Time's Up for Implementing Strategies to Obligate and Use SLFRF Funds

In March 2021, President Biden signed into law the American Rescue Plan Act (ARPA), which appropriated $350 million in State and Local Fiscal Recovery Funds (SLFRF) to state, territorial, local, and tribal governments across the U.S. These funds were designed to help governments address the COVID-19 impact and jump-start economic recovery. SLFRF dollars were allowed to fund pandemic-related expenditures, premium pay for key personnel, infrastructure investments, and general government services impacted by pandemic-related lost government revenue.

Under ARPA, SLFRF funds not obligated by the December 31, 2024, deadline must be returned to the U.S. Department of the Treasury. SLFRF recipients have until December 31, 2026, to expend funds that have been obligated in a timely manner.¹ 

As the obligation deadline approaches, community organizations, labor unions, and policymakers are concerned that many recipient governments will not meet it—either because they may not realize the whole meaning of “obligation” or because they won’t act quickly enough.² Recent Department of the Treasury data on obligation and expenditure activity of the largest SLFRF recipients (known as Tier 1 recipients, which are governmental entities with more than 250,000 residents) seems to bear this out.

Based on 2024 first-quarter data reported at the end of April, 34% of Tier 1 recipients have obligated only 50% to 75% of their SLFRF funds, and 13% have obligated less than 50%. A similar picture exists for expenditures. Of the Tier 1 recipients, 36% have expended 50% to 75% of their funding, while 42% have expended less than 50%.

The cities and counties that comprise Tier 2 SLFRF recipients (defined as having a population below 250,000 residents and receiving more than $10 million in recovery funds) are in a similar position. Nearly 20% had obligated less than 50% of their funding, and 21% had expended less than 50%.

With less than six months to go until the obligation deadline occurs, state and local government recipients still have several strategies available to help them meet obligation and expenditure deadlines—avoiding the need to return any unobligated SLFRF funds to the federal government.

Obligation risk analysis

SLFRF government recipients may face one or more challenges in successfully meeting the obligation deadline. Because funds may have been allocated across numerous departments, offices, and agencies, centralized data and program information may be lacking. SLFRF programs and projects often differ in size, scope, and purpose. Most importantly, recipients must fully understand the most recent Department of the Treasury guidance on how funds may be properly obligated.

These challenges suggest the need for oversight, close coordination of obligation efforts, and an obligation risk analysis involving these key steps:

Develop a tailored risk framework through which specific risks can be assessed. A risk framework will identify steps within the SLFRF program’s design, procurement, and execution that may pose risks to obligating funds by the deadline.

Collect and analyze qualitative and quantitative data to identify areas of delay in selecting projects and programs to fund with SLFRF. Review the proposed allocation and obtain data on every phase of the project selection, approval, and procurement process. This will help comprehensively identify the level of SLFRF funds that may be at risk for obligation and expenditure.

Assess risk level based on the amount of funds at risk. Using data collected on the allocation of SLFRF funding can help assign risk levels to projects and program initiatives that may be experiencing delays due to procurement, staffing, or other reasons.

Use risk analysis findings to inform strategies for eliminating or minimizing barriers to SLFRF obligation. Once informed of risks and their relative priority in achieving the obligation of all SLFRF funds, decision-makers can finalize and execute a strategy to reduce and eliminate the barriers that might prevent successful fund obligation and expenditure.

Expenditure strategy

SLFRF guidance has continued to evolve. On July 1, 2024, the Department of the Treasury released an updated version of the Compliance and Reporting Guidance to reflect the new SLFRF FAQ 17 released in May 2024. Having a two-year period between obligation and expenditure deadlines allows for a coordinated and thoughtful approach. Obligation risk analysis results will inform how existing program expenditure allocations should be revised and to what extent.

Options for reallocating SLFRF funding based on risk may be identified. For example, supply chain constraints, permitting delays, and labor availability can impact spending decisions. Taking an enterprise-level approach to obligation and expenditure decisions with ongoing monitoring will support successful efforts to maximize SLFRF funds.

Program sustainability

• Cost and benefit analysis—Assess the cost of a program from a financial and administrative perspective relative to the benefits it provides.
• Return on investment—Consider the per capita value a program delivers relative to the amount invested.
• Impact and difficulty assessment—Measure the effort required to sustain a program relative to any impact or benefits.

Assessing financial impact

Recipients must also evaluate the fiscal impact of SLFRF-funded projects or programs on their operating budget. Operating costs, opportunity costs, and alternative funding sources will all be important considerations. Informed decision-making and continuous assessment of ARPA-funded programs will be the foundation of effective resource allocation. 

Navigating complexity

As a national leader in helping state and local governments navigate SLFRF program complexities, we have worked with more than 40 state, county, and municipal governments to successfully manage over $25 billion in SLFRF funding.