With the December 31, 2026, ARPA State and Local Fiscal Recovery Funds (SLFRF) expenditure deadline approaching, municipalities should be taking a close look at every remaining ARPA balance.
Projects come in under budget. Contracts change. Final costs are lower than anticipated. Planned expenditures may no longer be necessary.
If your community has ARPA funds remaining for any of these reasons, do not assume those dollars automatically have to be returned to the U.S. Treasury.
Treasury Allows Reclassification of Certain Excess Funds
Treasury guidance specifically addresses situations in which funds were properly obligated by the December 31, 2024, deadline but are ultimately not needed for the original activity.
For example, a construction or infrastructure project may have been fully obligated but subsequently come in under budget. Treasury permits excess funds from a previously obligated activity to be reclassified to another eligible SLFRF use, provided the receiving activity also satisfies Treasury’s obligation requirements.
That creates an important opportunity for communities with remaining ARPA balances.
Existing Personnel Costs May Provide an Option
One area municipalities should consider is eligible personnel costs. Treasury established a specific obligation rule for personnel expenses. For employees serving in positions that were established and filled prior to December 31, 2024, Treasury considers the recipient to have incurred an obligation for qualifying personnel costs through December 31, 2026.
This can be particularly important when combined with the Revenue Replacement/Government Services category. For municipalities with available Revenue Loss authority, Revenue Replacement provides broad flexibility to fund traditional government services, including qualifying municipal personnel costs.
As a result, a community with excess funds from an under-budget project may, depending on its circumstances, be able to reclassify those funds and use them for qualifying personnel costs rather than return the money to Treasury.
An Example
Consider a community that obligated $750,000 of ARPA funding for a water infrastructure project before the December 31, 2024, deadline.
The project is completed for $675,000, leaving $75,000.
Treasury guidance provides a process for evaluating whether that $75,000 can be reclassified to another eligible use. If the community has sufficient Revenue Loss authority and identifies qualifying municipal personnel costs that meet Treasury’s personnel obligation requirements, those funds may potentially be reclassified to Revenue Replacement/Government Services and used for those costs.
The original project does not necessarily have to have been classified as Revenue Replacement. Treasury’s reclassification guidance specifically contemplates funds becoming available because an originally obligated project is completed under budget.
Public Safety Personnel May Provide Another Option
If a municipality cannot use the Revenue Replacement approach, qualifying public safety personnel costs may provide another option. Treasury permits SLFRF funds to cover payroll and benefits for public safety employees for the portion of their time dedicated to responding to the COVID-19 public health emergency. The positions must have been established and filled prior to December 31, 2024, and the funds cannot be used to create new positions after that date.
This approach is more limited and administratively demanding than Revenue Replacement. A municipality would need to follow Treasury reclassification and personnel reporting requirements and maintain detailed documentation supporting the eligible portion of each employee’s time. Revenue Replacement remains the more flexible option when sufficient Revenue Loss authority is available.
Don’t Wait Until December
Reclassification is not automatic, and every municipality’s circumstances are different.
Before moving funds, communities should review:
- the amount reported as obligated as of December 31, 2024;
- the original projects and expenditure categories;
- the reason funds are now available;
- the community’s Revenue Loss election and available Revenue Replacement capacity;
- whether the proposed receiving expenditures satisfy Treasury’s obligation requirements;
- prior Project and Expenditure Reports; and
- the documentation and reporting necessary to support the reclassification.
Treasury has also issued specific guidance for reporting reclassifications in the SLFRF reporting portal.
CSS Can Help
Capital Strategic Solutions can assist communities with a review of remaining ARPA balances, prior obligations and Treasury reporting to determine whether reclassification options may be available. With the December 31, 2026 expenditure deadline approaching, communities with unspent ARPA funds should conduct this review now rather than assume remaining balances must be returned.
If your municipality has ARPA funds remaining from projects that came in under budget, changed scope, or otherwise did not use the full amount obligated, contact Capital Strategic Solutions. We can review the circumstances and help determine what options may be available before the expenditure deadline.
Connect with Our Team
Jennifer Thompson
CDO | Partner
jennifer@capital-strategic-solutions.com
With more than twenty-four years in the public sector, Jennifer knows the pressures municipal leaders face firsthand. She has served as a Town Manager, Chief Financial Officer, and Assistant Emergency Director in both large and small communities and in state government. Her experience spans municipal finance, procurement, administration, emergency management, human resources, and economic development, and she is skilled at communicating with residents and businesses. Jennifer holds a Master’s Degree in Public Administration, a Bachelor’s Degree in Communications, and many professional certifications.
Michael Herbert
Senior Project Manager
mherbert@capital-strategic-solutions.com
Michael brings more than fifteen years of municipal leadership experience and a practical approach to complex financial, operational, and development challenges. As the former Town Manager of Ashland, he led major capital initiatives, strengthened the Town’s financial position, and secured millions in competitive funding. His expertise includes financial strategy, capital planning, grant acquisition, economic development, and community engagement. A nationally recognized public service leader and certified executive coach, Michael helps communities turn ambitious goals into strategies that work in practice.