Does Flint need a compliance firm to help spend COVID-19 relief funding?

Flint, MI– The Flint City Council postponed a resolution Dec. 8 to hire a firm that would help the city spend the American Rescue Plan Act funds in compliance with the guidelines. 

In March, the city learned that it would be receiving $94.7 million dollars in COVID-19 relief as part of a $1.9 trillion economic stimulus package intended to aid the country in recovering from the pandemic. 

The final rules for how to spend the money have not been announced, although there are interim guidelines. If the city uses the money for things that don’t fall within those rules or guidelines, they’ll have to pay it back.

To prevent that from happening, the administration has been adamant about hiring an outside compliance firm to ensure the money is spent properly. While some council members agree the city needs a compliance firm, they have concerns about the cost, and how it will be budgeted in the overall ARPA spending plan. 

The administration’s proposal is a five-year contract with Ernst & Young not to exceed $3,994,074. That’s about 4.2% of the total ARPA funds the city is receiving. 

“The community does not want to spend $3.9 million that is not going to bring one positive change to this community,” said Flint City Councilman Dennis Pfeiffer during a meeting on Dec. 8. “We need every dollar to go into the to fix our blight, to fix our crime. And if we can save $1 million, $2 million on a different compliance firm, that’s what we need to do.”

In October, the city presented the council with a draft of five spending priorities they came up with using community input which is published on the city website. But it’s not detailed, and there are no costs associated with any of the spending categories. 

During the Dec. 8 meeting, Council Vice President Allie Herkenroder said she was concerned about voting for a contract without seeing a detailed plan for the rest of the ARPA funds.

“We have not yet seen a full proposal or full budget regarding ARPA funds for the city of Flint. As such, I do not feel comfortable voting for a contract that has not yet been properly budgeted,” she said. “And I think that we need to make sure that any money for compliance is included in the final plan.”

Ernst & Young was one of eight firms to submit a bid to manage the city’s ARPA funds. Five city employees reviewed the eight bids, and narrowed their choices down to four companies based on their cost, proximity to Flint, and experience. 

Of the four remaining firms, Ernst & Young had the second-lowest bid, at around $4.25 million. In addition to ensuring the spending of the ARPA funds is compliant with the guidelines, the company also said they would check for other related pots of money to “leverage” the dollars.

“So if we put a proposal forward, but there are possibly other pots of money we could use versus our city dollars, they’re supposed to be looking for that,” said Flint’s Chief Financial Officer Robert Widigan. “So they’re not just simply here to tell us how to spend the money, but they’re here to partner with us, council, administration, the community, to help us with planning and administering the disbursement of the ARPA dollars, and to ensure that.”

Ultimately, during the finance committee meeting on Dec. 8, the council voted 5-3 to postpone the contract to the next finance committee meeting. 

Before it comes for another vote, Flint Beat took a look at what other municipalities’ spending plans look like, whether a compliance firm is included in their plan, and if so, at what cost. 

Detroit is receiving $826 million in ARPA dollars, and already has a plan for spending it all. The appropriations of funds were approved by the Detroit city council in June. 

According to Meagan Elliott, the Deputy Chief Financial Officer for development and grants in Detroit, developing their plan was a team effort.

First, Detroit Mayor Mike Duggan outlined a vision for a broad array of uses for the funds, before many of the regulations and guidelines were released, Elliott said. 

“He did one city-wide big public meeting, kind of casting the net for that vision, and then asking Detroiters to participate with him on what they think that the funds should be used towards,” she said. 

After that public meeting, the city conducted surveys in each of Detroit’s seven districts, said Ray Solomon, the second director of the department of neighborhoods. Residents were asked to prioritize a list of suggested initiatives that the administration had heard throughout the years including addressing public safety, creating more parks and recreation centers, reducing the digital divide, and providing small business assistance. 

From mid-May to June, various directors and officials with the city held 65 public meetings in all seven districts, and tracked the data.

“And then at the end of those 65 meetings…the administration took that information and started coming up with suggested programs,” Solomon said. 

Elliott said this was like a “participatory budgeting exercise.” 

“The mayor really set the tone in that first meeting of, if we increase this by a certain amount, we have to decrease with other things,” she said. 

The city council was also holding its own community meetings during this time, and Elliott said the mayor’s office and the council had similar ideas because they were listening to residents.

“When we looked at the priorities from the council side and matched them to what we’ve heard on our side through the administration, the majority of that was already overlapping,” she said. “And it was really a conversation about like, how much should we direct to this specific initiative versus that initiative.”

Solomon said they had a “strong foundation” to develop the plan because of the amount of engagement and feedback they got from the community.

Many Michigan municipalities are holding community meetings to determine what to do with the funds. 

In Grand Rapids, a “participatory budgeting process” is being used to determine how to spend a portion of the ARPA funds. The city received about $92 million in ARPA funds, and set aside $2 million for the community to decide how to spend. 

According to the city website, a “steering committee” will create rules and an engagement plan to hold meetings and surveys where residents can brainstorm ideas. Volunteers called “budget delegates” will then develop the ideas into proposals which will then be put to a vote by the residents. The winning proposals are funded and implemented by the city. 

In Oakland County, community leaders and stakeholders formed a task force to review data, hold group meetings, and consider recommendations for spending their allotted $244 million, according to the Recovery Plan Performance Report.

Solomon said he would advise municipalities to host as many public meetings as they can.

“What was relevant on one side of town was different on the other,” he said. “And then also different groups, churches had a different approach, nonprofits had a different approach, the Dads’ club at a school had a different approach…so I would say cast a wide net with what you can manpower-wise, and partner up with the nonprofits, the churches, and the block clubs in the community.”

Flint has had community meetings in each ward to talk about the ARPA funds, but as council members pointed out in previous meetings, turnout was low and they haven’t seen the results of an online survey the city conducted about funding priorities. Council recently voted to hold four of their own community meetings, but dates haven’t been selected yet. 

During the State of the City Address on Dec. 14, Widigan said more community input meetings will happen once a compliance firm is “approved and in place.”

Multiple Michigan municipalities are utilizing compliance firms to help spend the ARPA dollars.

“For a lot of different federal funds when they come to cities, there’s a precedent for all the compliance regulations for how to spend the dollars,” Elliott said. “And with the American Rescue Plan Act, it’s brand new. So everyone’s trying to think through a lot of different components of how this works, and making sure that everything fits within the eligible use as outlined by the Treasury and what we have so far.”

According to Oakland County’s spending overview,  acquiring professional support is the first step in their process of spending ARPA funds. They are using two firms: Pierce Monroe & Associates for the reporting requirements, and Guidehouse, one of the eight bidders in Flint, for “research and analysis regarding whether projects meet eligibility requirements.”

In June, the Royal Oak City Commission approved a contract with Guidehouse too, “using the same terms, conditions and pricing negotiated by the county,” according to the resolution document.

The contract period is for one year, with options for two additional one-year extensions. The commission approved a purchase order for this contract in the amount of $421,612.53, which is 1.5% of Royal Oak’s total ARPA funds. 

Pfeiffer brought up Royal Oak in a council meeting on Nov. 20, pointing out the difference in the percentage of total ARPA funds spent on their compliance firm.

During that meeting, Pfeiffer asked Brian Jarzynski, executive director of Ernst & Young, if their costs for the hundreds of other municipalities they work with was similar to Flint’s. 

“It varies, to be honest, depending on the level of service we’re providing,” Jarzynski said. “This is a little more full because it includes some of the strategy piece.” Jarzynski said.

In Detroit, Elliott said the city hired two compliance firms to help manage the spending. The first firm is an “internal working team,” and another firm that serves as an “external checks and balances.” 

“The compliance review process for each of these has been really rigorous, because we want to make sure on the back end, anything that the U.S. Treasury decides for their final determination, that we have clear documentation of every decision that was made along the way, based on the best possible information that we have right now,” Elliott said.

In addition to ensuring that the projects can fit into the eligible use categories with the ARPA funds, Elliott said these firms are helping the city clarify what its budget, hiring plan, and outcome and performance measures should look like.

She said that the city has committed to having a cap on costs for “central services,” including compliance consultants, internal staff on the team, and any centralized services that help administer and support the deployment of the ARPA dollars. In Detroit, they’re trying to keep that cost under 10% of their total ARPA fund amount.

“I think that it’s a question of the amount you’re receiving in total, and then how much of that you already have internal capacity for your program,” Elliott said. “I think that if we were receiving a smaller amount, we would be able to potentially manage that internally. I know that everyone is in a different place in regards to how they manage all the COVID dollars in the last two years. And then we’ve also got FEMA dollars to manage, and a lot of other sources on our plate right now.”

Municipalities are all at different stages of the ARPA fund planning and spending process. Some cities are still at the community input stage, and others, like Detroit, are in the process of clarifying their budget, and ensuring their appropriations are eligible so they can move forward with their normal processes for issuing contracts for projects.

So far, Flint has identified five categories: economic development and blight elimination, safety and crime prevention, assistance to homeowners, improvements to infrastructure, and a focus on public health.

“Once we have a compliance firm, approved and in place, we can go out into the community to seek your input on identifying specific needs, activities and resources for each broad category,” Widigan said. “This is a collective process and it will take all of us working together to build a solid financial foundation, and ensure these dollars are spent equitably and transparently.”

Local governments have until Dec. 31, 2024 to obligate their ARPA funds, and until Dec. 31, 2026 to expend them.