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New federal rules could impact state ARPA spending

Gov. Kay Ivey and lawmakers are expected early in the upcoming legislative session to approve a plan for spending more than $1 billion federal American Rescue Plan Act money.

But exact rules for allowable spending are right now unclear, several officials told Alabama Daily News.

“The Department of Finance is closely analyzing recent amendments to the allowable uses of the American Rescue Plan Act’s State and Local Fiscal Recovery Funds,” the department said in a statement to Alabama Daily News. “As always, we are committed to directing these one-time federal funds to investing in the future of our State.”

Language in the $1.7 trillion federal omnibus spending bill approved in December broadened the spending possibilities for the COVID relief funds first approved in 2021, the Associated Press reported. The newly expanded spending options are expected to take effect by late February, after the U.S. Department of Treasury releases updated guidance.

“The omnibus bill had language in it that seems to provide more leeway, and that opened up different interpretations on how the money can be spent, but we have not received further guidance from the treasury,” Sen. Greg Albritton, R-Range, told Alabama Daily News. As chairman of the Senate General Fund committee, Albritton is one of several legislative leaders currently involved in ARPA spending discussions.

This is the second tranche of ARPA funds for the state. Last year, Ivey and lawmakers prioritized broadband, water and sewer projects and health care reimbursements in allocating $772 million. There was also $400 million in “lost revenue” dedicated to prison construction. 

Appearing on the “In the Weeds with Alabama Daily News” podcast last week, Sen. Arthur Orr, R-Decatur, chairman of the education budget committee, said previous federal guidelines on ARPA spending were narrow, hence the state’s focus on hospitals and infrastructure projects. The new language broadened that scope extensively, Orr said.

“So, now we have a lot of options on how that money could be spent in a special session,” Orr said.

More flexibility means more requests from various entities for a piece of the ARPA funding.

“Where we wind up is to be determined,” Orr said.

Last year, Ivey put the Legislature’s Regular Session on hold by calling a special session at the very beginning to focus attention on the first round of ARPA funds. However, Orr said he thinks there won’t be a final spending plan by that first week that begins March 7. He envisions an ARPA-focused special session within the first half of the 15-week regular session that starts March 7.

Minus the lost revenue, Albritton said leaders are using last year’s bill as a template to draft the new spending bill, but aren’t close to a draft that could be shared with legislators. 

The rule loosening will also impact municipal and county governments, who are also awaiting specifics, said Greg Cochran, executive director of the Alabama League of Municipalities. 

“Our advocacy and policy team is reviewing (the spending bill language) and trying to make sure the term expansion is correct and to look at ways that cities can use this in a responsible way and not misuse it,” Cochran said.

Cochran said the league is seeking clarification that the new rules apply to both the first and second tranches of ARPA money released by congress in 2021 and 2022. 

“That would be our hope,” he said. 

He said while many communities have long-standing water and sewer improvement needs, not all do.

“Having a true expansion of how funds can be utilized would be great for some of those cities,” Cochran said.

Governments have until 2024 to allocate ARPA funds and through 2026 to spend it.

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