Arthur Orr, R-Decatur, chair of the education budget committee, said previous federal guidelines for ARPA spending were narrow, hence the state’s focus on hospitals and infrastructure projects. The new language has greatly expanded that scope, Orr said.

“So now we have a lot of ways that this money could be spent in a special session,” Orr said.

More flexibility means more requests from different entities for a portion of ARPA funding.

“Where we land must be determined,” Orr said.

Last year, Ivey put the regular session of the Legislature on hold by calling a special session at the outset to draw attention to the first round of ARPA funds. However, Orr said he believes there won’t be a final spending plan until that first week, which begins March 7. He envisions an ARPA-focused special session in the first half of the 15-week regular session beginning March 7th.

Net of the lost revenue, Albritton said leaders are using last year’s bill as a template for drafting the new spending bill, but are nowhere near a draft that could be shared with lawmakers.

The rule relaxation will also impact local and county governments, which are also awaiting details, said Greg Cochran, executive director of the Alabama League of Municipalities.

“Our advocacy and policy team is reviewing (the language of the spending account) trying to make sure the term expansion is correct and looking at ways that cities can use this in a responsible way and not abuse it,” Cochran said.

Cochran said the league is seeking clarification that the new rules apply to both the first and second tranches of ARPA funds released by Congress in 2021 and 2022.

“That would be our hope,” he said.

He said while many communities have long-standing water and sanitation needs, not all do.

“For some of these cities, a real expansion in how funds can be used would be great,” Cochran said.

Governments must allocate ARPA funds by 2024 and spend by 2026.