ARPA in a Nutshell
The American Rescue Plan Act of 2021 (ARPA, for short) is a $1.9 trillion stimulus package that was passed by Congress to provide economic COVID relief.
Under the Coronavirus State and Local Fiscal Recovery Funds (SLFRF) program, a part of the American Rescue Plan, Belmont expects to receive $7.8 million in one-time relief money, plus an additional $1.0 million from the Elementary and Secondary School Emergency Relief Fund III (ESSER III). ARPA is focused on broad COVID relief, whereas ESSER is targeted money for schools.
How Can ARPA Funds Be Used?
When ARPA first came out, there was a lot of confusion and ambiguity about how funds could and should be used, even amongst legislators themselves. Many questions were debated: How COVID-specific must expenses be? Can any or all funds be used to cover operating (i.e. non-COVID) costs?
The good news is that the resulting guidelines for usage are less restrictive, meaning Belmont has more choice in how to apply the money, including toward non-COVID specific costs.
However, as the Warrant Committee also warns, doing so is a bit of a perilous exercise. “ARPA and ESSER III are one-time funds. The Warrant Committee cautions against using one-time funds for recurring expenses.” This is because covering recurring expenses with one-time funds solves the very immediate, short-term budget gap (“we’re good for 2023!”), but it does nothing to address the problem of insufficient operating funds to run the Town (“what happens in 2025 when we don’t have this money?”)
Using my analogy from an earlier post, let’s say you have a $5,000 rent payment, but you only have $4,000 per month to cover it. If you get a windfall of $3,000, you can cover your rent for 3 months, but what happens in month 4? One-time money is a band-aid for recurring budget deficits and does not solve the underlying problem.
While this money does not solve our structural deficit issue, it does buy us breathing room for FY23 and FY24. If we are thoughtful and strategic, we can plan well and aim to be in a better place for FY25.
How Belmont Plans to Use ARPA Funds
Belmont will receive $7.8 million in ARPA money in a series of partial payments during 2021 and 2022. In July and August 2021, Belmont received $3.9 million. The remaining $3.9 million is expected to be received in July and August 2022. All of these funds must be spent by December 2024.
Eligible uses of ARPA funds:
Public health and/or economic impacts due to COVID
Replacement of lost public sector revenue due to COVID
Premium pay for essential workers
Water, sewer, and/or broadband infrastructure
Belmont will likely use ARPA funding to cover:
COVID-related expenses
Mitigation of other potential COVID-19 impacts, such as:
Testing and vaccines for schools and community
Ventilation of town and school buildings
Outreach to seniors
Personnel costs
Election costs
Capital expenses and roads
Affordable housing
COVID expenses in the Middle and High School building project
Business relief
FY23 and FY24 operating expenses
While FY23 and FY24 operating expenses are the last bullet noted, according to the proposed budget (which you can read here), Belmont plans to use the majority of ARPA funding ($3 million in FY23, $2 million in FY24) to cover gaps in our operating budget.
ESSER III
In addition to the $7.8 million in ARPA, the Belmont Public School Department submitted its application for $1.0 million in ESSER III funding in July 2021. In addition, $456,000 in unspent ESSER II funding is still available. The School Department has further requested that the Select Board allocate $1.4 million of the ARPA funds for school needs.
Eligible uses of ESSER III funds include:
General school support (80%)
Learning loss (20%)
The School Department has identified a list of needs and has created a plan for funding these needs during FY22 and FY23. They have prioritized the following COVID needs:
Academic recovery
Mental health and social-emotional recovery
Equity, access, and supports for students
Professional development for staff
What about all this free cash?
In addition to ARPA money, Belmont proposes to use $6.5 million of our $15 million in free cash to cover the remaining FY23 budget shortfall. Free cash is money that has been received in prior years but not spent. To keep with my personal finance analogy, Free Cash is the Town equivalent of an emergency savings account.
For obvious reasons, spending down your emergency savings is a bad idea. Similarly, spending down free cash is a bad idea as well. In fact, section C.2 of the Town’s Free Cash Policy states: “The Town will seek to maintain Free Cash of 3-5% of the current Fiscal Year’s General Fund Revenue Budget, with the understanding that the goal will be to maintain Free Cash of approximately 4%.” With an FY23 budget of nearly $150 million, this allocation puts our remaining free cash down around 2%.
Further, in recent years, Belmont’s reliance on free cash to cover the budget has been growing. Like ARPA, free cash is a one-time revenue source. Together, ARPA and free cash will allow us to balance the FY23 budget. However, as the Town notes, “Without the use of these funds, the current level of service cannot be maintained and reductions in services would be required.” In short, we are using one-time revenue sources to simply maintain the level of town services we currently have, even as the needs of the Town continue to grow.
What happens in FY25 when ARPA goes away and free cash is drawn down?
A Final Note
As of this writing - February 20, 2022 - the FY23 budget is still being worked through. There will be a series of open meetings in the coming weeks to discuss, debate, and ultimately finalize the budget. I would encourage anyone interested in this topic to attend those discussions.
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