The ARPA Clock Runs Out in Eight Months — What Every Local Government Needs to Do Before December 31

Somewhere in America right now, a city finance director is staring at a spreadsheet that shows $4.2 million in American Rescue Plan funds that are obligated but not yet spent — and a deadline that will not move. December 31, 2026, is the day the U.S. Treasury turns off the tap on the largest direct federal investment in local government in American history. Every dollar of ARPA State and Local Fiscal Recovery Funds that is not fully expended by that date goes back to Washington.

The scale of what is at stake is staggering. The SLFRF program distributed $350 billion to every state, county, city, tribal government, and territory in the country. As of the obligation deadline in December 2024, Tier 1 governments had committed 100 percent of their allocations. But commitment and expenditure are two different things — and approximately 30 percent of allocated funds remained unspent as of September 2024. Even with the pace accelerating since then, billions of dollars are still in the pipeline with the clock running down.

According to the National League of Cities, 69 percent of local governments say the end of ARPA funding will negatively impact their budgets. The question is no longer whether the deadline will bite — it is how badly, and who will be left returning money they could have spent.

What "Expend" Actually Means

The distinction matters more than most people realize. Under Treasury's Final Rule, funds are "expended" when they are legally owed and payable to a contractor, vendor, or service provider. Not when the purchase order is issued. Not when the contract is signed. The money has to have been earned by the recipient through delivery of goods or services, and the government must owe payment.

This means a construction project that is 80 percent complete on December 31 can only count 80 percent of the contract value as expended. The remaining 20 percent — even though it is fully obligated under a contract signed before the 2024 deadline — goes back to Treasury if the work is not done.

There is one narrow exception: closeout costs that were estimated and obligated by December 31, 2024, may be expended after the deadline. This covers final audits, compliance reporting, and administrative wind-down — not unfinished project work.

Where the Money Is Stuck

The spending patterns reveal where the risk concentrates. According to the NLC's analysis, over 42 percent of SLFRF funds went to government operations — employee salaries, revenue replacement, and internal infrastructure. These are the easiest category to expend on time because the spending happens continuously.

The problem categories are capital projects and multi-year programs. Infrastructure projects (roughly 13 percent of allocations) move slowly — permitting, procurement, construction, and inspection timelines do not compress well. Housing initiatives face similar challenges. A water main replacement that was obligated in 2024 but hit permitting delays could easily miss the expenditure window.

Small and mid-sized cities face the steepest challenge. Large Tier 1 jurisdictions have dedicated finance teams tracking every dollar. Smaller governments — which received allocations under the "non-entitlement units" category — often lack the administrative capacity to manage complex federal compliance requirements while simultaneously racing to finish projects.

The Clawback Mechanics

"Clawback" is the word everyone uses, but the formal process is more nuanced. Under ARPA, funds not expended by the deadline must be returned to the U.S. Treasury. There is no extension mechanism, no waiver process, and no grace period. The statute is unambiguous.

But that is only the first layer of risk. Even funds that are spent on time can be clawed back later if Treasury determines they were spent improperly. The Congressional Research Service notes that the federal government reported approximately $236 billion in improper payments in FY2023 alone. ARPA's unprecedented scale — every local government in the country received funds, many handling federal grants for the first time — virtually guarantees a wave of post-expenditure audits.

Treasury has already increased compliance monitoring as the program enters its final phase. Recipients should expect heightened scrutiny on three fronts:

Duplication of benefits. When multiple funding sources — ARPA, FEMA, CDBG, state programs — support overlapping activities, Treasury can demand repayment of the ARPA portion. This is the single most common audit finding in disaster recovery programs, and ARPA funds were often deployed alongside other federal programs.

Procurement violations. Federal contracting rules under the Uniform Guidance (2 CFR Part 200) apply to every ARPA expenditure. Cost-plus-percentage-of-cost contracts are prohibited. Sole-source awards require written justification. Conflict-of-interest rules must be documented and enforced. Many smaller jurisdictions that received ARPA funds had never managed federal procurement compliance before.

Ineligible expenditures. Treasury's Final Rule defines eligible spending categories with enough specificity to create traps for the unwary. Revenue replacement calculations, premium pay eligibility, and water/sewer project scope limitations all have technical requirements that can turn a seemingly legitimate expenditure into a compliance violation.

The Eight-Month Playbook

With 265 days left, the priorities are clear.

Audit your project pipeline immediately. Every obligated project needs a realistic completion timeline. If a capital project cannot be finished by December 31, you need to know now — not in October. Identify the specific bottleneck (permitting, contractor capacity, supply chain) and determine whether it is solvable within the remaining window.

Reclassify funds from stalled projects. Treasury allows recipients to reclassify obligated funds to other eligible activities, provided the substitute project was also obligated by December 31, 2024. If you have a construction project that will not finish in time, you may be able to redirect those funds to an operating expenditure that can be fully spent before the deadline. This is not a loophole — Treasury explicitly permits it — but it requires documentation showing both the original and substitute projects meet eligibility requirements.

Accelerate contractor payments. If work is being completed but invoices are sitting in your accounts payable queue for 60 or 90 days, shorten the cycle. A project that finishes on December 15 but does not get paid until February is a project with unexpended funds. Work with your vendors to establish accelerated billing and payment schedules for the final two quarters.

Prepare for closeout now. The post-expenditure reporting and closeout process will be complex. Start identifying your closeout costs — final audits, compliance reporting, administrative overhead — and ensure they were captured in your December 2024 obligation estimates. If they were not, you may not be able to cover them with SLFRF funds after the deadline.

Document eligibility for every dollar. The compliance documentation standard is "reference to the relevant expenditure category" under Treasury's Final Rule. For every project, maintain a file that connects the spending to a specific eligible use category, with supporting evidence. Do not wait for an audit to reconstruct this — build the record as you spend.

Plan for the fiscal cliff. According to NLC research, ARPA funded ongoing programs in many jurisdictions — from small business support to public health staffing to broadband deployment. Salt Lake County, for example, will scale its ARPA-funded small business program from 7,500 businesses per year to 1,500 using alternative funding. If you have not identified replacement funding for ARPA-supported programs that your community has come to depend on, that work is already overdue.

What Happens on January 1, 2027

The day after the deadline, two things happen simultaneously.

First, Treasury begins the reconciliation process. Every recipient will submit a final expenditure report. Funds not reported as expended will be de-obligated and returned. For jurisdictions that have been tracking carefully, this is administrative — unpleasant, but manageable.

Second, the audit wave begins. Treasury's Office of Inspector General and the Government Accountability Office will spend years reviewing ARPA expenditures. The federal government has broad latitude to recoup funds that were spent improperly, and the political environment ensures this program will receive extraordinary scrutiny. Jurisdictions that cut corners on procurement, spent funds on ineligible activities, or failed to maintain adequate documentation will face clawback actions that could stretch into the 2030s.

The GFOA has published guiding principles for ARPA spending that emphasize exactly this point: the risk does not end when the money is spent. It ends when the audit is closed.

The Silver Lining

For all the urgency, the data suggests most jurisdictions will cross the finish line. Large cities and counties had already spent 72 percent of funds as of the obligation deadline, and the pace has accelerated since. The jurisdictions most at risk are those with complex capital projects and those that lack dedicated grant management staff.

If your organization is in that latter category — managing ARPA compliance alongside a dozen other funding streams — the final eight months will test your administrative capacity. The investment in getting it right is worth it. A dollar returned to Treasury is a dollar your community will never see again, and a dollar spent improperly is a debt that will follow you through years of audits.

For local governments looking to identify federal, state, and foundation grants that can replace expiring ARPA funding, Granted searches across 144 data sources to surface opportunities matched to your community's specific needs — including the infrastructure, housing, and workforce programs that many jurisdictions used ARPA to seed.