ARPA grants compliance in 2026 is no longer about applying, planning, or obligating money. Every dollar of State and Local Fiscal Recovery Funds had to be legally committed by December 31, 2024, and the entire focus for current recipients has shifted to spending remaining balances by December 31, 2026, filing accurate Project and Expenditure Reports, following federal procurement rules on every purchase, and preserving records long enough to survive the audit and recoupment tail that follows closeout.1The American Rescue Plan Act of 2021 created roughly $1.9 trillion in federal spending to accelerate recovery from the COVID-19 pandemic, including approximately $350 billion in direct payments to state, local, Tribal, and territorial governments through the State and Local Fiscal Recovery Funds program.
Where the Program Stands Now
No new SLFRF awards are being made. Treasury issued a notice in early 2025 stating its intent to vigorously monitor how recipients met the December 31, 2024 obligation deadline, and unobligated balances from that date must be returned. What remains is a two-year runway to convert obligations into actual spending, and a compliance apparatus that will outlast the spending period by several years.
If your government properly obligated funds through a signed contract before the end of 2024, those funds can still be paid out through the end of 2026. If not, the money is no longer yours to spend.
The December 31, 2026 Spending Deadline
All obligated funds must be fully expended by December 31, 2026. Certain transportation and housing projects carry an earlier deadline of September 30, 2026. “Spent” for these purposes means the money is legally owed and payable to a contractor, vendor, or service provider, not simply committed on paper.
Cost increases on an existing obligation can still be covered with SLFRF money, but only when the original contract included provisions for change orders or contingencies. A contract amendment adding new scope generally will not qualify unless the project maintains substantially the same purpose as the original agreement. This matters because construction and infrastructure projects almost always run over budget, and the answer to “can we use ARPA to cover the overage” depends entirely on what the original contract said.
If a contractor defaults or goes out of business before completing the work, funds committed to that project can be redirected to a replacement contractor. Two conditions apply: the original contract must have been properly obligated by the December 31, 2024 deadline, and your government must document why the change was necessary.
Reporting Deadlines Still Ahead
Recipients must continue submitting Project and Expenditure Reports through the Treasury portal. The next deadline falls on April 30, 2026. Larger recipients file quarterly; smaller governments with awards under certain thresholds file annually. Every report must account for each project funded with SLFRF dollars, including the spending category, amounts disbursed, and progress toward completion.
Missing a report is not a paperwork lapse. Failure to submit a required report is itself a compliance violation and can trigger recoupment proceedings on its own, independent of how the underlying funds were used.
Recipients that have fully spent their allocation may be invited by Treasury to begin closeout ahead of the period of performance end date. Starting in mid-2025, Treasury began initiating early closeout on a rolling basis, notifying eligible recipients through the portal. If you have not received an invitation, the option is not yet available for your community, and standard reporting continues.
Procurement Rules Auditors Will Check
Spending ARPA funds requires following federal procurement rules under the Uniform Guidance, which impose competitive bidding and documentation requirements that many local governments do not face when they spend their own-source revenue. Rules vary by dollar amount:
- Purchases below the federal micro-purchase threshold of $15,000 can generally be made without soliciting competitive quotes, though the price must still be reasonable.
- Purchases between $15,000 and the simplified acquisition threshold require price quotes from multiple vendors.
- Larger contracts demand a full competitive process with sealed bids or proposals, public solicitation, and documented evaluation criteria.
Recipients must also maintain written conflict-of-interest policies and keep records showing how each vendor was selected. Procurement is where auditors concentrate their attention, and procurement missteps are one of the most common sources of compliance findings. If your government has been paying SLFRF invoices under its own local procurement policies without confirming they meet federal standards, close that gap before the money moves.
Staying Inside Eligible Uses
SLFRF spending is limited by statute to five categories: pandemic response and economic recovery, premium pay for essential workers (capped at $13 per hour additional and $25,000 per worker across the grant period), revenue replacement, water, sewer, and broadband infrastructure, and natural disaster relief. Many smaller governments elected the standard allowance of up to $10 million under revenue replacement, which treats the allocation as general government funds and simplifies both spending and documentation.
Two prohibitions apply regardless of category. No recipient may deposit SLFRF funds into a pension fund; this targets extraordinary payments toward unfunded pension liabilities and does not block routine employer pension contributions tied to current payroll. Separately, states and territories may not use SLFRF money to directly or indirectly offset a reduction in net tax revenue caused by a change in law during the covered period. That tax offset restriction does not apply to local or Tribal governments. The pension prohibition applies to everyone.
Using funds for any ineligible purpose can trigger a demand to return the money to Treasury with interest and penalties, so the eligibility question should be answered before an invoice is paid, not after.
Single Audits and Record Retention
Any non-federal entity that spends $1,000,000 or more in federal awards during a fiscal year must undergo a Single Audit. The threshold applies to the total of all federal funds spent in the year, not just SLFRF. If your government also received FEMA grants, HUD funding, or other federal dollars, those amounts count. The audit must be conducted by an independent auditor and covers both the financial statements and compliance with federal award requirements.
Record-keeping obligations reach further than the audit threshold. Federal regulations require that all financial records, supporting documents, and other materials related to the award be retained for three years from the date you submit your final expenditure report. That clock does not start until the grant is fully closed out, so records from a 2021 award may need to be kept well into 2029 or 2030.
Two exceptions extend the period further. Records related to real property or equipment purchased with federal funds must be kept for three years after final disposition of the asset, not final disposition of the grant. And if any litigation, audit finding, or claim is unresolved when the three-year period would otherwise expire, all related records must be kept until the matter is fully resolved.
What Non-Compliance Costs
Treasury may flag a recipient for recoupment for failing to obligate funds by the deadline, using money for ineligible purposes, missing a required report, failing to submit a required audit, or leaving an outstanding information request unanswered. If the issue is not resolved, Treasury will terminate the award, demand return of funds, and report the non-compliance to SAM.gov, which can make the entity ineligible for future federal funding.
Unresolved balances owed to Treasury trigger federal debt collection on an escalating timeline. In the first 30 days, the recipient can pay in full without additional charges. Starting on day 31, a 5 percent interest rate applies retroactively to day one, a 6 percent penalty begins accruing, and a $25 administrative fee is assessed. After 90 days, an additional 6 percent penalty kicks in, the administrative fee increases, and a second $50 fee is added. Interest, penalties, and fees accrue daily from that point forward.
A missed deadline or an ineligible expense is therefore not just a paperwork problem. It becomes a federal debt that grows quickly and damages the entity’s standing for any future federal funding.
Life After the Spending Deadline
Once December 31, 2026 passes, any SLFRF money that was obligated but not spent must be returned to Treasury. Recipients then enter formal closeout, which involves submitting a final expenditure report and certifying that all funds were used in compliance with federal requirements. Treasury has established a closeout resource hub and continues to process early closeouts on a rolling basis for recipients that have fully expended their awards.
Federal oversight does not end when spending ends. Audit rights, record retention requirements, and potential recoupment actions extend years beyond the performance period. Treat December 31, 2026 as the start of a compliance tail that will run at least through 2029. Records that are complete and organized now are far cheaper than records reconstructed later when an auditor arrives with questions.