Three Things to Consider Before Allocating ARPA Funds to Small Business Grants

Posted on February 24, 2022

Gonni Forman, City Solutions Manager @ Colu

Small businesses continue to face unprecedented economic impacts from the pandemic, particularly during the recent Omicron surge, but those in low income communities and businesses with Black, Women, or Latinx owners were impacted most. According to McKinsey’s US Small Business Pulse Survey, 58% of minority-owned small businesses are “extremely” or “very concerned” about the financial viability of their business. In response to the economic challenges brought on by the pandemic, the Federal Government has created programs such as  the CARES Act, Payment Protection Program, and the American Rescue Plan Act (ARPA) as a tool to bridge the racial and economic equity gaps, amongst other recovery priorities. 

Since the peak of the crisis, over 6 million small businesses in the US have received an historical amount of nearly $416.3 billion in emergency relief aid. Most of these funds came in the form of grants and forgivable loans, which essentially function as grants as well. While these direct payments have helped businesses stay afloat throughout the pandemic, they’re typically not enough as businesses transition to the post-pandemic economy. From hundreds of conversations with local government leaders throughout the pandemic, we’ve come up with the 3 key things to consider before allocating ARPA funds to grants:

1. The bureaucratic application process for aid is often time-intensive, expensive, and excludes certain businesses. Applying for relief programs is a complicated operation for small businesses, and often business owners end up investing more in the application than they end up receiving in aid. The criteria requested in grant applications may seem very basic, but many businesses are new to keeping track of their financial records. Most of the time, these businesses are the ones that need aid the most, and end up excluded from the programs. On the government side, processing grant applications is equally resource-intensive, and often takes longer to get the grants out than businesses can stay alive.

2. Tracking the economic impact of grants is challenging. Many local government leaders we’ve spoken with found that although they were able to get large amounts of funds out to businesses in the form of grants, tracking the data of the economic impact on small businesses over the long term has been challenging. With the ARPA guidelines requiring reporting on the impact of funds administered, now, more than ever, it’s important to make sure data-based decisions are made.

3. Grants act as “band-aid” solutions, but don’t address the long-term impacts of the pandemic. While grants have helped businesses pay their employees, their rent, or other immediate needs, they haven’t addressed one of the root causes to their pandemic struggles. Throughout the past years, consumer habits shifted primarily to e-commerce platforms, particularly big box retailers like Amazon. Compared to pre-pandemic times, consumers were shopping 60% less at brick-and-mortar retail compared to online platforms. While grants may help businesses stay open in the short term, they don’t incentivize customers to shop locally or  provide businesses with viable and immediate solutions to adapt to online platforms.

Although grants and forgivable loans have been able to keep businesses afloat during these uncertain times, the incoming ARPA funds give local governments the opportunity to innovate their existing economic development strategies and provide aid to businesses through an equitable framework.

To learn more about how other cities and counties are assisting small businesses through an equitable lens, email gonni@colu.com or reach out here to schedule a consultation.

Getting Ahead on ARPA Funds Allocation Before the Guidelines Are Out

Posted on April 21, 2021

Gonni Forman, City Solution Specialist @ Colu

Even though formal guidelines haven’t been provided yet regarding the appropriate ways to utilize American Rescue Plan Act (ARPA) funds, local governments are starting to strategize and discuss how they will allocate the dollars they’re expecting to receive. We’ve been getting a lot of questions from community leaders –so, to help as many community leaders as we can, here are 5 key facts to address some of the frequently asked questions: 

1. Unlike CARES Act funds, which had to be used as a direct response to the negative impacts of Covid-19, ARPA funds are intended to be used as a supplemental revenue source for local governments. The ARPA funds aren’t earmarked for any specific cause or appropriation (with the exception mentioned at bullet point #3 below).
2. We know the ARPA funds will be given in two tranches (12 months apart), but what you might not know is that you don’t need to worry about using all of the first allocations before receiving the second allocation. The most important thing is that the funds are all used by the end of December 2024.
3. While there aren’t any exact guidelines on what ARPA funds can be used for, we know what they cannot be used for funding new tax breaks, delaying new tax increases, and funding penchants. Other than that, the world is (reasonably) your oyster!
4. Forward-thinking cities are looking to use ARPA funds to not only mitigate the negative impacts of Covid-19 but also to adapt their communities to the post-pandemic norms. This means investing in long-term strategic solutions that promote remote work and education, secure their digital services, and use technology to engage their communities.
5. Leading cities are already coming up with allocation plans for their ARPA funds. The sooner you’ll be able to make the case internally as to where you’d like the funds to go, the sooner you’ll be able to receive the funds and see their impact.

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What do you need to know about the American Rescue Plan and Small Business Support?

Posted on March 22, 2021

The new and historic $1.9 trillion American Rescue Plan Act (ARP) signed into law on March 11th provides $360 billion in state and local government support, with $65.1 billion going directly to cities. The spending deadline is set for December 31st, 2024, enabling mayors to create strategic, innovative, and long-term plans to utilize the funds in order to maximize the local economic impact and create a sense of civic pride.

Here’s what mayors must know about the ARP:

1. Double the support: The amount of money local governments will receive is much greater from the ARP. The CARES Act provided $150 billion in state and local government support, whereas the ARP provides $360 billion, of which $65.1 billion is dedicated solely for non-county municipalities.  

2. Direct funding to cities: Out of the $360 billion state governments receive $130.2 billion are from the “Coronavirus Local Fiscal Recovery Fund”, from which $45.57 billion will go to non-county municipalities with a population equal to or above 50,000. Those with a population under 50,000 will receive $19.53 billion. Aid to each municipality is calculated based on a formula including population, growth, poverty, and housing overcrowding. Here’s a city-by-city comparison.  

3. Local governments at the forefront of the decision-making process: Unlike the CARES Act, in which most cities were subjected to further review from their respective county and state governments, the ARP allows cities to receive direct funding from the federal government. This bypass of state governments ensures that cities, regardless of population size, are making the best decisions at a local level. 

The distribution of these funds will be made in two waves of equal amounts – the first no later than 60 days after enactment, the second wave no earlier than 12 months after the first.

4. Supporting innovative thinking for economic recovery: Covid-19 has taken a notable toll on local businesses — particularly those in low-income communities, and those owned by minorities. The ARP funds can be used as a response to the effects of the pandemic and resulting economic distress in the following ways:

• Offset the negative economic impacts of Covid-19
• Assistance to households, small businesses, and nonprofits
• Aid to impacted industries such as tourism, travel, and hospitality
• Make necessary infrastructure investments in water, sewer, or broadband
• Include premium pay for eligible workers performing essential work during the pandemic.

5. The ARP supports long-term policies to revitalize local businesses: Since the funds can be spent over several years, the ARP provides an unprecedented opportunity to invest in long-term, equitable economic growth. This fact needs to encourage city leaders to be forward-looking with their solutions. 

Mayor Marty Walsh of Boston and Mayor Daniel Horrigan of Akron already have proven that federal funds can be utilized for economic recovery projects that not only maximize the economic impact of ‘shop local’ initiatives over the short-term, but also generate a long-lasting social and economic impact. 

Ultimately, the American Rescue Plan is more than just a rescue plan. The ARP is a chance to reevaluate local spending approaches and strategies to meet new post-pandemic norms and boost local communities as well as create a newfound sense of civic pride.

Colu welcomes opportunities to talk with public leaders about how the ARP can facilitate small business recovery. You can reach out HERE to schedule a private consultation.