ARP State & Local Fiscal Recovery Funds Guidance and What it Means for the Arts

ARP State & Local Fiscal Recovery Funds Guidance and What it Means for the Arts

The following was written by GP McLeer, Executive Director of the SC Arts Alliance, and Mayor of Fountain Inn, SC. It has been edited to reflect information specific to North Carolina and the work of Arts NC.

On May 10th, the US Treasury Department issued their “Interim Final Rule” document, along with a Fact Sheet and FAQ document in relation to the State/Local ARP Funding allocations. While tweaks are expected as Treasury receives feedback from the public through a public comment period, we now have a clearer understanding of how state legislatures and county / city councils can spend their cut of $350 billion sent to every unit of government in the nation. For North Carolina, $5.5 billion will be available for the NC General Assembly to allocate, $2 billion will go to all 100 counties, and over $1.3 billion split among all 550 cities and towns in the state.

Quick Recap

ARP funds can be used for five broad eligible uses for local governments to spend:

1. Support public health expenditures, by, for example, funding COVID-19 mitigation efforts, medical expenses, behavioral healthcare, and certain public health and safety staff.
2. Address negative economic impacts caused by the public health emergency, including economic harms to workers, households, small businesses, impacted industries, and the public sector.
3. Replace lost public sector revenue, using this funding to provide government services to the extent of the reduction in revenue experienced due to the pandemic.
4. Provide premium pay for essential workers, offering additional support to those who have and will bear the greatest health risks because of their service in critical infrastructure sectors.
5. 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.

If you need a full recap on the program overall, check out our previous blog post. We’re assuming you’ve read that blog post before reading this one. Also, be sure to check out our webinar on Local ARP Funding and the Arts .

Remember that this funding is for state/local governments to spend – it is not a grant program unless your state/local government creates one under one of the five uses above. Advocates should be reaching out to their local elected officials and encouraging them to provide local recovery funds, using the guidance from Treasury as their tool to show eligibility.

Key Takeaways

Below are our key takeaways, followed by technical notes, that touch on not just arts-related provisions, but also some key items that arts advocates should be made aware of that could impact local decisions. We’ll be referencing page numbers from the final guidance document dated May 10 (link here) throughout. We will update this page as guidance is tweaked and new information becomes available.

1. “The Test”
   There is a common “test” for eligible funding throughout the guidance, and it’s this: “Assessing whether a program of service ‘responds to’ the COVID-19 public health emergency requires the recipient [state/local government] to, first, identify a need or negative impact of the COVID-19 public health emergency and, second, identify how the program, service, or other intervention addresses the identified need or impact. … eligible uses under this category must be in response to the disease itself or the harmful consequences of the economic disruptions resulting from or exacerbated by the COVID-19 public health emergency.” (pg 10)
   What it Means for the Arts: Units of government will have to be able to demonstrate economic harm, or a public health need, to justify use of funds, so therefore if arts groups wish to benefit from this funding, they’ll need to demonstrate the same and show that funding will help fix the problem at hand (economic or health impact). This, of course, is if your local government puts funds towards the arts (more on that in a bit).
2. Flexibility is a cornerstone.
   The federal government is giving state and local governments a lot of room here. Treasury’s guidance details what expenses are eligible under the ARP, and does provide some direction on priority needs, but it does not mandate any of the following: any type of funding allocation breakdown (e.g. a percentage cap for each focus area listed earlier), any priorities that must be met, nor does it include exhaustive lists of eligible expenses or ineligible expenses. In short, governments could spend 100% of their funds on sewer infrastructure if they can justify it – there is nothing currently in guidance to prevent that. Additionally, the guidance states that, “Within the eligible use categories outlined…governments have flexibility to determine how best to use payments from the [ARP] to meet the needs of their communities and populations.” (pg 8) This amount of flexibility can be both a blessing and curse.
   What it Means for the Arts: While the arts have a definitive place in eligibility (keep reading), advocates need to be aware that your local government has a lot of leeway. Even if there are specific eligible uses of funds listed in the guidance, local governments have the ability to create additional eligible uses, as long as they can justify it (see first takeaway). Arts groups should partner with the business and nonprofit community locally to advocate for support.
3. Arts are eligible.
   While the guidance doesn’t require governments to fund in a priority order, there is crystal clear guidance that, if they choose to provide support to the business and nonprofit community, entities in the tourism, travel, and hospitality industries should be given support. In fact, guidance makes it a point to create a standalone note on eligibility for “Aid to Impacted Industries” that is reserved for “certain industries, such as tourism, travel, and hospitality” that were “disproportionately and negatively impacted by the COVID-19 public health emergency.” (pg 36)
   What it Means for the Arts: The link between arts and tourism is well documented and proven. Paired with the ability to provide direct support to businesses and nonprofits, governmental units are well within the law to grant funds to arts organizations and businesses. This is the primary section of the guidance that arts advocates should use to gain support at the local level.
4. Disproportionate impact matters.
   There is a focus in practically every section of the guidance on addressing disproportionate impacts of COVID-19 in your community. From a focus on lower income households, to minority communities, to small businesses, and to lower wage workers (within their government workforce) – governments are being advised to be sure they try and address these disparities in their plans.
   What it Means for the Arts: Arts groups in rural and minority communities have a strong case to make for support from their local government.

Where the Arts Fit

There’s great news for the arts in this guidance. Under the second broad eligible use (Negative Economic Impacts), the guidance provides four areas of potential support for the arts. Furthermore, in the legislation itself, lawmakers provided examples of industries hit in disproportionate ways, including “travel, tourism, and hospitality” – this specific listing led Treasury to create a dedicated section for these industries as well. Here’s where the arts fit in:

(ref: Interim Final Rule, pg 34)

• Aid to Impacted Industries
  While nonprofits and small businesses are also eligible (see below), the guidance also provides a standalone section detailing explicit and targeted eligibility for “impacted industries”. This section is the primary eligibility use governments can utilize to provide relief/recovery funding to the arts sector. Specifically, the “impacted industries” are named as “tourism, travel, and hospitality”. This is not an exclusive list of industries, but are the only ones singled out as examples. Additionally, if funding any other industry besides these three, guidance directs governments to measure the negative economic impact to those additional industries in comparison to tourism, travel, and hospitality – essentially saying that the “impacted industries” set the bar on what “negative economic impact” is.
  
  Specifically, the guidance states that governments can use ARP funds to help businesses in these industries implement mitigation and infection prevention measures, but also states the following: “Aid may be considered responsive to the negative economic impacts of the pandemic if it supports businesses, attractions, business districts, and Tribal development districts operating prior to the pandemic and affected by required closures and other efforts to contain the pandemic.” This statement lays out two criteria – first, arts groups will have had to have been in operation prior to March of 2020, and that your business had some sort of interruption due to COVID-19 mandates. For the arts in North Carolina, venues and festivals were the first to close and only will not be allowed to open fully until June of 2021.
  
  ARP funding under this eligible use category can be used for general aid to impacted industries, this also includes facility improvements that were delayed due to pandemic-related closures.

(ref: Interim Final Rule, pg 36)

• Assistance to Small Businesses and Nonprofits
  All small businesses and nonprofits are also explicitly eligible to receive funds from state/local ARP allocations. This support can be to provide aid in adopting safer operating procedures, to weather periods of closure, or to mitigate financial hardship caused by COVID-19. Examples of support allowed include (but is not limited to):
  1. Loans or grants to mitigate declines in revenues or impacts of closures.
  2. Loans, grants, or in-kind assistance to implement COVID-19 prevention and mitigation tactics.
  3. Technical assistance, counseling, or other services to assist with business planning needs.

(ref: Interim Final Rule, pg 34)

• Addressing Educational Disparities
  While the majority of arts groups will fall into the previous two categories, arts groups who also offer arts education initiatives may find additional success in advocating for local governments to provide assistance in education programs in their community. Specifically, arts education programs may be eligible under these eligible uses:
  1. Evidence-based educational services and practices to address academic needs such as tutoring, summer, afterschool, and other extended learning and enrichment programs.
  2. Evidence-based practices to address the social, emotional, and mental health needs of students.

Note: This funding is separate from ESSER III funding, the ARP’s education recovery funding which is sending over $3.2 billion more to every school district in North Carolina.

(ref: Interim Final Rule, pg 40)

Technical Notes

There are no real shocking updates in the guidance issued by Treasury, but there are a lot more details to comb over. It’s important to note that this full guidance actually includes a list of questions at the end of each section intended to spark public comment. Treasury will continue to tweak this guidance – if you’ve been following the Shuttered Venue Operator Grants process, you’ll be well aware at how often the feds can change guidance. If you’re reading this well past May 10, we suggest clicking the links at the top of this blog for the most updated versions.

• North Carolina and its local governments will get their funding in two 50% tranches. The first one should arrive in May of 2020, the second one twelve months later. Larger cities (populations over 50,000) and counties will get their money directly from the Treasury Department, smaller cities (<50,000) will get their funds from the State within 30 days (state acts as a pass through).
• Funds have to be obligated by December 31, 2024. This does not mean funds have to be spent though. The “period of performance” will run until December 31, 2026. Guidance specifies that ARP State/Local funds are meant to be forward-looking. As such, Treasury anticipates, and encourages, longer-term projects and support.
• Nonprofits are defined only as 501(c)3 organizations. All other nonprofit structures would qualify under any “business” categories.
• Funds can be used broadly for the public health response to COVID-19, this includes “capital investments in public facilities to meet pandemic operational needs” (pg 13). It can also go towards mitigation/prevention costs, behavioral health care, public health and safety staffing, and to create/tweak public health programs. This broad use could impact availability of funds for arts groups if your community has existing public health facilities that could use capital investment.
• Non-arts eligible uses under the “Negative Economic Impacts” section include, among others:
  • Assistance to Unemployed Workers: Mostly job training programs, but potentially states can use this to fund additional unemployment benefits.
  • State Unemployment Trust Funds: States can use these funds to replenish their unemployment trust funds.
  • Assistance to Households: Funds can be used for almost any need of individual households, even home repairs. Guidance suggests following the federal stimulus check models when developing any sort of individual distribution of funds.
  • Rehiring of Staff: Governments can use funds to bring folks back into their workforce.
  • Housing and Neighborhoods: Governments can use ARP funds for affordable housing, homelessness services, vouchers, or other housing-related services.
  • Promoting Healthy Childhood Environments: services related to childcare and social service programs are eligible.
• State/Local Governments can also use funds for premium pay for essential workers, for both government employees and outside government. Payments cannot exceed $25,000/employee (there’s a formula based on state and county average wages). Essential worker is defined as someone who is required to work in-person and is critical the delivery of “critical infrastructure services”. This includes employees in public health, farming, food service and production, transportation and transit, public safety, sanitation, childcare and education, social and human services. Government leaders have the ability to modify this list. Grants can be made to private sector employers of essential workers for this purpose.
• Governments can also recoup lost revenue. This section (pg 51) gets a little complicated unless you’re big into government finances. But suffice it to say – if your local government took a hit, they can recoup some of that revenue back. They have to have shown a loss from FY19 to FY20.
• Governments also have a lot of freedom in using funds to cover the cost of water, sewer, and broadband infrastructure. You name it, they can probably find a way to fund it.
• Governments cannot use funds to pay pre-existing debt obligations. They can use to pay debt that will be incurred due to major projects (like infrastructure), but it cannot be used for debt that’s been on the books.

Notes on Reporting

• Larger cities (50,000+), counties, and states must submit quarterly reports, with the first one hitting October 31, 2021.
• Smaller cities (50,000 and under) will have to submit one report by October 31, 2021, and then only an annual report each year after that.
• Treasury is expected to release further data on what information specifically should be collected soon. This expected guidance will most likely govern what information is collected in any type of grant program. The burden rests on the governmental entity to ensure compliance with ARP guidelines in almost every situation.
• Treasury does have the power to recoup any funds that are spent on non-eligible uses.