June 24, 2021

Volume XI, Number 175

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A Soft Deadline for Hard Cash: American Rescue Plan Funds for North Carolina Municipalities

First, the good news: every municipality in North Carolina is eligible to receive a large cash infusion, up to 75% of its budget, from the American Rescue Plan (ARP).

Now, the less than good news: all municipalities, other than a handful of metropolitan cities with populations over 50,000, should be working right now on the "Pre-contracting checklist for non-entitled municipalities," which should be uploaded to a portal on the North Carolina Pandemic Recovery Office (NC PRO) website on May 18, 2021, or perhaps on a slightly later date.  Metropolitan cities and other governments can apply directly on the U.S. Treasury portal.

Even though a municipality's governing body probably has not yet voted to affirmatively accept ARP funds, and even though plans for using these funds must still be made, and even though the rules are unclear and will probably change, each non-metropolitan municipality should work with NC PRO on this administrative contracting checklist to be sure it is prepared to receive the ARP funds. 

The governing board needs to be in a position to receive all the funds to which the municipality is entitled under the ARP.  Submitting the checklist does not constitute a commitment to accept the ARP funds and is simply an administrative action to make this option available to the town's governing body. 

The Big Picture: ARP Provisions for Non-Metropolitan Municipalities

ARP funds totaling about $19.5 billion are available to all non-metropolitan municipalities that properly document their right to receive these funds.  The funds will be distributed through the states, and the ARP does not allow the states to add any additional restrictions on the use of ARP funds. 

Treasury Department staff has developed estimates, which are subject to adjustments, of each North Carolina town's share. Estimates range from approximately $2,000 for the Town of Fontana Dam to approximately $17,350,000 for the Town of Apex.

NC PRO expects that North Carolina's funds will be distributed directly by the State, but North Carolina legislation is not finalized. North Carolina Senate Bill 172 proposes that the Office of State Budget & Management would distribute the funds "in accordance with applicable federal law and guidance." 

These ARP funds will be disbursed in two tranches, with about half of the funds being disbursed fairly soon, and the other about a year after the first disbursement. 

Use of ARP Funds

Municipalities will be able to use funds to:

(a) support public health responses to the pandemic,
(b) address the negative economic impacts of COVID-19,
(c) replace lost public sector revenue,
(d) provide premium pay for essential workers, within certain limits, and
(e) invest in water, sewer, and broadband infrastructure. 

Towns will not have to spend the money immediately and should have until the end of 2024 to commit the funds and the end of 2026 to spend them. 

ARP Funds must be placed in bookkeeping accounts separate from general funds and CARES Act funds.  ARP Funds cannot be used to offset revenue loss resulting from tax cuts enacted since March 3, 2021, to reduce an accrued, unfunded pension liability, pay outstanding debt, or meet Medicaid matching requirements. 

Guidance recently has been issued and is continuing to be developed.  The permitted uses are broad, but there are significant limitations. 

It appears that non-metropolitan municipalities will be required to report annually on the use of funds.  We will provide more detail as the U.S. Treasury develops guidance on specific uses of ARP funds.

Pre-Contracting Checklist

To assure that each North Carolina non-metropolitan municipality receives all funds to which it is entitled, NC PRO will be asking those municipalities to upload the "Pre-contracting checklist for non-entitled municipalities" very soon. 

The planned "soft deadline" is May 18, assuming the NC PRO portal is ready by that date. Although there is no legal requirement to submit this filing, non-metropolitan municipalities should make every effort to correctly complete and upload the checklist by the requested date so that NC PRO can assist with assuring the availability of ARP funds. Again, submitting the pre-contracting checklist is not a commitment to accept ARP funds, but simply an administrative task to make the option available.

Checklist Requirements

To correctly complete the Pre-contracting checklist, a municipality will need:

  • a DUNS number (from Dunn & Bradstreet);

  • registration of its DUNS number with SAM.gov, the federal government's "System for Award Management" that is a prerequisite for receiving federal funds;

  • voided vendor electronic payment form with the Office of the State Controller, listing Nate Halubka, with the "Office of State Budget & Mgmt," as the state agency with which the municipality is doing business;

  • voided check;

  • North Carolina W-9 form with all asterisked boxes completed, including nine-digit zip code and correct remittance address;

  • fiscal year-end date (almost always June 30);

  • budget total for the fiscal year that includes January 27, 2020 (see further discussion below);

  • statement of whether or not the municipality needs the approval of its governing body to receive the ARP funds (we think the answer will be "yes" for all municipalities) and whether or not that approval has been received.

  • Who is expected to sign the ARP agreement on behalf of the municipality; and

  • who is expected to principally administer the ARP funds?

Note: Both the NC PRO website and a special North Carolina League of Municipalities website offer detailed instructions on completing the checklist.

The Budget Number

ARP funds to be distributed to a non-metropolitan municipality are subject to a statutory limit of 75% of that municipality's "most recent budget."  The U.S. Treasury, in an FAQ, indicates that it considers the "most recent budget" to include the annual total operating budget, including general fund and other funds, as of January 27, 2020.

Submitting the Checklist

The checklist is to be submitted electronically on the NC PRO website, but the portal is not yet open.  Should the portal not be open on May 18, municipalities should wait until it is open and submit the checklist as soon as possible.

After Submitting the Checklist

A municipality can expect to receive an email with follow-up verification questions from the Office of the State Controller.  Municipalities should expect to be referred to as "vendors" in these communications.  It is very important that municipalities respond to these communications accurately and quickly to assure receipt of funds. 

The municipality's governing body should approve receipt of the funds by resolution and begin to develop a plan for use of the funds.  When funds are received, appropriate changes to the budget ordinance should be adopted.

Conclusion

There is still much to do both on the best practices and permitted uses side, and on the side of the municipalities as they juggle different priorities and possible projects to undertake.  We expect all of the normal contracting rules will apply, and with an environment where building material, appropriate staffing, and risk tolerance are all still issues across our state, it will take some time, and a bit of patience, to work through these items.

© 2021 Ward and Smith, P.A.. All Rights Reserved.National Law Review, Volume XI, Number 134
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About this Author

 E. Knox Proctor V, Ward Smith, financial institutions lawyer, regulatory background attorney

Knox is a general business attorney with a financial institutions and regulatory background. He helps large, mid-sized, and small businesses with general corporate and business issues, including mergers and acquisitions, and is particularly well-equipped to address a variety of regulatory issues and lending matters. Knox has experience with securities issues, and also advises on trust issues, securities brokerage, investment advice and asset management services, and insurance services.  He serves on various North Carolina Bar Association committees, including those that...

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