A jail-sized loophole and other debates over use of local ARPA funds

Credit: Jim Noelker

Credit: Jim Noelker

How local governments are using hundreds of millions of dollars combined in federal COVID relief funds varies considerably from one community to the next, including some controversial proposals, an investigation by this newspaper found.

Since the beginning of the year, reporters with the Dayton Daily News, Springfield News-Sun and Journal-News have produced dozens of reports revealing how local governments of all sizes are using funds provided by the American Rescue Plan Act of 2021. These stories are compiled in a “Billions in COVID Aid: Where it’s Going” special section on our website.

Local governments have been transparent, as required by Ohio public records law. They provided financial records, resolutions, presentations and other materials showing where the money went or is going.

Some projects are ambitious, such as the city of Dayton’s plan to use $22 million in ARPA and other funds to tear down more than 1,000 nuisance properties.

Some are more mundane. Huber Heights is spending its entire $4 million ARPA allocation on water and sewer projects.

Other uses run the gamut: Springfield spending $18 million on fire stations, Hamilton spending $10 million on a new justice center, Springboro supporting a $4 million park upgrade.

This story looks at projects that are controversial, and how a loophole in program rules makes them possible. This includes:

— Greene County’s plan to spend at least $10 million on a new jail

— Warren County and Middletown spending $7.7 million on a mixed-use development

— Montgomery County considering spending $4 million on improvements to the Dayton Dragons baseball stadium

None of these projects have been found to violate federal rules on how the money can be used. In fact, audits from the Ohio Auditor of State haven’t identified any government in Ohio improperly spending ARPA funds.

The Dayton Daily News requested from the state auditor’s office all audits statewide that reference ARPA spending. Of the seven provided, none included a major finding related to program spending. The only local one, West Carrollton, was admonished for not keeping the money in a dedicated fund, which they did in response to the audit.

Governments are also required to report to the U.S. Department of Treasury on how they spend ARPA funds. In response to questions from the Dayton Daily News, U.S. Treasury officials said they don’t pre-approve projects but do review recipients’ reports to ensure compliance.

“Every non-federal entity that expends more than $750,000 in federal funding in a fiscal year is subject to an audit, which is due nine months after the end of that fiscal year,” said a Treasury official via email.


Treasury rules generally require local governments to use ARPA funds in response to the COVID-19 pandemic, with a few specific restrictions.

Governments can declare up to $10 million as revenue replacement — which is more than most local governments got — and then it can be used for generally any legal government purpose.

A September analysis of nationwide ARPA expenditures by the Marshall Project found that of $52.6 billion that cities across the country designated as revenue replacement, nearly half of that went to some form of prison or law enforcement.

Many local governments used ARPA funds for public safety payroll and equipment. At least two — Miami County and West Carrollton — spent money on armored vehicles.

According to Treasury officials, some restrictions still apply to funds declared lost revenue. For local governments, this includes making a deposit into a pension fund, debt service and replenishment of rainy day funds, and paying off settlements or judgements.

Governments can claim more than $10 million as revenue replacement by doing a complicated calculation that takes into account not only actual lost revenues, but also projecting across all county agencies what revenue growth might have occurred in five years had COVID never happened.

Greene County, for example, is expected to increase its revenue replacement from the standard $10 million to $33 million by using this formula, even though state audits show property tax and sales tax revenues increased during the pandemic and its actual general fund revenues were down just over $165,000 in 2020 and just over $1.5 million in 2021.

Greene County officials say freeing up burdensome federal restrictions on the funds has benefits. For example, nonprofits that received grants through the county’s ARPA nonprofit program would not necessarily be subject to a federal audit, and counting it under revenue replacement gives the county more freedom to spend the money where it is needed, Greene County Administrator Brandon Huddleson said.

“If you don’t spend it correctly, now we have to come back and take it back from you, because we have to give it back to the federal government,” he said. “That hurts the nonprofit. It hurts us. It hurts everybody. It’s a waste of time and money.”

Jail debate

Credit: Jim Noelker

Credit: Jim Noelker

Declaring these funds lost revenue allows Greene County commissioners to put up to $12.5 million toward building a $60 million jail, even though “correctional facilities” are a prohibited use.

The ACLU in January urged the inspector general of the U.S. Treasury Department to investigate state and local governments’ use of the ARPA funds to build prisons and jails instead of using the money for COVID-19 relief.

“State and local governments that accept federal dollars under specific conditions break the law and violate the constitution when they use that to support systems that directly contradict the terms of their acceptance,” said Tammie Gregg, deputy director of the ACLU National Prison Project. “These same funds, that are desperately needed by the communities impacted most negatively by the pandemic, are being used illegally to build and expand prisons and jails.”

Local critics have raised concerns that commissioners and other governments taking this route are playing a “shell game” at worst, and not acting in the spirit of the law at best.

The Greene County Coalition for Compassionate Justice opposed Greene County’s sales tax levies in 2020 and 2021 that were meant to fund jail construction. Voters rejected a 0.25% sales tax that would have funded the construction of a combined 384-bed jail and sheriff’s office in November 2021 by a margin of 55% to 45%.

Kate LeVesconte, a coalition member, said the group doesn’t oppose the proposed jail in its current form after the scope of the project and number of beds were reduced. Greene County reduced the scope of the project last year from a 384-bed jail and sheriff’s office to a 250-bed jail only, citing inflation and construction costs.

LeVesconte added that the sheriff’s office and the Fairborn Municipal Court have instituted or are considering policies that reduce incarceration.

“Things seem to be going in the right direction in Greene County, without an increase in safety concerns,” she said. “The one thing we still want to see is adequate programming once the jail is built.”

Warren County plan

Warren County and the city of Middletown have pledged $3.5 million and $4.2 million, respectively, in ARPA funds to support a 58-acre mixed-use development on the East End.

The development as proposed will feature a dense array of apartments, townhomes, retail sites, restaurants, offices and a hotel in Warren County’s section of the city, all anchored by an arena and event center. The agreement would see the developer invest $72 million into the site over the course of eight years.

“When you look at an entertainment venue, it’s not necessarily that ARPA (funding) is going to put in 1,000 seats, but there’s infrastructure that the government normally does — (like) if there’s a road that needs to be done specifically for that, or if there’s water or sewer lines. That is a normal, typical government function,” said Warren County Deputy Administrator Martin Russell.

Warren County Democrats don’t believe this project meets ARPA requirements that projects be focused on addressing the pandemic, not general economic development.

“It doesn’t look like, to me, that the Middletown sports complex meets these requirements,” said Warren County Democrat Chair Bethe Goldenfield. “I really don’t see how it applies.”

Goldenfield said while she was pleased to see the county use ARPA funds to expand rural broadband access, she wished that more money had gone toward programs that would go straight to folks who need help paying for energy bills, rent or school supplies, instead of toward large capital expenditures.

Russell said the upcoming Middletown development will supplement the county’s largest industry, tourism, which he said took a large hit during the pandemic when people were less likely to travel.

“The county always, when it comes to tourism, will look to see how it can support large projects that make sure that people continue to come to Warren County, visit Warren County, spend in Warren County, and help all folks rebound based off of that,” Russell said.

Dragons stadium

Montgomery County commissioners in October said they are considering putting $4 million in ARPA funds toward improvements to the Dayton Dragons stadium.

Asked by the Dayton Daily News about the prohibition on using ARPA funds for “stadiums,” county spokeswoman Deb Decker said the funding relies on several factors including contributions from the city of Dayton and the owners of the Dragons.

“We have submitted the Dragons assistance plan to our contracted legal firm, Bricker & Eckler, to see if it falls under Travel/Tourism in ARPA,” Decker said. “If they determine it does not meet ARPA criteria for Travel/Tourism, we can shift it to another category or another revenue source.”

Some are critical of the proposal.

“What does baseball have to do with rescuing people who can’t pay rent?” said Doug Wagner of Kettering in response to an online survey from this newspaper on how COVID relief funds should be spent.

Wagner said he believes local governments should spend money on expanding broadband and rent assistance, but instead is concerned they are undertaking projects that will increase inflation.

Public accountability

Of the more than 200 respondents to the online survey, one-third supported using ARPA funds for rent assistance. The most popular uses were road and sidewalk repair (59.7% supported), water and sewer projects (51.5%) and blight removal (38.8%).

Common concerns among survey respondents was transparency and accountability with how the money is being spent.

Ohio Organizing Collaborative co-executive director Prentiss Haney said the most important thing is for local governments to listen to their constituents when spending this money. Under federal guidelines, ARPA funds must be allocated by the end of 2024 and fully spent by the end of 2026.

“Lots of municipalities have held onto ARPA funds in anticipation of a budget shortfall,” Haney said. “What this actually does for community members is we have to go back and advocate for those dollars because they are still there.”

“There’s no rule that local governments and municipalities have to do a certain number of (public) sessions and let community members weigh in on how the money should be spent,” he said. “This is paid for with taxpayer dollars (and) has to be accountable to the people.”

ARPA restrictions

U.S. Department of Treasury rules give local governments broad leeway in spending American Rescue Plan funds, noting only a few specifically ineligible uses, such as:

— No payments for debt service and replenishments of rainy day funds

— No satisfaction of settlements and judgments

— No uses that violate conflict of interest requirements or federal, state or local law

The rules generally say uses have to support ARPA’s stated purpose of addressing the COVID pandemic, particularly in marginalized communities. Under the section on capital projects, it says Treasury presumes the following projects are ineligible;

— Construction of new correctional facilities as a response to an increase in rate of crime

— Construction of new congregate facilities to decrease spread of COVID-19 in the facility

— Construction of convention centers, stadiums, or other large capital projects intended for general economic development or to aid impacted industries

In the section of rules regarding negative economic impacts, it says: “Note that the final rule maintains that general infrastructure projects, including roads, streets, and surface transportation infrastructure, would generally not be eligible under this eligible use category, unless the project responded to a specific pandemic public health need or a specific negative economic impact.”

“Similarly, general economic development or workforce development – activities that do not respond to negative economic impacts of the pandemic but rather seek to more generally enhance the jurisdiction’s business climate – would generally not be eligible under this eligible use category.”