On March 11, 2021, the American Rescue Plan Act was signed into law, initiating the latest round of federal stimulus funding in response to the COVID-19 pandemic. The total amount of funding provided by the American Rescue Plan is $1.9 trillion, which is in line with the $2.2 trillion provided by the CARES Act. Although the total funding amount is similar, there are a number of significant differences between the American Rescue Plan and the CARES Act as it relates to state and local governments. Below is a summary of the American Rescue Plan’s key elements and how they differ from the CARES Act.
Key Elements of the American Rescue Plan Act (and differences from the CARES Act):
- There is $350 billion of funding designated to states and local governments, while the CARES Act provided $150 billion to states and local governments.
- States will receive approximately 60% of the funding, and local governments will receive approximately 40%. The CARES Act designated 55% for states and 45% for local governments.
- Tribal governments have been designated $20 billion of funding while the CARES Act provided $8 billion for Tribal governments.
- Local governments will receive their funding directly from the Treasury. Under the CARES Act, the Treasury provided direct funding only to counties and municipalities with populations greater than 500,000. All other funding was provided to states to distribute as they deemed appropriate.
- The funding amount for each state is primarily based on the “average estimated number of seasonally-adjusted unemployed individuals” based on the three-month period from October 1, 2020, to December 31, 2020. The CARES Act primarily allocated the funding to each state based on population size.
- The funding amount for each local government is based on population, but for municipalities, the poverty level and the extent of housing overcrowding also impact the allocation. The CARES Act primarily allowed the states to determine how to allocate the funding to local governments.
- The funding is available to be used through December 31, 2024, which is approximately three years and nine months from the date the act became law. Contrary to the CARES Act, funding was initially required to be expended by December 30, 2020—approximately nine months after the CARES Act became law. However, this deadline was subsequently extended to December 31, 2021.
How can the American Rescue Plan Funding be Spent?
Below is an excerpt from the act, which summarizes the categories of eligible expenditures.
Expenditures are eligible if they are:
- to respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality;
- to respond to workers performing essential work during the COVID–19 public health emergency by providing premium pay to eligible workers of the State, territory, or Tribal government that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work;
- for the provision of government services to the extent of the reduction in revenue of such state, territory, or Tribal government due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the state, territory, or Tribal government prior to the emergency; or
- to make necessary investments in water, sewer, or broadband infrastructure.
Although there are some similarities between the expenditures considered allowable under the American Rescue Plan and the CARES Act, one key difference has already emerged: American Rescue Plan funding can be used to replace lost revenue. Further guidance from the Treasury will clarify the eligible uses of the funding. Still, lost revenue replacement will likely play a significant role and prove to be a considerable difference from CARES Act funding. The inclusion of “essential worker” language in the American Rescue Plan also signals that the use of the funds to cover payroll may be broader than in the CARES Act.
Finally, the inclusion of necessary investments in water, sewer, and broadband infrastructure as allowable expenditures shows that funds from the American Rescue Plan may be used for capital improvements providing tangible benefits to communities and residents after the pandemic has passed.