The American Rescue Plan Act (ARPA) of 2021 was signed into law by President Joe Biden on March 11, 2021. ARPA is a $1.9 trillion economic stimulus package. The State and Local Fiscal Recovery Funds (SLFRF) is a significant component of the ARPA. The SLFRF allocates $350 billion to state, local, territorial, and tribal governments. The purpose of these funds is to provide governments with the resources needed to respond to the pandemic, replace lost revenue, and support economic recovery.
Grant Management Solutions Lead and Advisory Manager Kat Kizior and co-host and Grants Management Senior Associate Paula Heller join forces to address the upcoming ARPA SLFRF obligation deadline on December 31, 2024. Kat and Paula focus on what can and cannot be done at the last minute to obligate funds that are compliant with ARPA’s Final Rule and Obligation Interim Final Rule (IFR). As part of Cherry Bekaert’s GPS Grants Management podcast series, this episode covers:
- The definition of “obligation” as stated in the Interim IFR and the exploration of what it is not
- The usage of estimates for legal, admin, staff and indirect costs through 2026
- The way to determine if you have any unobligated funds
- Methods for obligating that are achievable is the short timeline left
Cherry Bekaert’s Grant Lifecycle Management team manages grants end-to-end, bridging the service gap to improve internal controls and staff success to help your organization maximize every opportunity. If you have any questions specific to your business needs, Cherry Bekaert’s Government & Public Sector team is available to discuss your situation with you.
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HOST: Welcome, and thanks for listening to Cherry Bekaert's Government and Public Sector Podcast Series.
HOST: In each episode, we hear from the best in the business on the latest challenges, trends, and opportunities affecting the government and public sector.
CHRISTIAN FUELLGRAF: I'm Christian Fuellgraf, leader of Cherry Bekaert's Government and Public Sector Industry Team.
KIMBERLY KONCZACK: Welcome, everyone, to "The American Rescue Plan Act: The Last-Minute Effort," episode eight of our Grants Management Podcast Series.
KIMBERLY KONCZACK: I'm Kimberly Konczack, a grants management enthusiast and proud member of a brilliant team of professionals providing end-to-end solutions and support for grant life cycle management.
KAT KIZIOR: Thank you. My name is Kat Kizior. I am the Grants Management Solutions Lead and Advisory Manager over the Grants Management section at Cherry Bekaert.
PAULA HELER: I am Paula Heler, a senior associate on the Grants Management team.
KIMBERLY KONCZACK: Paula, you don't get to be introduced as the new person anymore. You're seasoned now, so we're just going to roll forward.
KIMBERLY KONCZACK: This podcast is for any entity that has received American Rescue Plan Act funding, also known as ARPA, and specifically State and Local Fiscal Recovery Funds, SLFRF.
KIMBERLY KONCZACK: Based on the letters in the acronym, it might sound like "sfur," but that doesn't roll off the tongue well, so we'll use SLFRF.
KIMBERLY KONCZACK: Let's start by discussing the deadlines. There are two major deadlines at this time that organizations that have received SLFRF funding need to be aware of.
KIMBERLY KONCZACK: The first is the obligations deadline, and that is coming up on December 31, 2024, which is right around the corner.
KAT KIZIOR: Absolutely. That is why we called this podcast "The Last-Minute Effort." We are coming down to the last minute to obligate those ARPA funds.
KAT KIZIOR: In this case, we're talking about non-revenue replacement funds, and our focus is on recipients who have received more than $10 million in ARPA funding.
KAT KIZIOR: Why is this obligations deadline so important? I know we have some time left to spend all of the funds, but what does this mean with obligations?
PAULA HELER: Great question. This deadline is critical because it is the last day to obligate these funds. Whatever isn't obligated has to be returned to the federal government, which can be an accounting nightmare.
PAULA HELER: We should step back and discuss the meaning of "obligation." The federal government has been very specific about the definition of obligation when it comes to ARPA funding.
PAULA HELER: They published an obligation interim final rule, and there are some unique obligation categories that are allowable as reported estimates.
PAULA HELER: Normally, you cannot report an estimate as an obligation. But in this case, because recipients have a few more years to spend the money, they can estimate certain costs.
PAULA HELER: For example, they can estimate their legal and administrative costs. That estimate could have been reported earlier this year.
PAULA HELER: They can estimate rehire public sector staff costs. That reporting is due in January of next year for quarterly reporters. They can also estimate indirect costs.
PAULA HELER: Outside of these estimates, funds have to be obligated as they traditionally are in your financial management system.
PAULA HELER: Typically, there's a purchase order, a signed agreement or contract, or an accepted quote. That is, some sort of legally binding document.
PAULA HELER: A legally binding document is important. It is something that's signed, sealed, and delivered.
KIMBERLY KONCZACK: We've heard many ways that governments or organizations plan to obligate funds that are not compliant with ARPA obligations guidance.
KIMBERLY KONCZACK: Knowing that definition is very important.
KIMBERLY KONCZACK: For example, you cannot put your ARPA funds in a savings account and call them obligated.
KIMBERLY KONCZACK: You cannot charge them to a special code on your ledger and name it "ARPA something" and consider it obligated. That is not an obligation; that is just putting money somewhere.
KAT KIZIOR: Let's talk about purchase orders for a minute.
KAT KIZIOR: Generally, a PO is an appropriate way to obligate funds.
KAT KIZIOR: If you have a blanket PO or a standing PO, be careful. Make sure the PO specifies the dollar amount and the vendor.
KAT KIZIOR: Know what obligation means in this situation because you don't want to return money to the federal government at the end of the ARPA performance period.
KIMBERLY KONCZACK: Now that we've cleared that up, how do recipients calculate their unobligated balances to know how much they must plan to obligate now?
KIMBERLY KONCZACK: Paula, can you go over that?
PAULA HELER: Sure. It's about doing the math to determine how much funding has not been obligated.
PAULA HELER: Let's use a hypothetical scenario. Assume you received $65 million in non-revenue replacement funds.
PAULA HELER: At this point, a recipient should know how much they've spent. Let's say they've spent $10 million.
PAULA HELER: They should know what's obligated in their financial management system. That's another $10 million, so we're up to $20 million.
PAULA HELER: They should also account for other estimates like legal and administrative, indirect, and public sector estimates. Let's say that's $30 million.
PAULA HELER: Add that all together, and you've either spent, obligated, or estimated as obligations $50 million.
PAULA HELER: If you received $65 million, it's a subtraction problem: $65 million minus $50 million leaves an unobligated balance of $15 million.
PAULA HELER: That $15 million must be obligated by December 31, 2024.
KIMBERLY KONCZACK: Obligating $15 million this late will be tricky.
KIMBERLY KONCZACK: Do you have suggestions for feasible ways to obligate it? I would think procurement would take too much time.
KAT KIZIOR: You're absolutely correct. There is not enough time to do a full federal procurement at this point.
KAT KIZIOR: A properly executed procurement process will take at least 30 days, and more like 60 to 90 days to be federally compliant. You have about a month to obligate remaining funding.
KAT KIZIOR: However, there are a few options.
KAT KIZIOR: One way is to use the funding for personnel expenses, but there are conditions that go with this. Paula knows this obligation method very well, so I will let her explain.
PAULA HELER: This is the rehire public sector staff cost estimate we discussed earlier.
PAULA HELER: For quarterly reporters, it's due in January. For annual filers, it's due in April of next year.
PAULA HELER: There are two approaches to calculating this, but you must choose one and stick with it.
PAULA HELER: The first approach is simpler and more straightforward. Refer to the final rule for details.
PAULA HELER: The second method can provide more leverage but requires additional legwork. You need to gather your budgets and position data and nail down your financial reports.
PAULA HELER: The final rule outlines the calculations in four steps.
PAULA HELER: Step one: calculate the FTE you had budgeted on January 27, 2022.
PAULA HELER: Step two: multiply that number by 1.75. This is effectively a pre-pandemic adjustment.
PAULA HELER: Step three: calculate the actual full-time equivalence as of March 31, 2021.
PAULA HELER: Step four: subtract the actual amount from the adjusted budgeted amount to determine the expansion FTE available that you can fund with SLFRF to pay payroll and benefits.
PAULA HELER: This allows you to obligate these positions in your estimate and can give you more leverage.
PAULA HELER: If you haven't done this calculation, consider this approach.
PAULA HELER: If you have already done the calculations, read the final rule carefully. There are unique conditions for personnel that can be excluded from the math.
KIMBERLY KONCZACK: Thanks, Paula.
KIMBERLY KONCZACK: I want to add something in my area of expertise: indirect cost.
KIMBERLY KONCZACK: If you have an indirect cost rate and you haven't claimed any indirect costs against your ARPA funding, you can apply your rate to your expenditures and claim reimbursement.
KIMBERLY KONCZACK: That is another way to reserve funding and reimburse your general fund for costs you've already incurred.
KIMBERLY KONCZACK: If you claim indirect costs against ARPA expenditures, it goes into your general fund as unrestricted, and you can then use it for programs or reimbursements.
KIMBERLY KONCZACK: We've given some quick formulas and an overview of these two methods. There is plenty of information on the web, and if you want to know more, please contact us. You'll have our emails at the end.
KIMBERLY KONCZACK: We do not recommend using POs at this point because there is not enough time.
KIMBERLY KONCZACK: Other viable options include entering into interagency agreements. This type of agreement generally meets the same requirements as a contract or subaward, so it is considered an obligation.
KIMBERLY KONCZACK: You could also procure goods or services off a state term contract where costs and prices were already bid based on federal requirements.
KIMBERLY KONCZACK: State term contracts for local governments have typically gone through a federally compliant process, though you may still need a couple of quotes.
KIMBERLY KONCZACK: Using these contracts shortens procurement time significantly.
KIMBERLY KONCZACK: It's good to know there are still options with this looming deadline.
KAT KIZIOR: We started by saying there were two deadlines. We talked about the December 31, 2024 obligations deadline. What is the second important deadline?
PAULA HELER: The second major deadline is the closeout of ARPA funding, which is December 31, 2026. All expenses must be incurred by that date.
PAULA HELER: We don't yet know what the Treasury will say about reporting deadlines after that, whether recipients will have 90 or 120 days to report. We will have to wait and see.
PAULA HELER: In the grants world, deadlines sometimes change or get pushed out, but do not expect those obligation and expense closeout deadlines to change.
PAULA HELER: There has been some push from legislators due to recent natural disasters and backlog with FEMA and emergency work, but at this point you should not count on deadline extensions.
PAULA HELER: Protect your funding and obligate it by December 31, 2024.
KIMBERLY KONCZACK: This is a lot to digest.
KIMBERLY KONCZACK: Where can people find more information on ARPA obligations, the final rule, and related guidance?
KAT KIZIOR: The U.S. Treasury has built out the ARPA section of their website.
KAT KIZIOR: It contains the final rules, interim rules, FAQs, general reference guides, and technical guidance. Tons of information. Check the Treasury Department website.
KAT KIZIOR: Also check with your state for state term contracts and specific guidance, because states that received federal funds may have added conditions.
KAT KIZIOR: I also want to give a nod to the North Carolina Association of County Commissioners. They have a great website with resources and links that are useful regardless of your state.
KIMBERLY KONCZACK: Thank you, Kat and Paula, for joining us for today's podcast.
KIMBERLY KONCZACK: You can reach us at kimberly.konczack@cbh.com, kat.kizior@cbh.com, or paula.heler@cbh.com.
KIMBERLY KONCZACK: We are going to take the month of December off. Our next podcast will be in January 2025.
KIMBERLY KONCZACK: Start your new year strong with our next podcast, "Understanding Subrecipients: The What, the Why, and the How."
KIMBERLY KONCZACK: Join us for an in-depth discussion on grant subrecipients, from definition to determination to compliance.
KIMBERLY KONCZACK: Subscribe to the series at cbh.com.
CHRISTIAN FUELLGRAF: This is Christian again. I hope you enjoyed this episode and look forward to our next one. Don't forget to subscribe.
