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Legal debate over ARPA reallocation and auditing risk surfaces as council eyes $14.75M for 2026
Summary
Outside counsel told the City Council that Treasury guidance allows reallocation of ARPA funds obligated by Dec. 31, 2024, if spent by Dec. 31, 2026; community groups warned that repurposing subrecipient ARPA grants risks audit findings and repayment to the US Treasury.
City legal counsel and outside consultants gave the council sharply different views on the risks and mechanics of using American Rescue Plan Act funds in the 2026 budget.
Chris Johnson of Jones Walker told the council that Treasury guidance and the SLFRF rule permit reallocation of ARPA funds that were obligated by Dec. 31, 2024 to other eligible uses — including certain salary or public-safety needs — so long as the substituted use is permissible and funds are spent by Dec. 31, 2026. "If you follow those guidelines that I've mentioned, it can be done," Johnson said.
But several public commenters and a subject-matter consultant cautioned the council that some of the ARPA dollars included in the amendment are not "city-owned" unencumbered funds. Jason Torres Altman, who has trained subrecipients on SLFRF regulations, told the council that repurposing subrecipient grant dollars risks triggering audit findings and repayment to the U.S. Treasury. "Those funds belong to the US Treasury...It will need to be repaid to the US Treasury," he said.
Why it matters: ARPA funds are federally monitored, and misclassification or improper reallocation can lead to audit disallowances and the requirement to repay funds. Council members said they sought legal assurance before recognizing about $14.75 million in ARPA monies as part of a broader amendment to the 2026 budget.
What council did: After hearing counsel’s memo and outside legal views, the council moved forward with the omnibus amendment and voted to recognize the revenue; staff were directed to prepare REC documentation and memos outlining compliance with Treasury rules. The chair also scheduled a REC follow-up on Jan. 12 to formalize revenue recognition and maintain documentary support for auditors.
Next steps: City Finance will document the obligations, the contractual basis that allowed reallocation, and the schedule for spending and reporting. Public advocates said they will follow audits closely and urged the council to preserve ARPA-funded community programs where possible.
