Client Alert 08-18-2023 Jonathan D. Tromp

A Portion of Michigan’s Budgeted Revenue Sharing Increase for Local Governments Is Conditioned Upon Obligation of ARPA Funds by December 31, 2023

The $81.7 billion “Make it in Michigan” budget passed in June for Fiscal Year 2024 includes a $26.7 million allocation that provides a 5% increase in statutory revenue sharing to help counties, cities, villages, and townships in Michigan.

This 5% increase is comprised of “4% ongoing and another 1% ongoing to communities that obligate all available ARP”* according to Governor Whitmer’s press release.  The ARP described are those funds allocated to Michigan local governments through the Coronavirus State and Local Fiscal Recovery Funds (SLFRP) program authorized by the American Rescue Plan Act (“ARPA”).  As explained in a previous article, ARPA funds must be obligated by December 31, 2024 and expended by December 31, 2026.

The Fiscal Year 2024 Michigan Budget, however, conditions a municipality’s receipt of the 1% revenue sharing increase on the municipality having fully obligated or expended ARPA funds by December 31, 2023 – one full year ahead of the Federal requirements.  Though the state budget does not define “obligate” or provide guidance as to what constitutes an obligation, the United States Department of Treasury in 31 CFR Part 35, defines obligation as “an order placed for property and services and entering into contracts, subawards, and similar transactions that require payment.”  The Michigan Department of Treasury has not indicated whether the term “obligate” in the state budget has the same meaning as 31 CFR Part 35. Absent further direction from the state as to what constitutes an obligation, it would be prudent for municipalities to follow the Federal definition of obligation; thus, a municipality can fulfill the obligation requirement by entering into contracts, subawards, or similar transactions.  Municipalities with questions regarding whether their ARPA funds have been obligated should contact one of our municipal attorneys.

As local governments must certify to the Michigan Department of Treasury having fully obligated or expended ARPA funds by December 31, 2023, such obligations must be made in advance of December 31, 2023.  Thus, local governments need to make decisions as to the obligation of these funds well before the end of this calendar year so as not to forgo valuable revenue sharing available under the new budget.

Should you have any questions as to the specifics of these provisions or the effects on your municipality, please contact one of our municipal attorneys.

*“ARP” refers to ARPA funds.

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