In 2021, the City of Shakopee received $2,271,431, which is the first half of a $4,542,862 allocation from the Coronavirus Local Fiscal Recovery Fund established under the American Rescue Plan Act (ARPA).  The City expects to receive the second half in July of 2022.

In previous discussions with Council, staff discussed the Federal guidance eligible uses, primarily focusing on the ability to replenish lost revenues associated with the pandemic.  By utilizing the ARPA dollars for lost revenue, the city is allowed greater flexibility in determining the uses of these funds.

Previous discussions and actions by the City were based on the interim guidance and information provided by member associations of the City.  Actions were consistent with that guidance, however since then there have been significant changes:

• December 3, 2021 The United States Office of Management and Budget (OMB) released Compliance Supplement Addendum 1, related to the Coronavirus Local Fiscal Recovery Funds.  This addressed the audit procedures and requirements of the single audit to be completed by the City’s independent audit firm Abdo.

Previously, the common understanding was the audit would be focused on determining the revenue loss calculation was completed accurately and revenue recapture was the basis for the funding allocation.  However, the Addendum released requires the expenditures (even in the case that funds are used for revenue recapture) to be tested for compliance with federal requirements including multiple quotations, prevailing wage, and other procurement policies.

Also, it was originally believed only one single audit would be required, based on revenue loss, the Addendum requires a single audit to occur for any year in which expenses exceed $750,000.

All assets purchased from Federal dollars will need to be tracked through their lives, which will be several years in many cases.  Any proceeds received from the disposal or sale of assets will need be considered Federal dollars creating on-going administrative efforts.  This includes the sewer jetter, parklets and any other future equipment purchases.

• December 14, 2021 The Unites States Treasury opened an online portal for reporting and compliance.  Additional training and resources were provided on reporting requirements in the following months.  The required federal reporting was previously unclear. Utilizing the funds as revenue recapture and simplifying the government service expenses would streamline the reporting process.

• January 6, 2022 – Treasury released the Final Rule for ARPA State and Local Fiscal Recovery Funds.  This included a simplification to cities seeking revenue recapture through the option to elect a standard allowance of $10 million for revenue loss rather than calculating revenues loss through the full formula.

As a result of the changes in final guidance and the release of single audit requirements, staff is recommending that the City elect the standard allowance for revenue loss and amend the use of the ARPA revenue replacement dollars to supplant 2021 General Fund community center, ice arena and police department personnel costs as permitted under Federal guidance.  From that point, staff recommends that the General Fund transfer an equivalent amount of funding to a separate new Capital Projects fund that could be used for various projects at the City Council’s discretion.  The separate fund will be used to account and track the use of the funds in detail.  This will allow the Council to utilize funds in a manner consistent with previous discussions, provide the greatest flexibility for the future use of funds, remove federal restrictions on the use of funds, and provide savings to the City. The savings would be a result of only having to complete on single audit requirement, streamlined reporting and expenditures savings by not having to comply with additional federal requirements.