EAST PALO ALTO
CITY COUNCIL
STAFF REPORT
DATE: April 4, 2023
TO: Honorable Mayor and Members of the City Council
VIA: Melvin E. Gaines, City Manager
BY: Tomohito Oku, Finance Director
SUBJECT: Alternative use of ARPA funds and related budget amendments Recommendation
1. Adopt a resolution approving the Fiscal Year 2022-23 limited budget amendments for General Fund and American Rescue Act Plan (ARPA) Fund, including authorization of a transfer out from ARPA Fund to General Fund in the amount of $1,630,000; and
2. Adopt a resolution committing and authorizing $1,630,000 in General Fund for uses outlined in the ARPA fund guiding principles previously adopted by the City Council.
Alignment with City Council Strategic Plan
This recommendation is primarily aligned with:
· Ensure our financial and organizational health
Background
In FY 2021-22, the City received $3,506,266 for the first tranche payment of American Rescue Plan Act of 2021 (ARPA) funds. These funds were appropriated and spent for police payroll. On June 7, 2022, the City Council adopted the FY 2022-23 budget which projected the second tranche payment in the amount of $3,506,266 which the City had received in July 2022. The adopted budget primarily focused on utilizing ARPA funds for “government services” to address a projected $1.7 million budget deficit in General Fund.
This left approximately $1.8 million of ARPA funds The City Council must obligate these funds by December 31, 2024, and the City must use the funds by December 31, 2026. The adopted budget primarily focused on utilizing ARPA funds for “government services” to address a projected $1.7 million General Fund. This left approximately $1.8 million of ARPA funds.
On September 20, 2022, the City Council provided direction regarding the allocation of the remaining portion of ARPA funding with the following focused areas as guiding principles:
1. Improving the City’s infrastructure;
2. Strategies to address the City’s structural deficit; and
3. Direct assistance to the community.
On October 18, 2022, staff returned to the City Council with more detailed information by itemizing activities for each area of the guiding principles above (Attachment 2) which was intended to serve as a guideline. Staff informed the Council they’d return to the Council to bring forward specific items for consideration.
The purpose of this staff report is to provide recommendations regarding alternative use of ARPA funds in order to ensure compliance over the Uniform Guidance (federal grant regulations) which would ease administrative burdens.
It is also to recommend retaining the guiding principles and the recommended activities but changing the funding source from ARPA fund to General fund.
The following analysis will explain the process to accomplish the funding strategy.
Analysis
The final rule published in April 2022 by the U.S Treasury Department was intended to provide greater flexibility to pursue a wider range of uses, as well as more simplicity so local governments could focus on responding to the crises in their communities and maximize the impact of ARPA funds. Treasury also has greatly simplified the program for small local governments through the option to elect a standard allowance for revenue losses up to $10 million, allowing recipients to select between a standard amount of revenue loss or complete a full revenue loss calculation. Recipients that select the standard allowance may use that amount - in many cases their full award - for government services, with streamlined reporting requirements.
To ensure compliance and ease administrative burdens, staff recommends taking advantage of the standard allowance option and utilizing the remaining ARPA funds for government services specifically for personnel costs, which are not subject to the federal procurement and subrecipient monitoring requirements.
Recognizing the savings in General Fund for personnel costs, staff also recommends retaining the activities under the guiding principles (Attachment 2) and committing $1,630,000 in General Fund equivalent to the unspent ARPA fund balance for those purposes. Acknowledging that each of the items identified on Attachment 2 will require a contracting and City Council deliberation process, it is expected that staff will return for specific items for City Council consideration of contract and appropriation approval1. 1 The following items in the guiding principles (Attachment 2) have been returned to the City Council as of today: a) Public opinion research, survey, community engagement, fiscal sustainability and communication services ($200,000), b) Contribution towards City's 40th birthday celebration ($50,000) Fiscal Impact
The proposed budget amendments utilize the unspent ARPA funds in the amount of $1,630,000 for personnel costs by authorizing a transfer from ARPA Fund to General Fund. In return, staff also recommends committing $1,630,000 in General Fund for the purposes described in the guiding principles to be funded previously by ARPA funds.
Public Notice
The public was provided notice of this agenda item by posting the City Council agenda on the City’s official bulletin board outside City Hall and making the agenda and report available at the City’s website and at the San Mateo Co.
Library located at 2415 University Avenue in East Palo Alto, CA.
Environmental
The proposed action does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines sections 15378(b)(4) and (5) in that it is a governmental fiscal, organizational or administrative activity that will not result in direct or indirect changes in the environment.
Attachment
1. Resolution
2. ARPA guiding principles and recommendations
Attachments
1. ARPA guiding principles and recommendations
2. Resolution - ARPA fund budget amendment