Title
Recommendation to Provide Direction to Staff Regarding the Allocation of an Anticipated $28.95 Million of Funding from the Federal Government through the American Rescue Plan Act (ARPA) of 2021 to Assist with Recovery from the Impacts of the COVID-19 Pandemic. (City Manager 2110/Finance 2410) [Not heard on April 20, 2021 or May 11, 2021]
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
Based on current information on the American Rescue Plan Act of 2021 (ARPA), the City of Alameda (City) expects to receive approximately $28.95 million. The United States Congress and local government trade associations have prepared charts that estimate that the City will receive this amount, but it is not the official number. The official number and the rules for spending these funds will be determined by the Treasury Department. As of April 7, 2021 specific rules for eligibility of the use of the funds had not been released.
The funding provided under ARPA provides a unique opportunity for the City to make strategic investments using these funds.
The City will receive these one-time funds over two years. The first phase of funding will come after the United States Department of the Treasury (Treasury) certifies the proceeds to each jurisdiction, and the second will come one year later. Further refinement and specific projects will still have to be defined as the rules and guidelines for spending become clearer; however, at this time staff is recommending that the City Council begin to prioritize the funding and staff has used the City’s Priorities as the framework for the discussion in how to allocate the funds. Alternative approaches/frameworks are also discussed in the report.
BACKGROUND
How Much Money Will Flow to Cities?
Based on the ARPA funding formula, $65 billion is divided between jurisdictions that are Community Development Block Grant (CDBG) entitlement jurisdictions and those that are not. $45.5 billion of the $65 billion will be allocated to metropolitan cities utilizing a modified CDBG formula, and the remaining amount for jurisdictions that are non-entitlement CDBG will be allocated according to population.
How Much Money Will Come to the City of Alameda?
The City’s allocation has been estimated at $28.95 million. The United States Congress and local government trade associations have prepared charts that estimate that the City will receive this amount, but it is not the official number. The official number and the rules for spending these funds will be determined by the Treasury.
Staff and the City’s advisors on this matter believe the City’s estimated allocation will not change significantly. Ultimately, the funds are expected to flow directly from Treasury to the City due to being an entitlement City.
What Can the Money Be Used For?
Based on the information staff has at this time, the broad eligible uses and restrictions on the uses of the ARPA funds that were initially released are listed below.
Eligible uses of ARPA funds include*:
A. To respond to public health emergency with respect to the COVID-19 pandemic or its negative economic impacts, including assistance to households, small businesses, and non-profits, or aid to impacted industries such as tourism, travel, and hospitality.
B. To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers of the metropolitan city, non-entitlement unit of local government, or county that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform the essential work.
C. For the provision of government services to the extent of the reduction in revenue of such metropolitan city, non-entitlement unit of local government, or county due to the COVID-19 public health emergency relative to revenues collected in the most recent full fiscal year of the metropolitan city, non-entitlement unit of local government, or county prior to the emergency.
D. To make necessary investments in water, sewer, or broadband infrastructure.
Restrictions on the uses of these funds include:
• Funds allocated to states cannot be used to directly or indirectly to offset tax reductions or delay a tax or tax increase; and
• Funds cannot be deposited into any pension fund.
Funding received through the ARPA must be spent by the end of calendar year 2024.
As with previous COVID-19 relief packages, implementation is expected to include a predetermined process, and staff expects new and updated guidance and FAQs to be developed and released by Treasury. For example, the legislation requires each jurisdiction’s executive to “certify” that the funds will be used for eligible purposes. That process is currently under development by Treasury.
*Staff continues to work to get more clarity regarding eligible projects and programs from the Treasury.
DISCUSSION
Funding Considerations
Prior to outlining possible allocation framework options, staff has included some additional perspective on these funds.
Significant Opportunity -The decisions on how to best use the additional funding, consistent with the ARPA requirements, will be an important policy undertaking. Staff is looking for general guidance from Council at this time regarding the areas where Council may want to invest. Once a preferred framework is selected, staff will present project options through the budget process - and by that time, we hope to have additional clarity from Treasury on the spending rules.
Temporary Nature of ARPA Funds - ARPA funds are non-recurring, so their use should be applied primarily to non-recurring expenditures. Council might consider:
• Not creating new programs or add-ons to existing programs that require an ongoing financial commitment;
• Replenishing lost revenue during the pandemic as a high priority to rebuild financial flexibility/stability and help to restore fiscal resiliency and continue focus on funding of City Council established priorities; and; Investing in critical infrastructure because ARPA funding is particularly well-suited use to projects that will not need a non-recurring expenditure (subject to the final spending rules); and Investing in critical areas of the community that add to quality of life such as economic assistance to businesses, assistance to residents who have been negatively impacted and not-for-profits.
Take the Necessary Time - ARPA funds will be issued in two tranches in 2021 and 2022, and must be spent by the end of calendar year 2024. Consider how the funds may be used to address rescue efforts and lead recovery by:
• Using other dedicated grants and programs first whenever possible to save ARPA funds for priorities not eligible for other federal and state assistance programs;
• Whenever possible, spreading expenditures related to ARPA funding over the qualifying period (through December 31, 2024) to enhance budgetary and financial stability; and
• Taking adequate time to carefully consider alternatives for the prudent use of ARPA funding prior to committing the resources to ensure the best use of the temporary funding.
The funding provided under ARPA provides a unique opportunity for the City to make strategic investments in long-lived assets, rebuild reserves to enhance financial stability, and cover temporary operating shortfalls until economic conditions and operations normalize.
For context and as background for this “framework” discussion, staff has provided a list of possible projects, shown in Exhibit 1 - List of Preliminary Projects to be Considered for Funding by the American Rescue Plan Act of 2021. The attached exhibit is only provided for background information at this time. Staff anticipates further discussion with the City Council during the budget hearings and/or when there is more direction from Treasury. Note that eligibility for some of these projects for ARPA spending is still under discussion, as staff awaits additional guidance from Treasury.
Recommended Framework for Council’s Consideration
There are many ways to a consider allocating these funds and there is more demand than resources. Staff is recommending that the City Council move forward using the “City Council Priorities” as the overarching framework.
Recommended Framework - Local Needs and City Council Priorities
Staff is recommending that the City Council consider using the five priority policy areas that were re-affirmed in 2020. The priority areas are included below, along with examples of the types of projects and activities that staff is pursuing to implement them.
1. Preparing Alameda for the future
a. Climate Change and Adaptation (sea-level rise, GHG reduction)
b. Infrastructure Maintenance and Improvements (roadway improvements)
2. Encouraging economic development across the Island
a. Supporting Existing Businesses
b. Attracting New Business
3. Supporting enhanced livability and quality of life
a. Housing and Homelessness
b. Mitigate Traffic Congestion and Improve Transportation Safety
4. Protecting core services
a. High-level of Public Safety
b. City Parks, Libraries, Streetscape, Community Services, and Amenities
5. Ensuring effective and efficient operations
a. Plan for Fiscal and Organizational Stability
Discussion of Recommended Framework
The City delivers high quality services, programs, and projects to the community. During the COVID-19 pandemic, estimates are that the City lost approximately $15.5 million in direct revenues. Those revenues are typically programmed or allocated to achieve priorities set by the City Council. With the funding allocation framework centered on City Council priorities, staff is recommending that the City Council consider to targeting at least some of the funding towards these previously identified priorities - assuming there are projects eligible under the criteria that come from Treasury.
ALTERNATIVES
Council may decide to endorse the City Council Priorities Framework outlined in the Discussion section of this report. Alternatively the City Council may consider other options discussed below, or a different approach completely. The projects listed below were presented by staff.
Alternative Framework #1 - ARPA Eligibility
ARPA includes four broad topic areas for use of the funding. Assuming that the City will receive nearly $15 million in 2021 and another nearly $15 million in 2022, the City Council may consider allocating funding equally across the eligibility categories included in ARPA in both years. Here is a summary of those funding categories:
A. Respond to public health emergency with respect to the COVID-19.
• Assistance to households, small businesses, and non-profits, or aid to impacted industries such as tourism, travel, and hospitality.
B. Respond to workers performing essential work during the COVID 19 public health emergency.
• Provide premium pay to eligible workers of the City that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform the essential work.
C. Top-up revenues that were negatively impacted by the COVID-19 public health emergency.
D. Make necessary investments in water, sewer, or broadband infrastructure.
Brief Discussion of Alternative Framework #1
While this option allows the City to work most closely with the ARPA eligibility requirements, these are broad categories. These same criteria apply to every eligible jurisdiction in the United States and do not take into account the work that has been done locally during the pandemic or local priority projects. For example, small business support is something that the City focused on heavily during the pandemic. On the other hand, things like broadband infrastructure improvements would be consistent with the City’s Smart Cities program (and could also be accounted for in the City Council Priorities Framework). Finally, our local revenues were impacted by approximately $15.5 million since the start of the pandemic, so topping those back up could significantly stabilize City finances and a broad array of local services in the near-term.
Alternative Framework #2 - Specific or Unique Needs
Another approach for the City Council’s consideration is to evaluate community needs, including the possibility of creating a steady funding stream over the next 3 or so years for projects and/or programs that otherwise might not otherwise be available. This would be subject to guidance from Treasury and many of these may also fit into the City Council Priorities Framework. Topics where Council might choose to allocate in this way are (in no set order):
A. Transitional Housing for Unhoused Individuals
The City has been evaluating a number of transitional housing options, including a cottage community or tiny houses. The set-up costs for approximately 20 cottages, including site work and service connections, can be has high as $800,000 to $1 million dollars. However, it would also be important to consider the ongoing operational costs for a cottage community of that size, which are estimated to range from $800,000 to $1 million per year. (In initial guidance may be eligible)
B. Accelerating Infrastructure Investments/Catch-up on Deferred Maintenance
Projects might include:
a. Street lighting, including Poles and Conduit Replacement. The City currently has over $12.5 million of deferred maintenance related to our street lighting. (Does not appear initially to be eligible)
b. Sidewalk Repair and Replacement. The City currently has over $7.4 million of deferred maintenance and identified needs related to the city’s sidewalk system. (Does not appear initially to be eligible)
c. Stormwater Upgrades. While the community approved the Stormwater Management Fee in 2020, the funding will only generate an additional $2.4 million per year. Additional funding in this area could help the City do more. (Does not appear initially to be eligible)
C. Climate: Tree Plan, Tree Planting, and Maintenance
The City is in need of a new Master Tree Plan. Once a plan is complete, the City could move forward with planting new trees. Trees add value, but buying tree stock and establishing new trees requires significant investment. (Does not appear to initially be eligible)
D. Support for Community Members, i.e., Utility Bill Assistance
Many community members are experiencing financial hardship. Unpaid utility bills can be particularly problematic. (Appears to be likely eligible. Recommend that the payment system be developed to be for individual bill payers for core utilities.)
E. Replacement of lost revenues for the City
Replacing lost revenue to the City (approximately $15.5 million) would support a wide array of community programs and services that are often delivered with an eye towards supporting our more vulnerable community members. (Determination of which lost revenues are eligible has not been provided in guidance yet)
Brief Discussion of Alternative Framework #2
There are several ways to consider community needs. The list above is a sample. If this is an approach that the City Council would like to pursue, staff would take that direction and develop a spending plan, subject to confirming compliance with the spending rules for the ARPA funding.
Alternative Framework #4 - Priority Projects
Exhibit A includes a list of possible public projects. Staff continues to await the final spending eligibility guidance from Treasury, but there are several projects listed that staff believes may be eligible. Further, there are ‘non-City’ requests that have also come in from outside groups (i.e., business and tourism), and non-profits.
Brief Discussion of Alternative #4
Additional guidance from Treasury and community outreach would be necessary to provide a more detailed spending plan.
FINANCIAL IMPACT
Providing staff with direction on the allocation of ARPA funds does not commit the City to any specific uses of the funds or have direct financial impacts. Allocation of the ARPA funds will be subject to future City Council consideration and appropriation approval as part of the FY 2021-23 biennial budget adoption process in May and June 2021.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is in conformance with the Alameda Municipal Code and all policy documents.
ENVIRONMENTAL REVIEW
This action is not subject to environmental review as the activity is not a "project" for purposes of the California Environmental Quality Act (CEQA) because it is an organizational or administrative activity of the City that will not result in direct or indirect physical changes in the environment, in accordance with CEQA guidelines, section 15378(b)(5).
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Staff is seeking Council direction regarding the allocation of funds from the American Rescue Plan Act of 2021 <https://www.congress.gov/bill/117th-congress/house-bill/1319/text> and recommending that the City Council endorse the use of the City Council Priorities as a framework. With direction from the City Council, staff will present projects and programs with the FY 2021-23 budget discussions.
CITY MANAGER RECOMMENDATION
The City Manager is requesting that City Council evaluate potential uses of funds in addition to providing options not yet considered.
At this time due to not having the Rules defined yet, I recommend that the City Council determine focus areas for staff to bring back during the Budget discussion (anticipating that the rules will be determined) for further discussion on allocation of the funding.
Respectfully submitted,
Eric Levitt, City Manager
Financial Impact section reviewed,
Annie To, Finance Director
Exhibit:
1. ARPA Summary Report