US Cities Rush to Meet December Deadline to Expend Billions in ARPA Funds, Prioritizing Government Operations

As the clock ticks toward December 31, 2026, local governments across the United States are entering the final, critical phase of the American Rescue Plan Act (ARPA). The State and Local Fiscal Recovery Funds (SLFRF) program, which injected $350 billion into state, territorial, local, and tribal governments in 2021, requires that every allocated dollar be fully expended by the end of the year.

For city halls and county administrative buildings, this means transitioning from planning and obligating funds to ensuring that goods are delivered, services are completed, and final payments are cleared.

The scramble to legally commit the funds—known as the obligation deadline—safely passed in December 2024. According to the National League of Cities, Tier 1 cities and counties successfully obligated 100 percent of their allocations, a massive administrative victory that protected large municipalities from federal clawbacks. Now, the focus has shifted entirely to execution. Data from the Local Government ARPA Investment Tracker indicates that roughly 72 percent of the funds have already been spent, leaving a substantial but manageable final tranche to be deployed over the next six months.

However, municipal finance officers warn that the expenditure phase is often the most complex. To meet the U.S. Department of the Treasury's strict definition of an expenditure, local governments cannot simply hold the money in a dedicated account; the funds must be legally owed and paid out to contractors, vendors, or service providers. If a supply chain delay or a contractor dispute pushes a project's completion date into 2027, the associated ARPA funding could be forfeited, placing the financial burden squarely back on local taxpayers.[1][2]

To mitigate these risks and maximize the impact of the remaining funds, cities are heavily prioritizing internal government operations and civic technology. While the earliest waves of ARPA funding were directed toward emergency public health responses, hazard pay, and immediate revenue replacement, the final wave is being treated as a generational capital investment. Local leaders recognize that once the federal lifeline expires, they will need highly efficient operational systems to manage tighter budgets.

A primary target for these final expenditures is the modernization of aging legacy IT systems. State and local governments are utilizing ARPA dollars to migrate data to the cloud, digitize public records, and overhaul property tax collection software. Civic technology advocates describe the funding as a 'once in a lifetime opportunity' to address deferred digital maintenance that standard municipal budgets rarely accommodate. By upgrading these systems now, cities hope to permanently reduce their annual software maintenance costs and improve the delivery of digital services to residents.

Beyond technology, physical infrastructure and public works remain a top priority for the remaining funds. Cities are finalizing contracts for water line replacements, stormwater drainage upgrades, and broadband expansion projects. Because the Treasury's Final Rule offers limited flexibility to reclassify funds after the 2024 obligation deadline, municipalities are meticulously monitoring these large-scale construction projects. If a project comes in under budget, the surplus funds cannot easily be shifted to a new initiative, requiring cities to carefully manage change orders and existing contracts to ensure every dollar is utilized.[2]

The looming deadline is also forcing local governments to confront a significant fiscal challenge: the post-ARPA budget cliff. According to the 2025 State of the Cities report, 69 percent of surveyed mayors indicated that the end of ARPA funding will negatively impact their municipal budgets. Over the past five years, many jurisdictions used federal relief funds to cover recurring operating costs, effectively delaying difficult decisions about property tax rates and service cuts.

As the December deadline approaches, finance directors are actively working to transition temporary ARPA-funded programs into their general funds. In some cities, specialized project management teams hired specifically to oversee ARPA infrastructure deployments have proven so effective that their salaries are being permanently absorbed by the city to maintain faster project delivery speeds. Other municipalities are relying on the newly upgraded tax collection software purchased with ARPA funds to close the upcoming budget gap, hoping that better collection rates will organically boost revenue without requiring a tax hike.

The administrative burden of the final ARPA phase extends beyond city hall. Local governments that distributed funds to community nonprofits and local businesses—acting as subrecipients—are responsible for ensuring those partners also meet the December 2026 expenditure deadline. Municipal auditors are currently conducting extensive outreach to these organizations, verifying that community-led projects are on track and that all expenditures are properly documented to withstand future federal audits.[1][2]

Reporting requirements will outlast the spending deadline itself. Even after a municipality has spent its final ARPA dollar, it must continue submitting detailed annual or quarterly reports to the Treasury until the federal government officially closes out the award, a process expected to stretch into 2027. This prolonged compliance tail requires cities to retain dedicated grant management staff well after the actual project work has concluded.[2]

Despite the bureaucratic hurdles and the pressure of the ticking clock, the successful deployment of ARPA funds represents a historic achievement in local governance. The $350 billion program tested the capacity of municipal governments to absorb, allocate, and execute massive federal investments under intense public scrutiny. By prioritizing long-term operational upgrades in these final months, cities are ensuring that the legacy of the American Rescue Plan extends far beyond pandemic recovery.[1]

Ultimately, the communities that successfully navigate this final expenditure deadline will emerge with more resilient infrastructure, modernized digital services, and more efficient civic operations. As local leaders sign their final ARPA-funded contracts this year, they are closing a unique chapter in American municipal finance—one that has fundamentally reshaped the baseline capabilities of local government for the next decade.