Why did so many local towns and cities use federal pandemic relief money for purchases that ranged from new plow trucks, remodeled skate parks and the completion of luxury apartments?

Because they could.

Not long after Connecticut municipalities learned of the hundreds of millions of dollars in American Rescue Plan Act, or ARPA, funding heading their way in 2021, the U.S. Treasury Department eased the rules governing its use and reporting.

“That opened the door on how that money could be spent,” said Amanda Kennedy, executive director of the Southeastern Connecticut Council of Governments. “So, money intended for municipal governments could be spent without having them overtly having to draw a line specifically to COVID. It was money to supplement their budgets and to rejuvenate the economy.”

In total, 12 southeastern Connecticut towns, cities and boroughs — East Lyme, Town of Groton, City of Groton, Montville, New London, Norwich, Old Lyme, Preston, Stonington, Waterford and two boroughs, Groton Long Point and Stonington — received approximately $91 million in ARPA funding, according to Connecticut Conference of Municipalities data.

And while officials in eastern Connecticut in many cases did set aside large portions of their federal allotments to address the food, housing and other social service issues exacerbated by the COVID-19 pandemic, millions of dollars were earmarked for projects and programs with no direct link to the global medical emergency.

Cities and towns are typically required to jump through rigorous, bureaucratic hoops to qualify for federal funding and obtain reimbursement after spending local dollars on projects.

But the ARPA money simply arrived in municipal coffers in spring of 2021 and 2022 with few restrictions, though it must be allocated by December 2024 and spent by December 2026.

Based on federal guidelines, it’s easier to list what things a town or city can’t spend pandemic relief funding on than what they can.

The U.S. Treasury’s “Final Rule” guidelines automatically presume the COVID-19 pandemic cost towns and cities up to $10 million in lost revenue and allowed that amount to be spent on “government services,” such as infrastructure, public safety, health and education programming and projects.

In the U.S. Treasury’s 44-page “Coronavirus State & Local Fiscal Recovery Funds” document, less than two pages spell out specific restrictions of ARPA uses.

Ineligible uses include pension fund deposits; settlement or judgment payments; debt services or financial reserve, or “rainy day” account replenishment.

“We were really adamant not to have agencies calling the shots,” U.S. Rep. Joe Courtney, D-2nd District, said Thursday at a groundbreaking ceremony in Norwich, where the city provided a $400,000 ARPA grant for a $5 million project to convert the long-blighted former YMCA into a new commercial/residential complex.

Courtney has been touring his district over the past week, visiting public and private projects funded through ARPA grants. He praised municipal officials for decisions he said that are “making a big difference in their communities.”

Norwich, New London saw biggest windfalls

In southeastern Connecticut, only Norwich and New London received more than the $10 million threshold outlined by the U.S. Treasury: Norwich with the highest ARPA total in the region, $28.8 million, and New London with $26.2 million over two years.

For municipalities recognized as federal Community Development Block Grant designees, like New London and Norwich, the amount of ARPA funding received was based on a U.S. Department of Housing and Urban Development formula that considers a town or city’s population, poverty levels and housing stock.

For towns and cities without that CDBG designation, ARPA allotments were based on population and funneled through the state for disbursement.

Groton Town received $8.58 million, and Groton City another $3.79 million.

Norwich City Manager John Salomone said after responding to the COVID-19 crisis with $1.2 million for rent and fuel assistance, $350,000 for employment support and $762,000 for Norwich Human Services staffing to assist residents, he wanted ARPA money to create long-lasting impacts on the city.

He said Norwich “aggressively” funded economic development projects and infrastructure improvements, along with supporting arts, affordable housing and recreation.

A groundbreaking ceremony will be held at 11 a.m. Thursday for the Uncas Leap Heritage Park on Yantic Street, the largest single Norwich ARPA project, with a $2.8 million price tag. The site at the historic Yantic Falls gorge was part of a pivotal 1643 battle between the Narragansett and Mohegan tribes. In the early 19th century, the water power fueled Norwich’s rise in the Industrial Revolution.

“It will be very exciting,” Salomone said. “We’re going to look to get some federal recognition. It’s pretty unique. There are not a lot of Native American landmarks like this.”

As of June 30, Norwich has budgeted $25,167,142 of its ARPA funding, with $781,718 remaining, plus $1.1 million due back to the city from short-term loans provided to two large business projects.

Not long after New London officials were alerted to its imminent receipt of $26.2 million in ARPA funding, Mayor Michael Passero created a list of four themes ― health, safety, earning and learning ― to govern the city’s spending strategy.

Since Norwich’s and New London’s grants surpassed the U.S. Treasury’s standard $10 million revenue loss allowance, officials are required to detail spending using Internal Revenue Service categories: public health, negative economic impacts, services to disproportionately impacted communities, premium pay, infrastructure, revenue replacement and administration.

Those categories are further subdivided under more than a dozen specific use “buckets” such as personal protective equipment, mental health services, job training assistance, food programs, tourism aid and housing support.

“We immediately reached out to the community to give us ideas on what they thought we should be spending that money on,” Passero said. “We wanted specific proposals from different groups, including those from the city and police department. It was a wish list.”

That list filled a binder several inches thick, New London Finance Director David McBride said. Officials pared it down to economic development and social services categories presented to the City Council for funding approval.

As of June 30, New London has $322,452 of its $26.2 million ARPA grant unallocated. Councilors on Monday are expected to consider funding to additional projects and programs, McBride said.

Passero said the city has stayed disciplined in its ARPA spending. In addition to spending on public health and safety, money was set aside for odder items, like $75,000 to add more than 100 trees across the city in a tree canopy expansion project.

“We focused on those projects we felt would pay dividends long after this money was gone, like those trees which will be there 30 years later,” he said. “That also meant not funding a bunch of new positions we’d have to pay in future budgets. We’re not going to fall off any financial cliff because of our spending.”

He said an $80,000 clerk’s office job was approved to address higher-than-normal resident traffic.

Passero also highlighted approval of $1.4 million in ARPA money to replace two artificial high school sports fields.

“Most of those people who are cynical about spending ARPA money on a field are the same ones who wouldn’t want us to raise the mill rate by spending tax dollars on those kinds of things,” he said. “Using this money for those kinds of one-time uses means we aren't bonding it, which takes the borrowing pressure off the city.”

Groton town officials realized the pandemic sent cooped-up residents in search of outdoor recreation. The town allocated the largest portion, $980,000, of its $8.5 million ARPA grant to Sutton Park, 185 Fort Hill Road. The project will replace a playground, rehabilitate a shelter, remodel the skate park and redo the parking lot.

As of June 30, Groton Town had allocated over $8.4 million in ARPA grant, but has spent just over $1 million through June 30, town ARPA Coordinator Kevin Fitzgerald said.

Roofs, pickleball courts and plow trucks

Groton City has not yet spent its nearly $3.8 million but has a proposed budget that includes $1.2 million for a new roof on the municipal building and another $645,000 on other improvements for the building.

Groton City is considering $997,000 to replace city tennis courts and add pickleball courts and $357,000 for other parks and recreation projects. The proposed budget has $100,000 for small business grants.

Several local municipalities used ARPA money to purchase long-lasting hardware, sparing taxpayers budgeted costs or bonded debt. Preston spent much of its $1.2 million grant on capital items, such as $294,000 to replace two old plow trucks; $160,000 toward a firetruck and $55,000 for a new fire chief’s vehicle.

East Lyme spent $466,000 to replace police radio communications system. Norwich used $3.4 million to replace long outdated fire system radios and computer communications.

Stonington allocated $1.9 million of its total $5.2 million ARPA grant to replace the HVAC system at Town Hall and another $924,000 on a new road salt storage dome.

Is a fiscal ‘cliff’ on the horizon?

Throughout the two-year ARPA spending frenzy, a new cautionary phrase crept into budget talks: the fiscal cliff. If a municipality spent ARPA money to hire staff, pay for programs and services or, as Norwich did twice, to cut the property tax rate directly, it now faces the so-called fiscal cliff.

With ARPA money gone, does the town keep those employees, services and programs, raising taxes to cover the costs?

Norwich used $1.2 million in 2022-23 for direct tax relief and another $1 million in 2023-24 to avoid a tax increase. Norwich also funded eight positions, including three Human Services staff, and budgeted for another five positions, including three police officers, using ARPA money.

City Manager Salomone said city leaders will evaluate all the positions and decide which ones to keep and how to fund them.

Thanks to Norwich’s proactive use of ARPA funds for economic development, Salomone said, tax revenue should soon replace the ARPA money used to balance the budget and pay for staff positions. Norwich allocated $3.5 million to the Norwich Community Development Corp. to create the Norwich Revitalization Program, providing matching grants to businesses.

NCDC President Kevin Brown reported at the end of July that 82% of the money has been obligated to 15 projects with total value of more than $17 million. The program has “reactivated” 75,300 square feet of commercial space and created 100 jobs, Brown reported.

Norwich funded several marquee projects through ARPA. Norwich provided $1,050,000 ― a $350,000 grant and two short-term, no-interest $350,000 loans ― to the new Naverra architectural glass manufacturing plant at 40 Wisconsin Ave. in the Norwich business park. The plant is expected to become a top Norwich Public Utilities utility customer, which returns 10% of that revenue to the city.

Naverra’s massive manufacturing equipment will be tax exempt under a state law, Norwich Assessor Bill Lee said, but other plant equipment will be assessed. The real estate property tax bill this year for the Naverra building was $231,331, city tax records showed.

ARPA economic development grants will “transform” Main Street for years, Salomone said. Along with the $400,000 ARPA grant to the YMCA building, a $300,000 ARPA grant will help revitalize the long-vacant Reid & Hughes building. And the new 42-unit Norwich Luxury Apartments at the opposite end of Main Street received a $400,000 grant and $400,000 short-term loan, due upon completion.

It will take a while before Norwich sees new tax revenue from the Main Street projects in the city’s Enterprise Zone, as they qualify for seven years of phased in taxes on the renovation values.

Even with the delayed tax revenue, Salomone said he is confident the ARPA-funded economic developments will boost the tax base enough in time to make up for the $1 million a year used to balance the budget for the past two years.

Other municipal officials in the region said they wanted to avoid facing that “fiscal cliff” entirely.

Preston First Selectwoman Sandra Allyn-Gauthier said Preston concentrated on using the grants for long-term purchases.

The only Preston staff position funded through ARPA was a full-time firefighter job. Allyn-Gauthier said she insisted the position be phased into the regular budget. ARPA paid 100% of the $86,300 in salary and benefits the first year, 75% in the second year and 50% this year.

“We were very careful to use the money in such a way that we wouldn’t be faced with a fiscal cliff,” Allyn-Gauthier said. “We intentionally tried to stay away from spending that would create a fiscal cliff.”

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