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Spend now or later? What will happen with remaining ARPA funds?

By MARY SELL, Alabama Daily News

Alabama lawmakers, particularly those on the General Fund budget committees, will have a larger task in the legislative session that begins in January. But it’s still unclear how much of the remaining about $1.6 billion American Rescue Plan Act will be allocated in the Legislature’s spring meeting.

“We’ve got a lot more to figure out than just the Education Trust Fund and General Fund,” said Sen. Greg Albritton, R-Range, said about lawmakers’ normal annual budgeting process.

The state’s more than $2 billion in ARPA money comes in two tranches, about half this year and half likely in June of 2022, according to the Department of Finance. By May, lawmakers will have already ended their 2022 session.

Whether they’ll allocate all the money in the spring session or wait to distribute the 2022 share is still being discussed.

“I believe that it’s just like any other revenue that’s scheduled to come in during the fiscal year, I think we can go ahead and appropriate that money for when it arrives,” Albritton said recently. “There’s a feeling though, another argument, that we shouldn’t do it because it’ll have to be done by a supplemental appropriation… So we don’t we don’t know how we’re going to proceed yet.”

Even if lawmakers only focus on what’s left of this year’s ARPA allocation — after dedicating about $400 million on new prisons earlier this year and $80 million for hospitals and nursing homes — that’s more than $560 million.

Albritton said lawmakers are hearing from “everyone and their in-laws” about what should be done with the federal money.

Lawmakers don’t have to rush, per federal rules. The funds have to be obligated by the end of 2024 and spent by 2026.

Rep. Steve Clouse, R-Ozark, the House General Fund budget committee chairman, said there may be reason to hold off on distributing all the money this year.

“It might be better to see how things are shaping up, as far as broadband and water and sewer,” Clouse said about significant projects to be done with federal money. “We’ll just see how those different issues develop, where the most money is needed.”

Separate from ARPA, Alabama will receive more than $100 million for broadband expansion under the $1 trillion federal infrastructure plan recently signed by President Joe Biden. The massive federal spending plan includes $65 billion for broadband access nationwide.

“That’s going to add a lot of money to the state,” Clouse said.  “(The infrastructure plan) is going to add a significant amount more for rural broadband and water and sewer projects in particular.”

For broadband, the infrastructure plan includes $100 million for each state. Even more money will be available through need-based grants.

“That will probably bode pretty well for Alabama,” Clouse said.

An estimate early this year said it could cost $4 billion to $6 billion to expand access statewide.

The Alabama Legislature earlier this year created the Alabama Digital Expansion Authority to oversee the expansion of high-speed broadband internet services throughout the state, but there’s no specific revenue stream for the effort that experts have said will take billions of dollars.

The authority has until early next year to develop and begin executing a statewide connectivity plan, including a timeline for implementation.

Sen. Arthur Orr, chair of the Senate education budget committee, said he’d expect some but not all of the first ARPA tranche to be allocated this spring.

“We’re still having conversations about the best ways to strategically spend this money,” Orr said.  “We need to be smart about this, it’s a one-time occurrence.”

There may be another reason not to dole out all the funds this spring. The revenue replacement mechanism in the federal rules that allowed the state to spend ARPA money on new prisons this year is still available. There’s a formula for calculating money the state would have earned through normal business had there not been a pandemic. States get to calculate the amount again at the end of this year, 2022 and 2023.  While the amount is expected to shrink with time, the replacement funds could still be a chunk of money lawmakers can spend with fewer strings attached than other ARPA funds.

Separately, a federal judge recently ruled that the U.S. Treasury can’t keep states from using American Rescue Plan Act funds to offset new tax cuts.

Albritton said he’s glad to have the freedom to use the money as needed.

“But that does not mean we’re going to take one-time money and give a permanent tax cut,” Albritton said.

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