Principles for Allocating ARPA State and Local Fiscal Recovery Funds
The American Rescue Plan Act (ARPA) allocates $350 billion in aid for state, local, Tribal, and territorial governments to use in providing “assistance to households, small businesses, and nonprofits, or to aid impacted industries” responding to the COVID-19 pandemic. These State and Local Fiscal Recovery Funds are substantial, but not limitless; sound policy principles and reasonable selection criteria are needed to ensure governments spending the money can secure the greatest impact for the public good.
Congress did not impose one set of mandatory rules for determining how to use those funds. Instead, it provided discretion to other levels of government to determine their constituents’ greatest needs. But what guidance should your state, local, Tribal, and territorial governments use? Charitable nonprofits, as informed members of the communities they serve, have important roles to play in identifying the standards that governments apply in distributing the funds to help those communities recover from the pandemic.
The National Council of Nonprofits has drafted an initial set of principles that governments can use. They are part of a larger project to assist the sector in identifying opportunities and promoting appropriate solutions. But we ask for your wisdom and insights on what standards are most appropriate for your municipal, county, state, and Tribal governments. Read these draft Principles for Allocating ARPA State and Local Fiscal Recovery Funds and provide your input on how to improve them. Do the draft principles work for the communities your organization serves, and if not, what adjustments are needed? Are there principles not listed that you believe governments should follow when allocating State and Local Fiscal Recovery Funds under the ARPA? Please respond on this brief form by May 28, 2021. We will then share principles you can urge your governments to use to promote fairness and get the biggest bang for the bucks. Thank you!
Treasury Issues Guidance on ARPA State and Local Fiscal Recovery Funds
Last week, the U.S. Treasury Department issued an Interim Final Rule and other materials providing details on the ways the $350 billion in State and Local Fiscal Recovery Funds authorized in the American Rescue Plan Act “can be used to respond to acute pandemic-response needs, fill revenue shortfalls among state and local governments, and support the communities and populations hardest-hit by the COVID-19 crisis.” The guidance answers questions about when a state’s tax cuts will violate the law’s prohibition against using these federal funds to “either directly or indirectly offset a reduction in the net tax revenue… or delay the imposition of any tax or tax increase.” More than a dozen state Attorneys General filed lawsuits earlier challenging the prohibition, calling it a violation of the Spending Clause of the U.S. Constitution and states’ rights under the Tenth Amendment, and an affront to their sovereign authority to set tax policy for their states.
Nonprofit organizations have been awaiting the Treasury guidance for clarification on numerous questions, notably the authority of states and localities to use these ARPA funds to reduce unemployment burdens and extend grant opportunities to charitable organizations. The good news is that the Treasury Department makes clear that governments may use these resources to bring their unemployment trust funds back up to pre-pandemic levels or pay off unemployment loans from the Labor Department. This is an important clarification because many states impose automatic unemployment tax increases on contributing employers when trust funds fall below certain levels. The guidance also explains in depth how governments may provide financial assistance to nonprofits through loans, grants, and in-kind assistance. However, as federal advocacy showed throughout the pandemic, relief for charitable organizations cannot be assumed; it will take persistent advocacy at the state and local levels to ensure governments allocate funds to strengthen and expand the work of charitable organizations in communities.
American Families Plan
On April 28, the White House released the American Families Plan, a $1.8 trillion proposal to provide free education (pre-K and community college), paid family and medical leave, subsidized child care, and other proposals that would impact the nonprofit sector. The plan would add $661 billion in additional taxes on higher-income individuals that the Biden Administration believes would lead to increased giving to nonprofits.
PPP Funds Availability Update
The Paycheck Protection Program (PPP) reportedly has run out of money and, with one exception, is no longer accepting applications. On its PPP website, the Small Business Administration has posted a notice that it “is currently offering PPP loans originated only by participating community financial institutions including Certified Development Companies (CDCs), SBA Microlenders, Community Development Financial Institutions (CDFIs), and Minority Depository Institutions (MDIs) until May 31, 2021 or until remaining funds are exhausted.” (Emphasis in original.) The SBA informed the American Bankers Association and other groups in early May that PPP funding has been exhausted for most applicants.
Nonprofit Jobs Report
Although the results are mixed, nonprofit jobs numbers grew slightly in April, according to the latest update from the Center for Civil Society Studies at Johns Hopkins University. Overall, the nonprofit sector added 18,000 jobs, representing a gain of just 2.2% of the nearly 830,000 jobs still lost as of March. Nonprofits recorded job gains in arts, entertainment, and recreation field (14,000 jobs), religious, grantmaking, civic, professional, and similar organizations (9,700 jobs), and social assistance organizations (9,300 jobs) during April. However, education lost nearly 14,000 jobs in the in April and the health services field saw the loss of 1,800 jobs compared to March 2021.
Charitable Giving in 2020
A new report from Giving Tuesday finds that charitable giving increased 5.2% in 2020 compared to 2019, driven mostly by large donations from existing supporters. The overall number of donors increased in 2020, mainly as a result of an 11% increase in small gifts ($101-500). Whether that increase was driven by federal tax policy could not be determined conclusively. The report found that the Health and Human Services subsector showed the most growth, which mirrored the increased demand for services due to COVID-19 and the groundswell of response in pursuit of racial justice. Arts and Culture groups showed clear declines, reflecting lost access due to stay-at-home orders, social distancing, and reduced event-based fundraising opportunities.