Background
The American Rescue Plan Act of 2021 (ARPA) was adopted by the United States Congress and signed into law by President Biden on March 11, 2021.  ARPA is a $1.9 trillion federal economic stimulus package that provides a wide variety of public health and financial assistance programs intended to address the negative economic impacts created by the COVID-19 pandemic. 

A portion of ARPA funding specifically tailored to assist state, local, territorial, and tribal governments is the Coronavirus State and Local Fiscal Recovery Fund (SLFRF), a $350 billion appropriation that provides an infusion of resources to help local governments, including thousands of cities, towns, and villages across the nation, to address the economic impacts associated with the pandemic, as well as lay the foundation for a strong and equitable recovery. The portion of SLFRF funding specifically allocated to cities amounts to approximately $65.1 billion, divided among “metropolitan cities” ($45.6 billion) and “non-entitlement units of local government” (NEUs, $19.5 billion). 

Metropolitan cities are those cities entitled to receive federal funding under the Community Development Block Grant (CDBG) Program; funding allocated to metropolitan cities under ARPA is made available as direct entitlement from the U.S. Treasury (Treasury) on a formulaic basis consistent with CDBG Guidelines. NEUs receive ARPA funding paid by Treasury to the states for distribution in an amount consistent to their portion of their state’s population for non-metropolitan cities.  As a metropolitan city, La Habra is entitled to a direct allocation of ARPA funding. 

La Habra’s ARPA entitlement is $15,828,149, which is paid by the Treasury in two equal allocations approximately one year apart. The first allocation in the amount of $7,914,074.50 was received by the City on May 19, 2021, and was set aside in a dedicated fund pending further direction from City Council.  The second allocation in the same amount is expected to be received from Treasury in spring 2022. 

Consistent with Treasury’s Final Rule (Attachment 1), issued on January 6, 2022, and which describes the method by which Treasury will implement ARPA, cities are required to obligate all funds received by December 31, 2024, and expend them by December 31, 2026. Additional information on ARPA and SLFRF can be found on Treasury’s website at https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds.
Use of Funds
Pursuant to the Final Rule, metropolitan cities and NEUs are allowed some degree of flexibility on how ARPA funds may be used, subject to key prohibitions laid out in the law.  For example, funds may be used to:

- Support public health expenditures, such as funding COVID-19 mitigation efforts, medical expenses, behavioral healthcare, and certain public health and safety expenses.
- Address the negative economic impacts caused by the public health emergency, including economic harm to workers, households, small businesses, impacted industries, and the public sector.
- Replace lost public sector revenue, using funds to provide government services to the extent of the reduction in revenue experienced due to the pandemic.
- Provide premium pay for essential workers, offering additional support to individuals who serve in critical infrastructure sectors.
- Invest in water, sewer, and broadband infrastructure, making necessary investments to improve access to clean drinking water, support vital wastewater and stormwater infrastructure, and to expand access to broadband internet.

Regarding ineligible uses, ARPA specifically prohibits deposits into pension funds, payments toward debt service, use toward legal settlements or judgments, and/or deposits into a “rainy day” funds or financial reserves. The overarching goal of ARPA and the funds made available to local governments through SLFRF is to respond to the public health emergency and the related negative economic impacts caused by the COVID-19 pandemic. As noted in the Final Rule and Treasury’s Final Rule Overview and SLFRF “Frequently Asked Questions” (Attachments 2 and 3, respectively), Treasury considers contributions to pension funds, debt service, legal settlements or judgments, and/or deposits into financial reserves as efforts by recipient agencies to create future savings rather than address public health needs or the negative economic consequences of the pandemic.

As it relates to the prohibition on deposits into pension funds, Treasury interprets “deposit” as “an extraordinary payment into a pension fund for the purpose of reducing an accrued, unfunded liability.” However, Treasury also distinguishes a “deposit” from a “payroll contribution,” which “occurs when employers make payments into pension funds on regular intervals, with contribution amounts based on a predetermined percentage of employees’ wages and salaries.”

It is also important to note that ARPA funds are “one-time” in nature; in other words, they are not a recurring source of revenue such as local tax revenues. As such, it would be prudent to program the funds for eligible one-time programs and uses, specific capital projects, equipment acquisition, reimbursement of eligible incurred costs, or to replace lost municipal revenues, rather than programming the funds to support recurring programs or ongoing operational expenditure activities.

In addition, ARPA funds may only be used to cover costs incurred by a recipient agency for the period beginning March 3, 2021, and ending December 31, 2024.  All recipient agencies are required to submit quarterly project and expenditure reports to Treasury. Financial records and supporting documents related to the award must be retained for a period of five years after all funds have been expended or returned to Treasury, whichever is later; this includes records that demonstrate how the awarded funds were used for eligible purposes in accordance with ARPA, Treasury’s regulations implementing the law, and any prior, current or future guidance from Treasury on eligible uses of funds.

City of La Habra Goals and Objectives
Each year the City Council considers and approves its “Goals and Objectives” for the coming year. The Fiscal Year 2021-2022 Goals and Objectives were approved by the City Council on March 1, 2021 (Attachment 4).  The achievement of the Goals and Objectives is intended to help the City realize its core mission of “improving the quality of life in the community.”  While the achievement of some goals and objectives may occur over a short- or long-term horizon, many are perpetual, occurring on an ongoing basis. 

As a policy document, the Goals and Objectives represent a key aspect of the City’s annual cycle of operational planning and development. For example, the Goals and Objectives establish policy parameters that are helpful to staff as it prepares the City’s annual budget for City Council consideration, describing how ongoing and one-time fiscal resources are programmed to best meet the City’s current and future obligations and achieve the City Council’s long-term vision for the community.  Because ARPA funds represent a significant amount of one-time financial resources, their use by the City should be consistent with the Council approved Goals and Objectives, as well as the General Plan and the annual operating budget, which serve as statements of the community’s priorities, values, and long-term aspirations.

Community Priority and Service Satisfaction Survey
In addition, and as part of its efforts to implement the Fiscal Year 2021-2022 Goals and Objectives as it relates to public outreach, earlier this year the City conducted a community survey through a professional opinion research firm. While the purpose of the survey was to help identify areas of community concern, organizational effectiveness, and to gauge resident satisfaction with existing municipal services, elements of the survey also examined residents’ views on how the City of La Habra allocates funding, including how ARPA funds could be programmed to address those concerns.  A copy of the survey results is included as Attachment 5.

Proposed Allocation of ARPA Funds
As noted above, Treasury’s Final Rule identifies eligible uses of ARPA funds by metropolitan cities and NEUs, as well as non-exclusive lists of programs and services that may be funded to respond to the COVID-19 pandemic and/or the negative economic impacts of the public health emergency.  Because needs and circumstances are not identical from community to community, the Final Rule emphasizes flexibility, allowing recipient agencies to use their judgment to program funds in a way that best suits their specific needs, subject to the rules regarding ineligible uses discussed previously.

For example, Treasury states that “the Act provide(s) recipients with broad latitude to use the fiscal recovery funds for the provision of government services. Government services can include, but are not limited to, maintenance or pay-go funded building of infrastructure; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation…and the provision of police, fire, and other public safety services.”  This flexibility is critical as it allows each recipient agency to consider its particular needs and allocate funding appropriately within the bounds of federal law.

The table below reflects staff's recommendation for the City’s allocation and programming of ARPA funds, taking into consideration Council’s vision as noted in the FY21-22 Goals and Objectives and public input through the community survey.  It is important to note that this recommendation creates a budgetary framework for the use and allocation of ARPA resources over the next several years. As actual programs, projects and uses are developed by staff to achieve these goals, specific spending plans, contracts, and proposed uses of funds will be presented to Council at future meetings for Council review, consideration and approval. In addition, the City Council may revise these allocations in the future to address other needs, until the time that Treasury’s deadlines for funding obligation and payment, as referenced above, occur.
 

Proposed Use of Funds	Amount
Revenue Replacement
- Cybersecurity Modernization	$3,000,000
- City Facility Upgrades	$2,578,149
- Other Government Services	$4,500,000
Invest in Water, Sewer, and Broadband Infrastructure - Stormwater Infrastructure Investment	$2,500,000
Support Public Health Expenditures - Public Health and COVID Containment	$2,000,000
Address Negative Economic Impacts Caused by COVID-19 - Homeless Outreach and Assistance	$500,000
- Rental Assistance	$250,000
- Business Assistance	$250,000
- Nonprofit Assistance	$250,000
TOTAL	$15,828,149

Revenue Replacement (Recommended Allocation = $10,078,149)
Treasury’s Final Rule allows recipients to replace revenue lost caused by the pandemic, stating that recipient agencies may “use payments…for the provision of government services to the extent of the reduction in revenue experienced due to the COVID-19 public health emergency.”  In order to determine the amount of ARPA funds a recipient agency may use toward revenue replacement, Treasury provides a detailed formula that compares actual revenue to an extrapolation of what an agency would have expected to collect in the absence of the pandemic, using the most recent full fiscal year prior to the emergency, which was Fiscal Year 2018-2019. 

For purposes of measuring expected revenue growth, recipients are allowed to use a growth adjustment factor of either 4.1 percent per year or the recipient’s average annual revenue growth over the three full fiscal years prior to the COVID-19 public health emergency, whichever is higher.  In the case of La Habra, the adjustment factor of 4.1 is the higher figure and was therefore used to determine revenue replacement.
 
Utilizing a “Public Revenue Loss Calculator” developed by the League of California Cities and California Society of Municipal Finance Officers (CSMFO), the City has identified approximately $12 million of projected loss in revenue (from January 2020 through December 2023).  While the City has wide latitude regarding how to deploy revenue replacement loss funds based on City Council direction, it is important to note that this is only a projected loss and may vary from actual losses that are difficult to predict with absolute certainty. In addition, there are other competing needs identified by the City Council's adopted goals and objectives and community identified priorities related to capital infrastructure, public health, and mitigation of negative economic impacts associated with the pandemic that warrant consideration for an allocation of available ARPA funding. To address these varied priorities, staff recommends allocating $10,078,149 of ARPA funds as follows for Revenue Replacement:

Cybersecurity Modernization (suggested allocation of ARPA funds = $3,000,000)
City Facility Upgrades (suggested allocation of ARPA funds = $2,578,149)
Other Government Services (suggested allocation of ARPA funds = $4,500,000)

Use of ARPA funds for this purpose satisfies the following City of La Habra Goals and Objectives:

Goal 1            Protection of Public Safety

Goal 2.a         Closely monitor revenues, expenditures, and fiscal issues to ensure the City’s financial stability

Goal 2.c         Identify and pursue funding opportunities for capital improvement projects, including City buildings, facilities, infrastructure, and recreational outlets.

Goal 3.b         Maintain and upgrade City buildings, facilities, and parks

While it is not necessary at this time to identify how revenue replacement funds will be appropriated for specific projects as part of this funding allocation, consistent with federal reporting requirements, the City will include an explanation of how funds meet federal guidelines as the City submits quarterly reports to the Treasury on a going forward basis.  Furthermore, specific expenditure plans to address these goals will be brought back to Council at future meetings for Council review, consideration and approval.

Investments in Water, Sewer, and Broadband Infrastructure (Suggested Allocation = $2,500,000)
ARPA funds may be used to make necessary investments in water and sewer infrastructure, recognizing “the critical role that clean drinking water and services for the collection and treatment of wastewater and stormwater play in protecting public health.”  Generally speaking, the Treasury Final Rule requires that the use of ARPA funds for stormwater infrastructure projects meet eligibility requirements through either the Environmental Protection Agency’s Clean Water State Revolving Fund (CWSRF) or the Drinking Water State Revolving Fund (DWSRF). 

Stormwater infrastructure investment meet CWSRF guidelines, which, among other things, include stormwater systems.  Staff recommends allocating $2,500,000 of ARPA funds to address stormwater projects in La Habra, to be specified at a later date through the City’s normal annual budget and Capital Improvement Program (CIP) cycle. 

Use of ARPA funds for this purpose satisfies the following City of La Habra Goals and Objectives:

Goal 2.c         Identify and pursue funding opportunities for capital improvement projects, including City buildings, facilities, infrastructure, and recreational outlets.

Goal 2.h         Seek grant funding where and when possible to supplement and/or replace direct City funding.

Support Public Health Expenditures (Suggested Allocation = $2,000,000)
Since the COVID-19 pandemic began in early 2020, local governments have faced a myriad of unanticipated challenges which have forced public agencies to pivot away from their normal day-to-day operations and implement service model changes that take into consideration vaccination of residents, testing and contact tracing, isolation and quarantine, public health education and outreach, implementing safety measures for staff, and the enforcement of federal/state/local public health orders.  These actions have generated new and unexpected costs that are not part of an agency's normal budget process. 

Use of ARPA funds for this purpose satisfies the following City of La Habra Goals and Objectives:

Goal 1            Protection of Public Safety

Goal 2.a         Closely monitor revenues, expenditures, and fiscal issues to ensure the City’s financial stability

Address Negative Economic Impacts Caused by COVID-19 (Suggested Allocation = $1,250,000)
Since the inception of this pandemic emergency, the federal government has made available a number of well funded programs to provide direct and indirect relief to businesses, non-profits and for rental assistance. These programs have been administered through federal, state and county agencies. While funding is still available in many of these programs, staff recommends setting aside some of the City's ARPA funds to help supplement these larger programs, as described below.

Homeless Outreach and Assistance and Rental Assistance
The COVID pandemic has had an immediate and far-reaching impact on households in every socioeconomic category.  Some households, particularly those in under-served communities, continue to struggle with loss of employment or reduction in hours worked due to “stay-at-home” orders and the stagnating economy.  While it is true that public health and economic conditions have improved since the onset of the pandemic in early 2020, many individuals continue to grapple with costs associated with housing, food, and utilities.

To help mitigate these challenges, the Final Rule allows recipient agencies to use ARPA funds to respond to the negative economic impacts of the public health emergency, including:

- Assistance to support economic security;
- Housing assistance, including rent and utilities; and
- Assistance with food

While City staff has not yet identified specific programs through which to support homeless outreach and assistance, or rental assistance, staff recommends two separate allocations from the City's ARPA funds for these purposes and developing additional details for City Council for consideration and approval at a future date.  As such, staff recommends allocating $500,000 in ARPA funds for homeless outreach and assistance, and allocating $250,000 in ARPA funds for rental assistance.

Business Assistance and Non-profit Assistance
In order to better address negative economic impacts associated with the pandemic, Treasury’s Final Rule allows recipient agencies to provide financial assistance to local small businesses and non-profit organizations.  While City staff has not yet identified specific programs through which to support local businesses or non-profit organizations, staff recommends two separate allocations, each in the amount of $250,000, from the City's ARPA funds for these purposes and developing additional details for City Council for consideration and approval at a future date. 

Pursuant to ARPA, assistance to small businesses and non-profit groups includes, but is not limited to:

- Loans or grants to mitigate financial hardship such as declines in revenues or impacts of periods of business closure, including supporting payroll and benefits costs, costs to retain employees, mortgage, rent, or utilities costs, and other operating costs;
- Loans, grants, or in-kind assistance to implement COVID-19 prevention or mitigation tactics, such as physical plant changes to enable social distancing, enhanced cleaning efforts, barriers or partitions, or COVID-19 vaccination, testing, or contact tracing programs; and
- Technical assistance, counseling, or other services to assist with business planning needs.

It is important to note that recipients may not use funds for general economic development or workforce development.  Recipients must be able to demonstrate that funding uses directly address a negative economic impact of the COVID-19 public health emergency, and while general economic development or workforce development in and of themselves are not eligible uses, the Final Rule does permit use of funding for a broad range of services for unemployed and underemployed workers and other individuals that suffered negative economic impacts due to the pandemic, including public jobs programs, subsidized employment, combined education and on-the-job training programs, or job training to accelerate rehiring, as well as other employment supports, such as childcare assistance or assistance with transportation to and from a jobsite.

Use of ARPA funds for this purpose satisfies the following City of La Habra Goals and Objectives:

Goal 5.d         Continue to improve the City business retention and expansion program

Goal 5.f          Encourage the Development Community to support community programs, activities, and events as good corporate partners 

Goal 6.e         Build and maintain partnerships and collaborations with other local government agencies, the business community, local nonprofit organizations, and the faith-based community.

City Council approval of staff's recommendations will allocate the City of La Habra's ARPA entitlement of $15,828,149 to the funding categories, as follows:

Revenue Replacement:
Cybersecurity Modernization $3,000,000
City Facility Upgrades $2,578,149
Other Government Services $4,500,000

Invest in Water, Sewer, and Broadband Infrastructure
Stormwater Infrastructure Investment $2,500,000

Support Public Health Expenditures
Public Health and COVID Containment $2,000,000

Address Negative Economic Impacts Caused by COVID-19
Homeless Outreach and Assistance $500,000
Rental Assistance $250,000
Business Assistance $250,000
Nonprofit Assistance $250,000

Total Recommended ARPA Budget Appropriation: $15,828,149

As specific projects and programs are developed by staff to achieve the goals stated herein, detailed spending plans, contracts, and use of funds will be presented to Council at future meetings for Council review, consideration and approval. In addition, Council adopted appropriations of ARPA funds may be revised at future dates to address other programmatic needs, up to the deadline established by Treasury guidelines.