As the U.S. Congress and the president work to lift the federal debt ceiling, the National League of Cities is reporting that State and Local Fiscal Recovery Funds under the American Rescue Plan Act are not at risk of rescission by the federal government.

The NLC said some local leaders have expressed concerns that SLFRF funds could be clawed back, but this is not the case.

“Any SLFRF funds, even if they have not been spent, are safe, based on NLC discussions with the Treasury Department and Congressional staffers, as well as Office of Management and Budget documents and Congressional Budget Office analysis,” wrote Michael Gleeson, the legislative director of finance, administration and intergovernmental relations at the NLC, in a recent report.

A bill reflecting an agreement struck late last week between House Speaker Kevin McCarthy and President Joe Biden to suspend the nation’s borrowing limit through January 2025 is expected to be taken up by Congress this week, before the federal government would hit the debt ceiling on June 5. In addition to suspending the limit, the agreement would restrain the growth of federal non-defense discretionary spending over the next two years.

Gleeson said negotiators were considering rescinding ARPA funds that have not yet been obligated by multiple federal agencies, including the Federal Emergency Management Agency and the Federal Communications Commission. But since the Treasury Department has already sent all SLFRF funds to local governments, those funds are already considered obligated for federal budgeting purposes, even if they have not been spent by municipalities.

The obligation of the funds by the federal government is separate from the process of municipalities obligating the funds they have already received, Gleeson said. The debt ceiling agreement does not have any impact on the ARPA deadlines for spending local SLFRF funds.

Because the federal government runs budget deficits, it must borrow money to pay its bills. The debt ceiling caps the amount of money that the government is authorized to borrow to fulfill its financial obligations.

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