This article discusses the three basic types of funding – operating, General Obligation Bonds, and the American Rescue Plan. Those are all forms of capital funding that the government uses to meet its operational and capital needs. We will look at each in turn. While operating funding is often cited as the primary source of funds, it is not the only one. General Obligation Bonds, which serve as another common source of funding, are also common sources.
Operating grants, also called unrestricted grants, are awarded to nonprofit organizations for the purpose of supporting their general mission and covering overhead expenses. These types of grants are highly competitive because they allow organizations to use the funds however they see fit. In order to get this type of funding, organizations must have a proven track record, have strong leadership and have a well-developed plan. In some cases, businesses may even have to pass an audit to receive a grant.
Reappropriations are commonly used for federally funded programs and capital projects. Typically, capital projects have an estimated cost for all phases of development, including land acquisition, design and construction. The funds that are allocated to each phase are disbursed to meet actual costs as each phase progresses. This process is repeated for each phase of the project. The difference between these two funding sources is the amount of money each phase will require.
General Obligation Bonds
General Obligation Bonds are debt securities issued by the government that are backed by the issuing government’s taxing power and credit. These bonds are issued with a promise by the government to pay back bond purchasers with all available resources, including tax revenues, to complete a project. These bonds are often the only source of capital funding for government agencies. The proceeds of these bonds can be used for affordable housing projects or for any number of other purposes.
General Obligation Bonds are generally considered safer than bonds backed by a single revenue source, and they command lower interest rates and reserve funds than bonds backed by a single revenue stream. As written promises of repayment, bonds generally come with a fixed interest rate and a fixed schedule. Consequently, they are the preferred option for governments seeking to finance infrastructure and other projects that will benefit the general public.
American Rescue Plan
The American Rescue Plan, which was signed into law by President Obama on March 11, 2021, will provide over $350 billion in funding for state and local governments and tribal governments to help them respond to the ongoing COVID-19 outbreak. The funds will be provided through the Coronavirus State and Local Fiscal Recovery Funds program, which is recognized as a capital transfer and an intragovernmental current transfer. Funds received through the program will go to states and local governments to assist with their respective needs.
The ARP Act is a federal law that will provide up to $30.5 billion to public transportation agencies across the country. Its purpose is to help public transit systems return to service and combat the COVID-19 pandemic, which disproportionately affects communities of color and low-income households. The Los Angeles County Board of Supervisors saw this as a unique opportunity to restore service to the county and restore the economic prosperity of the residents.