Cities and states are scrambling to obligate pandemic relief funding before the end of the year to avoid any possible attempts by the incoming administration to change the rules and take the money back.
"Obligated but unspent and unobligated and unspent funds are more at risk of a clawback attempt," said Michael Wallace, legislative director, housing, community, and economic development, National League of Cities. "Obligation may reduce the political risk of clawback, but it does not negate the threat."
The American Rescue Plan Act turned on a $120 billion spigot of State and Local Fiscal Recovery (SLFRF) funds as $99.99% of the money has now flowed out to the state and local governments. The funds are earmarked to provide relief from the immediate impacts of the pandemic and longer-term projects that help stimulate economic recovery.
According to the Treasury, $45.6 billion went to metropolitan cities and nearly $20 billion was dispensed to smaller local governments.
The U.S. Treasury defines obligation as "an order placed for property and services and entry into contracts, subawards, and similar transactions that require payment."
The Treasury has also spelled out what doesn't count.
Adopted budgets, budget amendments, and executive orders don't count. Written or oral intention for entering a contract won't fly and moving money into a general fund is also against the rules.
Following the rules can be a challenge. According to a
"Some processes for authorizing and expending funds can require months of planning and approval, creating pressure around spending funds before the deadline."
"Attempts to claw back funding would require Congressional or even legal action, since that would entail taking back funding that the federal government has already legally committed to recipients, said Rebecca Theiss, manager of the fiscal risk program for Pew.
"Assuming recipients have complied with Treasury's rules and barring some additional Congressional or legal action, obligating State and Local Fiscal Recovery Funds should minimize the likelihood of a clawback."
State and municipalities must also guard against unforced errors when documenting the transactions.
According to the
ARPA further requires that the funds are spent by Dec. 31, 2026 except for surface transportation and Title I projects which need to be gone by Sept. 30, 2026.
The odds are currently against the possibility of an extension.
"There has been no indication that Congress will extend the deadlines and cities should not count on that outcome," said Wallace. "All local government grantees should complete their final obligations before the end of the year."
NLC considers the program as a successful financial collaboration between the feds and the locals.
"The Department of Treasury essentially right sized the rules and regulations for the capacity level of grantees, so larger cities with larger grants had the highest degree of regulatory requirements, while smaller cities with smaller grants that represent less programmatic risk had less regulatory burden, which was necessary for smaller places to accept the funding," said Wallace.
The incoming administration has cost-cutting at the top of the priority list and has empowered billionaires Elon Musk and Vivek Ramaswamy and their newly minted Department of Government Efficiency to find low-hanging fruit.
"We would welcome the incoming administration, through DOGE, to assess the SLFRF program and urge DOGE to spread the lessons learned from SLFRF to make other federal programs as simple and efficient as SLFRF has become," said Wallace.
