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CC - Item 5A - Overview of American Rescue Plan Act (ARPA) State and Local Fiscal Recovery Funds and Request to Provide Direction on Use of the Available FundsROSEMEAD CITY COUNCIL STAFF REPORT TO: THE HONORABLE MAYOR AND CITY COUNCIL FROM: BEN KIM, ACTING CITY MANAGER DATE: MARCH 8, 2022 N. SUBJECT: OVERVIEW OF AMERICAN RESCUE PLAN ACT (ARPA) STATE AND LOCAL FISCAL RECOVERY FUNDS (SLFRF) AND REQUEST TO PROVIDE DIRECTION ON USE OF THE AVAILABLE FUNDS SUMMARY On January 25, 2022, the City Council was presented with an overview of the American Rescue Plan Act and the U.S. Department of the Treasury's Final Rule on the use of Coronavirus State and Local Fiscal Recovery Funds (SLFRF) established under Act. This report is intended to continue the discussion and provide additional information including responses to questions and concerns posed during the January 25, 2022 meeting. Upon completion of the presentation, staff requests City Council provide direction on methodology to be used to determine lost revenue and use of the remaining funds. BACKGROUND On March 11, 2021, the $1.9 trillion American Rescue Plan Act (ARPA) was signed into law and established the Coronavirus State Fiscal Recovery Fund and Coronavirus Local Fiscal Recovery Fund, which together make up the Coronavirus State and Local Recovery Funds (SLFRF) program. Under the SLFRF program, the City of Rosemead was allocated $17,878,653 in one- time funding to cover eligible costs incurred between March 3, 2021 and December 31, 2024. The funds will be received in two tranches (FY 2020-21 and FY 2021-22) and must be obligated by December 31, 2024 and fully expended by December 31, 2026. As reflected in the Interim Rule issued on May 17, 2021, the SLFRF program provides four categories of eligible uses of SLFRF funds including (1) to replace lost revenue; (2) to respond to the public health and economic impacts of COVID-19; (3) to provide premium pay to eligible workers, and (4) to invest in water, sewer, and broadband infrastructure. The Final Rule, published on January 6, 2022, provided several key changes which broadened the eligible uses and provided additional clarity and flexibility of use of the recovery funds as reported in the January 25, 2022 City Council Report and presentation. Additional information was also provided within the Mid - Year Budget Report presented on February 22, 2022 which included the subsequent approval of two recommended staffing changes — the addition of a City Engineer position and the increase of AGENDA ITEM 5.A City Council Meeting — American Rescue Plan Act Funds March 8, 2022 Paae 2 of 9 the authorized 3/4 -time Accountant position to full-time. DISCUSSION The use of SLFRF funds has been divided into four categories: — 1) Public Sector Revenues; 2) Public Health & Economic Response; 3) Premium Pay for Essential Workers; and 4) Water, Sewer and Broadband Infrastructure. Public Sector Revenues A key component of the ARPA's SLFRF program is the ability for recipients to use these funds to replace Lost Revenue. Under the Interim Final Rule, the amount a City could claim was limited to actual losses caused by the pandemic. However, the Final Rule provided clarification on the lost revenue calculation and provided the option of selecting either a flat $10 million (up to the grant amount) or the actual revenue loss based on SLFRF calculation factors. The funds may not be used to build reserves or pay unfunded pension liabilities other than current year costs. Staff's preliminary analysis indicated the City of Rosemead would benefit from using the actual loss calculator, however, the refinement of preliminary historical numbers, the growth of revenue reflected in the Mid -Year Budget Report, its impact on future growth, preliminary property and sales tax projections for FY 2022-23, preliminary LA Metro revenue projections for FY 2022-23, and the identification of eligible expenses in other categories, staff recommends accepting the standard allowance of $10 million to cover lost revenue. This is a one-time final selection that is required by April 30, 2022. As shown in the following tables, if the City receives an additional $2 million over the FY 2021- 22 budgeted estimate for all governmental funds, and revenues increase 5% in each subsequent year, based on the lost revenue calculator the City could recognize $17.7 million in lost revenue. Under the same conditions but increasing future growth to 10% annually, the amount of lost revenue recognized falls to $12.3 million. Both scenarios are based on the calculated historical growth rate of 5.76%. If the growth rate is reduced to the minimum allowed 5.2% rate, and future revenue increases by 10%, the City would only recognize $9.1 million in lost revenue. This analysis provides additional reasoning for accepting the $10 million standard allowance for lost revenue. REVENUE LOSS SUMMARY CALCULATIONS ly 1, 2019 -June 30, 2020 12 33,458,513 $30,080,276 -$3,378,237 -$3,378,237 ly 1, 2020 -June 30, 2021 24 35,384,131 $31,282,446 -$4,101,684 -$7,479,922 It ly 1, 2021 -June 30, 2022 36 37,420,572 $34,454,130 -$2,966,442 -$10,446,364 Budget+2M ly 1, 2022 -June 30, 2023 48 39,574,216 $36,176,838 -$3,397,379 -$13,843,743 2021-22+5i ly 1, 2023 -June 30, 2024 60 41,851,808 $37,985,680 -$3,866,127 -$17,709,870 2022-23 +5% Months Counter- MqP' lative N- July 1, 2019 -June 30, 2020 Elapsed 12 Revenue 33,458,513 Revenue $30,080,276 Loss -$3,378,237 ss -$3,378,237 Scenario July 11 2020 -June 30, 2021 24 35,384,131 $31,282,446 -$4,101,684 -$7,479,922 It July 1, 2021 -June 30, 2022 36 37,420,572 $34,454,130 -$2,966,442 -$10,446,364 Budget +2M July 1, 2022 -June 30, 2023 48 39,574,216 $37,899,544 -$1,674,672 -$12,121,036 2021-22+10% July 1, 2023 -June 30, 2024 60 41,851,808 $41,689,499 -$162,308 -$12,283,345 2022-23+10% City Council Meeting — American Rescue Plan Act Funds March 8, 2022 Page 3 of 9 The Pros and Cons of the two options are as follows: ACCEPTING THE $10,000,000 STANDARD ALLOCATION PROS CONS Easy reporting requirement Irrevocable election Flat amount provided, regardless of actual revenue loss, for governmental services If actual revenue loss exceeds $ l OM, lost opportunity for funding general governmental services and balancing future budgets No evaluation of revenue loss calculation More accounting requirements with quarterly No annual calculation reporting to US Treasury Immediate availability of the $ l OM CALCULATING ACTUAL REVENUE LOSS USING TREASURY FORMULA PROS CONS Public Sector Revenue Loss category is the Irrevocable election most flexible use of SLFRF funds Ability to receive more than $ l OM for general More accounting requirements with quarterly government services including capital reporting to US Treasury improvements If actual revenue loss is less than expected in Funds only available after year of established future years, revenue can be used for other loss categorical uses Public Health & Economic Response This category includes `Responding to the Public Health Emergency', `Responding to Negative Economic Impacts', and `Public Sector Capacity'. Responding to Public Health Emergency is further defined by COVID-19 mitigation and prevention, medical expenses, behavioral health care, and preventing and responding to violence. Responding to Negative Economic Impacts includes assistance to households, small businesses, nonprofits, and impacted industries, and public sector capacity. This assistance includes, among other uses, investment in neighborhoods to promote improved health outcomes and effective service delivery. Capital expenditures for projects under this category are allowed but may require additional analysis, reporting, and justification. Through the public sector capacity category, the City is able to increase its full time staffing by 4.5 positions with SLFRF funding (Council approved 1.25 positions on February 22, 2022) and provide worker retention incentives including reasonable increases in compensation. Due to the difficulty in hiring and retaining part-time staff due to the availability of other employment options, staff is recommending City Council authorize use of SLFRF to increase hourly rates. If supported by the City Council, Staff will return with a full proposal for approval. A listing of recommended funding uses within this category is defined in the Recommendation Table below. Premium Pqy for Essential Workers The SLFRF Final Rule includes a section regarding premium pay for essential workers. The premium may be provided to private and public sector employees providing essential services up City Council Meeting — American Rescue Plan Act Funds March 8, 2022 Paae 4 of 9 to a rate of $13/hour but cannot exceed $25,000 per employee. The Final Rule also expanded the definition of an essential worker to include all local government employees who either have in- person interaction with the public or coworkers or handle items used by others. The premium pay may be awarded in installments or lump sums and may be awarded to hourly, part-time, or salaried or non -hourly workers. The City previously paid a 5% premium to Public Works and Public Safety field personnel from March 13, 2020 through April 11, 2021, however, this premium occurred prior to the SURF funding period. Staff is recommending that the City Council consider a one- time flat premium pay award to all current employees based on a scale of hours worked. The recommended amounts are $2,000 to full-time staff and either $500 or $1,000 to part-time staff based on hours worked during the last year. Since the focus of premium pay is on aiding lower- income and frontline essential workers, department directors would be excluded from the premium pay award. The cost of the recommended premium pay is estimated at $185,000. Water Sewer and Broadband Infrastructure The final category includes improvements to water, sewer, and broadband infrastructure. Staff is recommending the use of SURF for a sewer system management plan, replacement of the storm drain pump station at Walnut Grove Avenue and installation of wireless broadband service at City parks and facilities. Beyond Enumerated Uses Throughout the Final Rule, summaries, and overviews, Treasury identifies specific uses of funds that are eligible, called "enumerated eligible uses" which are provided as guidance for proper spending of the SLFRF. However, the uses listed are non -exhaustive and may be expanded based on additional analysis of the use, application to the purpose and guidelines of SURF, justification of the use, and additional documentation and reporting. Staff Recommendations — by Category Loss of revenue Loss of revenue Econ Impact Unemployment Costs Econ Impact - Health - Medical Expense COVID Sick Time Mandate - Past Econ Impact - Health - Medical Expense COVID Sick Time Mandate - Future Econ Impact - Health - Mitigation & Prevention Testing / Supplies / Related Exp - Past Econ Impact - Health - Mitigation & Prevention Testing / Supplies / Related Exp - Future Econ Impact - Impacted Molds & Comm - Promote Health * Zapopan Park Walking Trail Econ Impact - Impacted Molds & Comm - Promote Health * Splash Park Improvements Public Sect Cap - Effective Svc Del Chambers / Conference Room Upgrades Public Sect Cap - Effective Svc Del Permit System (Building and Safety) Public Sect Cap - Effective Svc Del * Record Database Management Plan Public Sect Cap - Addressing Admin Needs Public Sect Cap - Govt Empl Public Sect Cap - Govt Empl Public Sect Cap - Govt Empl Public Sect Cap - Govt Assistance in clearing backlog of meeting minutes Employee retention increases - P/T ($300K/yr) City Engineer (through 12/31/2026) Accountant 1/4 time (through 12/31/2026) 2 additional positions (To be defined 10,000,000 65,000 30,000 50,000 200,000 150,000 420,000 200,000 50,000 500,000 300,000 50,000 1,200,000 630,000 160,000 1,100,000 City Council Meeting — American Rescue Plan Act Funds March 8, 2022 Paae 5 of 9 Staff Recommendations — by Category (continued) Premium Pay One-time Premium Pay award for Employees 185,000 Infrastructure * Sewer System Mgmt Plan 50,000 Infrastructure * Storm Drain Pump Station Replacement 3,000,000 Infrastructure * Wireless Broadband / Parks 225,000 Administrative Costs Financial Tracking/Reporting - Staff Time thru 2027 100,000 Total Uses Recommended 18,665,000 Total Available SLFRF 17,878,653 * see details below Balance (786,347) Details of Recommended Capital Projects Above Project Title / Locatioii Total Cost Est Descriptioll Zapopan Park Walking $ 420,000 Replace deteriorated walking trail Trail Garvey Park Splash Zone $ 200,000 TBD - Cost is estimated placeholder only Improvements Utility, Infrastructure and City wide survey and inventory of all Facilities Mapping and $ 300,000 infrastructure/facility assets, develop GIS Record Database maps/database, and file management system. Management Plan In accordance with State Water Resources Control Board (SWRCB) Order No. 2006-0003, public Sewer System $ 50,000 agencies are required to develop and implement a Management Plan Sanitary Sewer System Management Plan (SSMP) every 5 years to ensure proper operation and maintenance of agency's sewers stem. Replace aging SD pump station at Walnut Grove Storm Drain Pump Station Ave. and 1-10 Fwy grade separation. The City Replacement Walnut $ 3,000,000 contracts with LA County to perform annual repairs and maintenance on this pump station. LA Grove Ave County has reported that the pump station is near end of service life and in need of replacement. Wireless Internet at City $ 250,000 Implement wireless broadband internet service at Facilities and Parks all City parks and facilities for public use. Unmet Community Needs This is a list of unmet community needs that was reviewed for possible SLFRF usage but have been excluded from the recommended list due to apparent non -eligibility or insufficient funding availability. City Council Meeting — American Rescue Plan Act Funds March 8, 2022 Paae 6 of 9 so Utilities Assess city wide irrigation system, explore recycled Irrigation System Master $ 460,000 water opportunities, identify deficiencies, implement Plan water efficient fixtures. 6 Parks, 2 Community Centers, City Hall In compliance with MS4 Permit requirements, cost Storm Drain BMP includes total of 5 Storm Drain BMP projects at RCRC, Development Projects (MS4 $ 36,800,000 Rosemead Park, Garvey Park, North Whittier Narrows Compliance) golf course, and Klingerman park. Projects scopes includes storage of stormwater in cisterns for treatment and infiltration into ground water. Prepare City wide lighting analysis, define lighting Street Lighting Master Plan $ 650,000 standards, identify lighting deficiencies. Costs assumes installation of 40 lights and poles. Transportation Bicycle Transportation Plan $ 660,000 Implement Recommendations from 2012 Bicycle Transportation Plan Pavement Management Plan $ 50,000 PMP analysis performed every 5 years Traffic Signing and Striping Assess condition of City signage and striping, confirm $ 495,000 conformance with standards and implement Improvements recommendations. Assess condition of 46 Traffic Signals, timing, identify Traffic Signal Analysis $ 690,000 projects/costs/schedules to improve and implement recommendations. Garvey Park Parking Lot $ 120,000 Repair deteriorating pavement and replace striping Resurfacing Rosemead Park Parking Lot $ 120,000 Repair deteriorating pavement and replace striping. Resurfacing Facilities Construction Costs associated with remodel of the Public Safety Center and addition of secured parking lot. Design Public Safety Substation $ 2,000,000 and preparation of construction documents are approved under the FY 21-22 CIP budget and will be finalized by end of FY 22-23. Renovate both floors. Identify/Implement upgrades to City Hall Interior Renovation $ 575,000 improve pedestrian flow and optimize usage of work area. City Hall Elevator/ADA $ 575,000 Renovate City Hall elevator and implement ADA Improvements improvements throughout City Hall. City Facilities Master Key $ 100,000 Replace master key locks with card reader access. Lock Replacement City Council Meeting — American Rescue Plan Act Funds March 8, 2022 Page 7 of 9 Parks Proposed "Founders' Park" $ 6,600,000 Planning, Design, and Construction of park on Edison property at Walnut Grove Ave and Mission Drive. Parks and Facilities Master Analysis of City parks and facilities to determine $ 250,000 condition, deficiencies, community needs and Plan development of projects and associated costs. Logistics Just as with the City's budget, the SLFRF spending plan is designed to be fluid and will be modified as costs are refined, programs implemented, and/or priorities change. The funds are subject to City Council appropriation and must be spent in adherence to the City Purchasing Code and Policies and Procedures. Accounting for SLFRF A key principal of the US Treasury, as well as the Rosemead City Council, is that "transparency and public accountability for the SLFRF award funds and use of such funds are critical to upholding program integrity and trust in all levels of government". To that end, the initial $8.9 million in SLFRF funding received in FY 2020-21, was placed into a new Special Revenue Fund titled `American Rescue Plan'. Although created under ARPA, the funds are actually State and Local Fiscal Recovery Funds (SLFRF) so the fund name may be changed to reflect this program title. To ensure transparency in use of these funds and aid in the additional reporting and audit requirements, the accounting for use of these funds will be reflected in two primary funds. The first fund will be used to account for the receipt of the funds and expenses of City Council approved expenditures restricted by the SLFRF Final Rule — Public Heath & Economic Response, Premium Pay for Essential Workers, and Water, Sewer & Broadband Infrastructure. Depending on the use of these funds as determined by the City Council and the level of details required by the federal reporting system, this fund may be further divided to individual funds by category if deemed beneficial. The second fund will be to account for the funds set aside for the Loss of Public Sector Revenues. It is proposed that this fund will reflect specific expenditures related to delayed maintenance, capital projects, and new/expanded programs that were not implemented sooner due to lost revenue and any transfers to the General Fund necessary to balance the annual budget due to lost/delayed revenue growth. These funds will be reviewed as part of the year-end review report (included with the first quarter budget report) and the mid -year budget review and will be incorporated within the annual budgeting process. Additional reports will also be provided as needed. Additionally, per SLFRF guidelines, the City must maintain records and financial documents for five years after all funds have been expended, follow defined purchasing practices used in the procurement of all goods and City Council Meeting — American Rescue Plan Act Funds March 8, 2022 Paae 8 of 9 services utilizing federal funds, and provide written documentation for internal controls such as policies and procedures for certain uses. Required SURF Reporting There are three types of reporting requirements for the SURF program: 1) the Interim Report which was a one-time only report providing an initial overview of status and uses of funding; 2) the Project and Expenditure Report which reports on projects funded, expenditures, and contracts and is due 30 days after the end of each quarter (first report due April 30, 2022); and 3) the Recovery Plan and Performance Report due July 31, annually. The final quarterly report is due March 31, 2027 and the final annual report is due April 30, 2027. Single Audit Requirement A Single Audit is a review of the way in which the City manages a federal grant and to make sure that the City is in compliance with the rules and regulation of each grant award. Governmental organizations that expend more than $750,000 in Federal funds during the fiscal year subject to audit under the Single Audit Act. The Single Audit encompasses an examination of the City's financial records, financial statements, federal award transactions and expenditures, the general management of its operations, and internal control systems. The Single Audit is performed by the City's independent auditor, based on information provided by City staff, which reviews how the grant was managed and ensures compliance with the rules and regulations of the grant. The Single Audit must be submitted to the Federal Audit Clearinghouse by March 31 of each year. In preparation of the annual and single audit, City staff prepares various schedules and summary data for auditor review. One specific schedule is the Schedule of Expenditures of Federal Awards (SEFA) which provides information regarding federal awards received by City, regardless of amount, including identifying information and annual expenditures. The SEFA is the starting point for the auditor in performing the Single Audit. Once the SEFA has been prepared by staff, the auditors review the data and request additional data and expenditure documentation throughout the process. The City of Rosemead has been subject to Single Audit reporting requirements in the past primarily for its CDBG program. Although the City received its first tranche of SURF funds in 2020-21, no expenditures utilizing these funds occurred during the fiscal year so it was not included in the FY 2020-21 Single Audit report; however, as funds are expended it will be subject to the Audit and will be required to be separately identified on the SEFA. STAFF RECOMMENDATION It is recommended City Council authorize the acceptance of the $10 million standard allowance for public sector lost revenue and provide direction on the use of remaining SURF. FISCAL IMPACT None with this action. If approved, Staff will return at the next City Council meeting with an adopting resolution for items recommended for approval tonight. City Council Meeting — American Rescue Plan Act Funds March 8, 2022 Paize 9 of 9 PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. Prepared by: ;D"& &�� Paula Chamberlain, Interim Finance Director