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No ‘lost revenue’ in ARPA II

By MARY SELL, Alabama Daily News

Re-elected and newly elected lawmakers will have big decisions in 2023 on how the state will spend more than $1 billion of the state’s second allocation of federal American Rescue Plan Fund money. 

State leaders say there is no firm spending plan in place at the moment, but the formula for this tranche of funding will be different and without the “lost revenue” component that allowed $400 million of about $1.2 billion in first-round funds to be designated for new state prisons.

“In the ARPA II round, all of the allocations will have to be strictly compliant with the ARPA guidelines,” Alabama Finance Director Bill Poole told Alabama Daily News. “We will not have the flexibility that a lost revenue component would provide … we don’t think.”

When the initial ARPA funds were given to states, attached was a formula for deeming a certain portion replacement for money the state would have earned through normal business had there not been a pandemic.

That formula looked at the previous three year’s revenue growth and a drop in 2020 could be considered lost revenue and spent like normal tax revenue. For Alabama, that was about $535 million in 2020. Lawmakers and Gov. Kay Ivey drew some criticism for spending the COVID-19 relief money on prisons, but proved to be on solid legal footing. They also put some of the lost revenue money toward grants for rural hospitals and volunteer fire departments.

That formula still exists and will be calculated at the end of this calendar year, but Poole and others don’t expect any of the $1.06 billion in the second round of ARPA to qualify as lost revenue.

“There won’t be as much discretion … it will be more stringent to the (U.S. Department of) Treasury guidelines,” Rep. Steve Clouse, R-Ozark told Alabama Daily News about distribution of the second tranche. 

Clouse, chairman of the House General Fund budget committee, said those guidelines particularly note broadband and water and sewer projects as allowable expenses.

“We know we’ll be, more than likely, going in that direction with a portion of the funds,” Clouse said. “And then, any COVID-19 related issues related to health care, which will certainly involve facilities like hospitals and nursing homes.”

Those were the spending priorities early this year when lawmakers and Ivey allocated $772 million — the non-revenue replacement portion of the ARPA I allocation — for broadband, water and sewer projects and health care reimbursements.

In August, lawmakers were told Alabama hospitals had more than $830 million in unreimbursed expenses related to COVID-19 care from March 2021 to March 2022.

Meanwhile, municipal applications for water and sewer grant funding have far surpassed available funds.

Clouse said he thinks as soon as freshmen legislators go through an orientation in December, he expects ARPA II discussions to begin in earnest.

The state has until the end of 2026 to spend the ARPA funds. The Alabama Legislature convenes its 2023 Regular Session on March 7.

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