On Thursday, March 11, President Biden signed the American Rescue Plan (“ARP”) into law. The ARP will provide state and local governments with up to $350 billion in funds targeted at softening the financial effects of the pandemic. This figure translates into approximately $4.6 billion in available funding for the State of Georgia and roughly $3.5 billion allocated for local governments.
While many states have seen revenue declines, nationally total state revenues declined $2 billion, resulting in the state and local government relief component of the ARP covering 116 times overall losses. Given that many state and local governments may not have losses to offset, they are beginning to identify other ways to spend a one-time capital infusion earmarked for the provision of government services, covering revenue losses during the crisis, hiring back employees, responding to the public health emergency, and dealing with the economic fallout of the pandemic. Some state and local governments, including the State of Georgia, had hoped to use available funding to lower taxes, but this was specifically prohibited by a Senate amendment specifying:
“A State or territory shall not use the funds provided under this section or transferred pursuant to section 603(c)(4) to either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.”
Given this broad prohibition, state and local governments will have to consider alternative ways of deploying ARP funds. For state and local governments considering long-term capital projects and their effect on millage rates, now may be a prescient time to explore funding strategies with their financial advisors. Historically low – but rising – interest rates coupled with budgeted funds potentially freed up by ARP allocations may present attractive opportunities for financing long-term capital projects without raising taxes.