Cities and towns have about a year left — until Dec. 31, 2024 — to obligate their State and Local Fiscal Recovery Funds under the American Rescue Plan Act.

Those State and Local Fiscal Recovery Funds must then be expended by Dec. 31, 2026.

ARPA, enacted in March 2021, provided $350 billion in COVID-19 pandemic relief to state, county, tribal and local governments. For the first time in history, every municipality in the country received federal non-competitive grant funds, known as State and Local Fiscal Recovery Funds.

In its final rule, the U.S. Department of the Treasury issued further guidance on the term “obligated” and how municipalities should comply. The final rule states that obligation means “an order placed for property and services and entering into contracts, subawards, and similar transactions that require payment.” According to the National League of Cities, this means that it is not enough for local governments to simply budget the money, but rather they must place an order for property or services that require payment. In the case of payroll, grantees need to follow state and local established practices.

The National League of Cities recently outlined best practices for municipalities, including:
• Be mindful of the definition of obligation. A municipality must create a contract, subaward or similar transaction requiring payment.
• All municipalities should have a plan to obligate State and Local Fiscal Recovery Funds by the deadline, Dec. 31, 2024.
• It can take time to negotiate and execute a contract, so local leaders should include this time in their plans.

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