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How to Invest Coronavirus State and Local Fiscal Recovery Funds

by Jennifer Hutchins

When Congress approved sending $350 billion in fiscal recovery funds to state, local, Tribal, and territorial governments as part of the American Rescue Plan Act (ARPA), it expressly authorized those governments to invest resources in charitable nonprofits serving their communities. Specifically, governments may use the federal funds directly or through others, meaning that individual charitable nonprofits can be both the recipient of assistance as well as the provider of assistance to others.

These funds are substantial, but not limitless. Charitable nonprofits serve the same people and communities as governments, and a new Special Report from National Council of Nonprofits offers a framework to help governments and nonprofits work together on how the dollars can best be spent for the public good.

Strengthening State and Local Economies in Partnership with Nonprofits: Principles, Recommendations, and Models for Investing Coronavirus State and Local Fiscal Recovery Funds answers the question, “Can governments use these funds to provide nonprofit relief and recovery?” (that’s an absolute, yes!), provides advice about how governments can prioritize programs and solutions, and offers recommendations, based on past experiences of nonprofits, on how best to set up grants and other programs for which nonprofits are eligible. [Note: National Council of Nonprofits released an updated version of this report in October 2021, with more than three dozen new examples of government-nonprofit partnerships, particularly at the local level.]

We encourage Maine nonprofits and government partners to review the recommended guiding principles below and use this Special Report to build relationships and partnerships between the sectors to make sound investment decisions. Together we have the opportunity to make big strides on persistent challenges, investing in changes to systems not symptoms. When we all work together, we all win.

Recommended Guiding Principles

Prioritize Equity from the Outset

The pandemic exposed many inequities in the delivery of health and other human services in our country. Governments should apply these lessons and intentionally listen to marginalized communities for solutions that overcome past and current barriers blocking access for people of color, low-income individuals and families, people living with disabilities, and individuals who identify as LBGTQ+. In particular, governments should prioritize spending of the ARPA funds to improve outcomes for communities traditionally left behind. One potential method would be to require each funded program and grantee for funding to provide an explanation of how the program centers around equitable results for the communities served.

Invest in Economic Multipliers

Healthy local economies require sustainable nonprofits and businesses. Congress recognized that reality when appropriating the ARPA funds for “small businesses and nonprofits.” During the pandemic, tens of millions more Americans than usual turned to nonprofits for help – and nonprofits delivered. Investing in charitable organizations will enable them to rehire employees and hire even more people to deliver services on which constituents depend for relief and recovery. Further, investing in nonprofits will allow these organizations – the third largest employer in the country and consumers of products and services – to operate as economic multipliers by providing needed services, such as childcare and job training, and stimulate economic activities, such as by people spending money at restaurants and retail stores near the arts and cultural institutions they visit.

Implement Quickly, Yet Fairly

Governments can fulfill the obligations and promise of the ARPA by balancing the need to move urgently to provide relief while also considering both existing systems and new programs that can distribute funds in ways that provide quality benefits to communities. For example, many charitable nonprofits already provide an array of services – and with the ARPA funds could scale up to do more – that help local economies recover from the pandemic. Examples include after-school programs for kids that help parents go to work, residential assistance programs for seniors and others, food preparation and delivery services to support people in need, job training and placement, and more. Similarly, community foundations already have systems in place to channel resources where needs are greatest. For virtually every need in the community, there is likely one or several nonprofits ready to ramp up their service delivery or expand to provide new services to help all residents get past the pandemic.

Maintain Accountability via Reasonable Documentation and Transparency

Governments spending Coronavirus State and Local Fiscal Recovery Funds must apply appropriate safeguards and disclosure requirements to protect the public from waste, fraud, and abuse. Charitable nonprofits represent the most transparent segment of the economy (e.g., all nonprofits must publicly disclose their financial information annually), and we like it that way – otherwise individuals would not be willing to trust organizations with their time, resources, and lives. That said, governments should maintain the proper balance between keeping the public informed about use of funds versus imposing excessively burdensome and expensive reporting requirements. In practice, this means governments should collect the information it truly needs and not create unnecessary forms demanding needless data points. Finally, when nonprofits are part of the target audience for proposed loans, grants, or in- kind assistance, governments need to work with nonprofit leaders – in advance – to identify and avoid needless red tape and redundant documentation requirements.

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