What are the options for managing ARP funds before using them?
Receiving the funds in staggered tranches has many local governments wondering about strategies to manage that money before spending it. After all, half of it won’t arrive until spring of 2022, yet it must all be spent according to ARP’s deadlines.
“They realize they have about three and a half years to spend it, but they have so many questions,” Strom explains. “What can they spend it on? How can they invest it? What opportunities are there to invest it short term, intermediate and laddered out?”
“Municipalities would love to earn a return on those funds while available, but most entities just don’t know how they’re going to spend it or how quickly they’ll spend it,” says Jason Glidden, managing director of institutional sales at U.S. Bancorp Asset Management. “We have plenty of channels to help them invest the funds in the meantime.”
Dividing the funds can allow for a balance between liquidity and higher yielding opportunities. “If they’re getting $220 million, for example, they could keep $100 million of that liquid in a money market fund that provides daily access to those funds. Then they could place the remaining $120 million in laddered, longer dated securities or consider a separately managed portfolio to be actively managed by a professional money manager.”
What are the best ways to distribute ARP funds to constituents?
One of the lessons learned during the first wave of COVID relief is that there are many ways to disburse funds that are more effective and less expensive than issuing paper checks.
ACH payments are quick, seamless and a much more efficient way to pay citizens with bank account information on file. Meanwhile, a growing number of state and local governments have discovered the benefits of prepaid cards for disbursing funds, especially for the unbanked.
“There is a whole population of people that don't have access to traditional banking services. They're heavily dependent on cash and they're heavily dependent on check cashing agencies,” says James Homer, vice president of national sales & relationship management at U.S. Bank. “For the under and unbanked, it’s quite common to have to pay check cashing fees.”
Funds loaded on a prepaid card can be spent virtually anywhere with no cost to the consumer. Depending on the type and frequency of the disbursement, prepaid rewards cards or reloadable debit cards may be the best option.
What are the best resources for questions about ARP rules and restrictions?
The U.S. Department of Treasury published updated FAQs pertaining to the Coronavirus State and Local Fiscal Recovery Funds (CSFRF/CLFRF).
In addition, Treasury published a web page focused on recipient compliance and reporting responsibilities.
Finally, Treasury also set up an email address for general questions about CSFRF/CLFRF: SLFRP@treasury.gov
Municipal bond offerings are an important element to the growth and future of communities. Our knowledgeable team can provide guidance to help you successfully execute transactions and expertise to help you achieve your long-term goals. For more information about our services for the public sector, contact us or visit our website.