Is a Community Development Financial Institution (“CDFI") an allowable use of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”)for businesses considered impacted or otherwise eligible under CSLFRF?

Last Updated: March 04, 2024

A Community Development Financial Institution (“CDFI”) that is structured as a revolving loan fund, is likely an eligible use of funds as described by the U.S Department of Treasury (“Treasury”):

A recipient may contribute funds to a revolving loan fund if the loaned SLFRF funds are restricted to financing eligible uses under the public health emergency/negative economic impacts, premium pay, and necessary water, sewer, and broadband categories (or under the government services category if the contribution to the revolving fund is made using revenue loss funds). The funds contributed using SLFRF funds must be limited to the projected cost of loans made over the life of the revolving loan fund, following the approach described above for loans with maturities longer than December 31, 2026.[1]

It is important to note the difference between the eligibility of an entity to receive American Rescue Plan Act (“ARPA”) funds such as CSLFRF, and allowable use of funds.  When it comes to businesses, eligible impacted small businesses may receive loans if the funded activity is both eligible and has a reasonable nexus to COVID-19.^[2] Multiple factors can affect whether a small business can be identified as impacted. Factors to consider include, but are not limited to:

1. Decreased revenue or gross receipts; and 

2. financial insecurity;

3. increased costs;

4. capacity to weather financial hardship; and challenges covering payroll, rent or mortgage, and other operating costs.^[3]

The activity of the loan from an eligible revolving loan fund, or a CDFI structured as such, is limited to allowable activities under CSLFRF guidelines. This requires the funded activity to fall within one of the eligible use categories for CLSFRF funds. A CDFI structured as a revolving loan for small business likely falls under the negative economic and health impacts category.[4] This eligible use category requires that the CDFI functioning as a revolving loan to respond to identified negative economic or health impact from the COVID-19 Pandemic in a reasonable and proportional manner.[5]

The U.S. Department of Treasury maintains that CSLFRF uses for general economic development or uses that generally enhance the jurisdiction’s business climate is generally considered an ineligible use.[6] Furthermore, it is critical to ensure due diligence is performed relative to internal controls and city policy to include scrutiny around concepts such as conflicts of interest and general adherence to city policy in conformance with 2 CFR 200.303.

The municipality must ensure that proper documentation is kept for subrecipients, pass-through entities, and beneficiaries in conformance with 2 CFR 200.331-332.

All CSLFRF recipients who have entered into contracts and/or subawards, including entities which have elected to fund revolving loan programs such as the scenario summed above should review the following updated Treasury guidance concerning contracts and subawards.

Immediately effective with Treasury’s publication of the Obligation Interim Final Rule 2023 on Monday, November 20^th, 2023, is the institution of additional flexibility regarding the replacement of a contract or subaward entered into prior to the obligation deadline of December 31, 2024.[7]

While the general provision that that recipients may not re-obligate funds or obligate additional funds after the obligation deadline remains unchanged, Treasury is clarifying that after December 31, 2024, recipients would be permitted to replace a contract or subaward entered into prior to December 31, 2024 under three distinct circumstances:[8]

(1) the recipient terminates the contract or subaward because of the contractor or subawardee’s default, because the contractor or subawardee goes out of business, or because the recipient otherwise determines that the contractor or subawardee will not be able to perform under the contract or carry out the subaward

(2) the recipient and contractor or subrecipient mutually agree to terminate the contract or subaward for convenience

(3) the recipient terminates the contract or subaward for convenience if the contract or subaward was not properly awarded (such as if the contractor was not eligible to receive the contract), there is clear evidence that the contract or subaward was improper, the recipient documents its determination that the contract or subaward was not properly awarded, and the original contract or subaward was entered into by the recipient in good faith.

A contract will be considered made in good faith for purposes of clause (3) above if the parties followed standard procurement or subaward practices, as applicable, and the contract or subaward was not entered into for the purpose of evading the obligation deadline.

A recipient that re-obligates funds to a new contractor or subrecipient after the obligation deadline will be considered to have used its funds to cover an obligation incurred prior to the obligation deadline if any of the three situations above is present and if the original contract or subaward being replaced was entered into by December 31, 2024.

If a recipient enters into a replacement contract or subaward, the recipient still must expend all funds by the expenditure deadline.[9]

Finally, Treasury states:

Recipients should maintain documentation to justify their determinations, which should include an analysis of the factors discussed above. Treasury may ask recipients to provide this information in their periodic reports.[10]

Treasury has updated the CSLFRF Compliance and Reporting Guidance to allow for a means to report any activities which result from the updated contract and subaward guidance cited above.[11]  While the Treasury FAQs document for the 2023 Interim Final Rule (”IFR“) has not yet been released,[12] recipients should review the State and Local Fiscal Recovery Funds: Obligation IFR Quick Reference Guide,[13] in addition to the IFR.[14]

Is there a way for a municipality to repurpose ARPA funds after 12/31/2024 for other programs before 12/31/2026?

Unlike Treasury’s Coronavirus Relief Fund, the Coronavirus State and Fiscal Recovery Fund (“CSLFRF”) program does not allow recipients to make last minute adjustments to fully capture their allocations, for instance by aligning obligation and expenditure dates. To avoid being required to return any of their CSLFRF allocation, recipients should consider planning for contingencies in case any obligations do not fully expend their budgeted amounts after December 31, 2024.

There are several ways recipients may consider creating contingency plans, though recipients should carefully consider the underlying guidance and regulations. Recipients should note that each of the following contingencies requires an over-obligation of a municipality’s CSLFRF allocation.

One option to consider is for a recipient to evaluate the remaining obligations and expenditures and determine whether there are funds at risk of not being expended by December 31, 2026. Once this amount is determined, recipients can evaluate projects that could use additional funding, and issue amendments to those agreements, on or before December 31, 2024, with language around the increased award amounts that clearly states this additional funding is contingent upon the inability of other recipients and projects not fully expending their allocations.

A second option for recipients to consider is to use Treasury’s definition of obligation for incurred expenses to meet the unique needs of their municipality. Treasury is using the Code of Federal Regulation (“CFR”) definition of obligation for incurred expenses which is “an order placed for property and services and entering into contracts, subawards, and similar transactions that require payment.”[1]

Regarding “similar transactions,” Treasury recognizes that recipients may obligate funds through means other than contracts or subawards, for example in the case of payroll costs. In these circumstances, recipients must follow state or local law and their own established practices and policies regarding when they are considered to have incurred an obligation and how those obligations are documented. For example, a recipient may have incurred an obligation even though the recipient and its employee may not have entered into an employment contract.

Finally, recipients can fully calculate the revenue loss of their municipality and allocate expenditures to the revenue replacement category. For municipalities that do not report revenue loss as a lump sum expenditure, the municipality may consider creating placeholder revenue replacement projects to be allocated if needed.

As always, municipalities should carefully consider the underlying regulations and applicable guidance. 

What are best practices for reporting payroll expenses within the treasury portal for projects within negative economic impact category?

Municipalities should ensure that costs are eligible and all reporting elements in the portal are accounted for when reporting payroll expenses within the “negative economic impact category.”[1] This expenditure category permits municipalities to identify and remedy an adverse economic impact caused by COVID-19.[2] Before reporting payroll expenses, municipalities should determine whether the payroll expenses are eligible, and should carefully consult the underlying rules, regulations and guidance at issue. 

Determining Eligibility

For expenses to be eligible under negative economic impact category, the Coronavirus State and Local Fiscal Recovery Fund (“CSLFRF”) Final Rule states:

First, there must be a negative economic impact, or an economic harm, experienced by an individual or a class. The recipient should assess whether, and the extent to which, there has been economic harm, such as loss of earnings or revenue, that resulted from the COVID–19 public health emergency. A recipient should first consider whether economic harm exists and then whether this harm was caused or made worse by the COVID–19 public health emergency. This approach is consistent with the text of the statute, which provides that funds in this category must be used to “respond to the public health emergency with respect to… its negative economic impacts…”[3]

As set forth above, municipalities should determine if the negative economic impact resulted from the COVID-19 public health emergency. If there is a nexus between the negative economic impact and the pandemic, municipalities may claim expenses to this expenditure category.[4] In addition to providing the nexus, municipalities must also ensure the response is reasonable and proportional to the harm experienced.[5] The Final Rule further elaborates below:

Responses must also be related and reasonably proportional to the extent and type of harm experienced; uses that bear no relation or are grossly disproportionate to the type or extent of harm experienced would not be eligible uses. Reasonably proportional refers to the scale of the response compared to the scale of the harm. It also refers to the targeting of the response to beneficiaries compared to the amount of harm they experienced; for example, it may not be reasonably proportional for a cash assistance program to provide assistance in a very small amount to a group that experienced severe harm and in a much larger amount to a group that experienced relatively little harm.[6]

Furthermore, the Final Rule specifically enumerates payroll and benefits expenses to support public sector capacity within the negative economic impact category.

(E) Expenses to support public sector capacity and workforce, including:

(1) Payroll and covered benefit expenses for public safety, public health, health care, human services, and similar employees to the extent that the employee’s time is spent mitigating or responding to the COVID-19 public health emergency;

(2) Payroll, covered benefit, and other costs associated with programs or services to support the public sector workforce and with the recipient.[7]

Reporting Payroll Expenses

The requirements for reporting payroll expenses may vary depending on the project’s details and purpose. In addition to the regular reporting requirements such as project name, project completion status, obligation amount, etc., some projects may require additional reporting for programmatic data[8]. Municipalities are encouraged to understand the requirements and be prepared to report on additional programmatic data if needed. The reporting portal can be found at https://portal.treasury.gov/compliance/.

For payroll expenses of public employees, municipalities should report how funds are being used to support public sector workforce and capacity. This includes reporting “the number of government FTEs [full-time employees] responding to COVID-19 supported under this authority.”[9] Finally, municipalities are encouraged to utilize the corresponding bulk upload template when reporting payroll expenses. The bulk upload template will guide municipalities of reporting requirements for each expenditure category and can potentially ease the administrative burden for reporting large amounts of data.[10]

CSLFRF funds may only be used for costs incurred within a specific time period, starting on March 3, 2021, with all funds obligated by December 31, 2024 and all funds spent by December 31, 2026.[11] Recipients should refer to Treasury’s User Guide for the Project & Expenditure report for detailed instructions on reporting requirements for CSLFRF funded projects.[12] Treasury has typically released updated user guides ahead of reporting deadlines on their website.[13]

Last Updated: March 24, 2023

What is an effective method to calculate the federal share on an affordable housing project?

When calculating the federal share of an affordable housing project, municipalities should consider what each project hopes to achieve and the various federal and non-federal funding that might be available for each project. The federal share of an affordable housing project will often depend upon multiple factors, including but not limited to the goal of the affordable housing project, the number of federal and non-federal funding sources available, and federal, state, and local guidance that will affect how funding sources can be used, and the extent of funding that can be applied to a given project.

Local governments have several funding streams to consider when calculating local and federal shares on an affordable housing project. The structure of federal financing for affordable housing allows for the “braiding” of multiple streams of federal, state, and local funding for the same project (multiple funding sources are used while each individual source used is separately tracked and reported), and in some cases, multiple federal and non-federal funding sources can be “blended” for a single project (multiple funding sources are comingled together and may be tracked and reported on as a single stream of funding).[1] The following steps can be used by a municipality as guidance to determine which federal funding to pursue:

1. Assess local housing needs and establish clear priorities.
2. Take inventory of existing housing programs and local partners. This step includes confirming project eligibility as not all funding streams will support particular projects. While most federal funding will require some form of a 25% match, that too, can vary. It is critical to document the scope of the project and its components and if needed, reach out to funders to ask for confirmation of funding requirements to build out a project budget with match requirements.

These steps may determine which federal funding programs are best suited to the affordable housing project being pursued.[2] Each locality has different housing needs that are affected by numerous factors such its population composition, and current housing supply.[3] Municipalities should review the following non-exhaustive list of federal funding programs for housing with their unique concerns in mind:

• Low-income housing tax credit (LIHTC)
• Mortgage Revenue Bonds
• Community Development Block Grants (CDBG)
• HOME Block Grants
• Housing Trust Funds
• Homeless Assistance Grants
• Housing Opportunities for Persons with AIDS (HOPWA)
• Native American Housing Block Grants (NAHBG)[4]

The various grant programs have a shared goal of providing affordable housing and a suitable living environment for low and moderate-income persons but differ in what benefits and target populations they cover.[5] The programs also offer significant opportunities for collaboration between state and local governments.

In addition to traditional federal housing financing programs, Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) may potentially be utilized to further invest in affordable housing. According to the Final Rule:

[d]evelopment, repair, and operation of affordable housing and services or programs to increase long-term housing security” is an enumerated eligible use to respond to the negative economic impacts of the pandemic on households and communities.[6]

To assist recipients in the utilization and maximization of funds, the U.S. Department of the Treasury and the U.S. Department of Housing and Urban Development (“HUD”) developed an Affordable Housing How-to Guide summarizing the guidance in the final rule around investing in affordable housing as well as recommendations for layering CSLFRF with longstanding federal affordable housing programs, and state funding streams.[7] Potential project categories include but are not limited to flexible funding for new construction and substantial rehabilitation of affordable housing, rehabilitation and adaptive reuse, and predevelopment work.[8]

Recipients utilizing multiple federal funding streams must comply with all related statutory and regulatory requirements and policies of each program used including the requirement that if a project is only partially funded with CSLFRF, the portion of the project funded must be an eligible use under the CSLFRF program. Grants may include specific federal cost share percentages or local match requirements – these vary by grant, federal awarding agency, and recipient. Refer to the Final Rule and other grant specific documents for requirements on cost-sharing and matching when blending and braiding funds for complementary purposes.[9]

Last Updated: March 20, 2023

May a municipality use ARP funds to establish a revolving loan fund?

Under the American Rescue Plan Act (“ARP”), Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) may be used to make loans including in the form of a revolving loan fund, provided that certain requirements are met, which include but are not limited to:

1. The loan supports an activity that is an eligible use of funds;
2. The CSLFRF funds used to make the loan are obligated by December 31, 2024 and expended by December 31, 2026; and
3. The cost of the loan is tracked and reported in accordance with Treasury guidelines.[1]

Amongst other things, CSLFRF funds must be used to cover costs incurred within the ARP period of performance (March 3, 2021 through December 31, 2024) and expended by December 31, 2026. Per the Final Rule, loans or grants to support affordable housing projects[2], impacted small businesses[3], and impacted nonprofits[4] are eligible uses of CSLFRF funds.

Contributions to Revolving Loan Funds

Pursuant to Treasury guidance, a recipient may likely contribute funds to a revolving loan fund if the loaned CSLFRF funds are restricted to financing eligible uses under one of the following categories:

• public health emergency/negative economic impacts,
• premium pay,
• necessary water, sewer, and broadband categories, and
• government services (this category must be used if the revolving loan fund is made using revenue loss funds).[5]

CSLFRF funds contributed to the revolving loan must be limited to the projected cost of loans made over the life of the revolving loan fund, following the approach described below for loans with maturities longer than December 31, 2026.[6] Municipalities should carefully consult the underlying rules, regulations and guidance. 

• For loans with maturities longer than December 31, 2026, the recipient may use funds for only the projected cost of the loan. Per Treasury guidance, there are two approaches for measuring the projected cost:
  • Recipients can project the cost of the loan by estimating the subsidy cost. The subsidy cost is the estimated present value of the cash flows from the recipient (excluding administrative expenses) less the estimated present value of the cash flows to the recipient resulting from a loan, discounted at the recipient’s cost of funding and discounted to the time when the loan is disbursed. The cash flows are the contractual cash flows adjusted for expected deviations from the contract terms (delinquencies, defaults, prepayments, and other factors). A recipient’s cost of funding can be determined based on the interest rates of securities with a similar maturity to the cash flow being discounted that were either (i) recently issued by the recipient or (ii) recently issued by a unit of state, local, or Tribal government similar to the recipient.[7]
  • Alternatively, recipients may treat the cost of the loan as equal to the expected credit losses over the life of the loan based on the Current Expected Credit Loss (CECL) standard. Recipients may measure projected losses either once, at the time the loan is extended, or annually over the period of performance.[8]

For loans with maturities longer than December 31, 2026, “recipients would not be subject to restrictions under 2 CFR 200.307(e)(1) and need not separately track repayment of principal or interest.”[9] regardless of measurement approach. Additionally, recipients may use funds for eligible administrative expenses incurred in the period of performance, which include the reasonable administrative expenses associated with a loan made in whole, or in part, with funds. See section IV.E of the final rule”.[10]

Loans Funded with CSLFRF Funds under the Revenue Loss Eligible Use Category

Per Treasury, if a recipient uses revenue loss funds to fund a loan, whether or not the maturity of the loan is after December 31, 2026, the loaned funds may be considered to be expended at the point of disbursement to the borrower, and repayments on such loans are not subject to program income rules. Similarly, any contribution of revenue loss funds to a revolving loan fund may also follow the approach of loans funded under the revenue loss eligible use category.[11]

Loans to Fund Investments in Affordable Housing Projects

Treasury also included additional requirements on loans to fund investments in affordable housing projects.[12] Recipients may potentially use CSLFRF funds, under the “public health and negative economic impacts” eligible use category to fund the full principal amount of the loan if the loan and project meet the following requirements:

• The loan has a term of not less than 20 years;
• The affordable housing project being financed has an affordability period of not less than 20 years after the project or assisted units are available for occupancy after having received the CSLFRF investment; and
• For loans to finance projects expected to be eligible for the low-income housing credit (LIHTC) under section 42 of the Internal Revenue Code of 1986 (the Code),
  • the project owner must agree, as a condition for accepting such a loan, to waive any right to request a qualified contract (as defined in section 42(h)(6)(F) of the Code); and the project owner must agree to repay any loaned funds to the entity that originated the loan at the time the project becomes non-compliant, including if such project ceases to satisfy the requirements to be a qualified low-income housing project (as defined in section 42(g) of the Code) or a qualified residential rental project (as defined in section 142(d) of the Code), or if such project fails to comply with any of the requirements of the extended low-income housing commitment that are described in section 42(h)(6)(B)(i)-(iv) of the Code.[13]Loans to fund investments in affordable housing projects have the following additional  

Loans under the above criteria “may be considered to be expended at the point of disbursement to the borrower, and repayments on such loans are not subject to program income rules.”[14] Additionally, “loan modifications are permitted if the modifications do not result in repayment of all or substantially all funds to the lender prior to the end of the affordability period.” [15]And for the purpose of reducing administrative complexity, “the start date of the 20-year affordability covenant may conform to the start date of other covenants on the same project or units that are required by another source of federal or state funding associated with the project or units.”[16]

In summary, loans, including revolving loans, are eligible to be funded with CSLFRF funds if the loan supports an activity that is an eligible use of ARP funds. This includes but is not limited to, affordable housing, assistance to impacted small businesses and nonprofits. Using a loan for government services is an eligible use if it uses revenue replacement funds. Finally, for additional non-enumerated uses, refer to the Treasury “Framework for Eligible Uses Beyond Those Enumerated” to determine eligibility.[17]

Recipients should refer to Treasury guidance in the Final Rule and FAQs for details on how to account for and track the funding based on the loan maturity, purpose, and structure.

Last Updated: March 20, 2023

What steps should a community applying for funding under the FEMA Hazard Mitigation Assistance Programs (HMGP, BRIC, FMA, and PDM) take in preparation for application?

The Federal Emergency Management Agency’s (“FEMA”) Hazard Mitigation Assistance (“HMA”) programs fund eligible mitigation measures to reduce disaster losses. Within FEMA, there are presently at least four mitigation programs that interested jurisdictions can apply to:

• Hazard Mitigation Grant Program (“HMGP”);
• Building Resilient Infrastructure and Communities (“BRIC”);
• Flood Mitigation Assistance (“FMA”); and
• Pre-Disaster Mitigation (“PDM”)

With respect to the nationally competitive programs (BRIC and FMA), jurisdictions are encouraged to review the Notice of Funding Opportunities (“NOFO”) for application requirements specific to each fiscal year.[1] The NOFOs for BRIC and FMA are typically released each year in August. The PDM program was revived in fiscal year 2022 as appropriations to 68 congressionally directed projects. Only these projects were eligible to submit sub-applications for PDM funding.[2] At this time, FEMA has indicated that PDM funding will be available annually.

HMGP is available when authorized under a presidentially declared major disaster. States then issue a NOFO to alert jurisdictions of available funding. States generally have one year after the disaster declaration to submit HMGP subapplications to FEMA. 

For all FEMA HMA programs, eligible jurisdictions apply as subapplicants[3] through a state, territory, or federally recognized tribe. The state, territory, or federally recognized tribe is the applicant and pass-through entity. The applicants review, approve, and prioritize subapplications before they are submitted to FEMA for federal review and approval. Jurisdictions interested in applying are encouraged to reach out to their State or Tribal Hazard Mitigation Officer to learn about mitigation priorities, application processes and deadlines, and upcoming webinars and workshops.[4]

The following list addresses the steps a municipality may consider taking in applying for any of the FEMA HMA programs, among other things:

HMGP

1. Be aware of available HMGP following a major disaster declaration

The amount of HMGP funding available varies by disaster. Applicants (e.g., states, territories, and tribes) mayhost a briefing or a kick-off workshop to let potential subapplicants know of available funds and state priorities. Following a major disaster declaration, jurisdictions are encouraged to sign up for state email notifications, establish a point of contact with their state emergency management office, and review the state issued NOFO, if one is released.

2. Review application process requirements and deadlines

Each individual state, territory, and tribe is responsible for setting up the process to receive and review subapplications for its HMGP funding ceiling. Subapplicants are responsible for adhering to the state deadlines and application process. This process may include, but is not limited to:

• A Notice of Interest (“NOI”), Letter of Intent (“LOI”), or pre-application that provides preliminary information about a subapplicant’s project. States use this document to check for eligibility and alignment with state priorities, and to set the overall budget for the available HMGP funds.
  • This document may require a tight turnaround deadline after the declaration. States will notify those entities whose NOI/LOI/pre-applications were selected when it is time to move forward with a subapplication.
• Each state develops their own HMGP application and the process by which it is submitted to the state. Some states use online grant management systems to receive subapplications and others require PDF or printed versions that are then submitted via email or other electronic means.
  • Some states require physical copies of subapplications be mailed to the state office. Interested subapplicants must pay close attention to their state’s process and allow enough time to meet those requirements.
• Each state, territory, or tribe establishes its own deadlines for HMGP subapplications. Typically, these deadlines are set two to three months before subapplications are due to FEMA to allow the state enough time to review subapplications and issue a Request for Information (“RFI”) if needed.
• The state will issue RFIs if a subapplication is incomplete or does not meet the state or FEMA documentation requirements. Subapplicants must respond to these RFIs as quickly and as completely as possible to minimize future RFIs. 

3. Understand the state mitigation funding priorities for each presidential major disaster declaration and submit projects that align with those priorities

States, territories, and tribes with HMGP funds typically establish specific funding priorities. Many states will prioritize the jurisdictions that were impacted by the disaster. States may also prioritize projects that address the type of hazard that caused the major disaster declaration. For example, if the disaster declaration was the result of wildfires, the state may prioritize projects that address wildfire mitigation, such as soil stabilization in burn scars or vegetation management.

State project priorities can include but are not limited to the following types of projects: 

• Projects that will benefit communities with high social, economic, and/or environmental vulnerability
• Projects that incorporate climate adaptive solutions or nature-based approaches
• Projects that will benefit a whole community rather than only a small portion of the community
• Projects that address critical infrastructure
• Projects that address one of the critical hazards in the state

Please note that these priorities may change for each individual disaster declaration. Jurisdictions must pay attention to the State-issued NOFO for HMGP funds when this funding is available. 

 BRIC and FMA

1. Review the August 2022 Notices of Funding Opportunity (NOFOs)[5]

FEMA released its most recent NOFOs for the BRIC and FMA programs on August 12, 2022. These NOFOs outline important funding information such as:

• The date the application period opens and the FEMA deadlines to submit applications
• Available funding under state allocations, tribal set-aside, and national competition
• The funding priorities and how project applications for competitive funding will be scored and prioritized
• Other administrative information pertaining to the grants

2. Attend FEMA and State sponsored webinars

To supplement the release of the NOFOs, FEMA hosted a series of webinars in the last two years to review key components of the funding programs.[6]

In addition to the FEMA webinars, many states host webinars to review the NOFOs with interested jurisdictions. These webinars provide a chance for potential subapplicants to become acquainted with the state team managing the FEMA mitigation programs and establish points of contact to discuss project ideas. States may also discuss requirements and deadlines specific to their state.

3. Be aware of state subapplication requirements and register in FEMA Grants Outcomes (“FEMA GO”) Management System

As with HMGP, many states set subapplication deadlines well before the FEMA application deadline. The deadline for NOIs for FEMA funding is typically early in the application process — in some cases, within one month from when FEMA releases the NOFO.

As soon as the state approves a subapplicant’s NOI, the subapplicant must register in the FEMA GO grants management system.[7] FEMA GO is a system utilized to receive, review, and approve both BRIC and FMA applications. States will often request that subapplicants start drafting their subapplications in FEMA GO as soon as possible as there may be troubleshooting required when first registering in the system.

The subapplication process for BRIC and FMA is more expedited than the subapplication process for HMGP. Several states set deadlines for submission to the state in late November or early December. This provides states enough time to review the subapplications for eligibility, competitiveness, and completeness before submitting the state application packets (i.e., all subapplications plus the state management cost subapplication) to FEMA. As with HMGP, the state will issue RFIs when necessary to submit eligible and complete subapplications.

4. Obtain a Unique Entity Identifier (UEI) if the municipality does not have a pre-existing UEI 

The federal government transitioned from the Data Universal Numbering System (DUNS)[8] to the UEI as the official entity identifier in April 2022.[9] In order to apply for BRIC and FMA grants, a jurisdiction must obtain a UEI. This process may take several weeks, so starting early is recommended.

Some other key considerations for each program are as follows:

BRIC

• The BRIC program allots technical criteria points to subapplicants with a Building Code Effectiveness Grading Schedule (“BCEGS”) rating between one and five.[10] If a jurisdiction is interested in applying for BRIC, it should obtain its BCEGS rating as soon as possible. Interested parties should reach out to the municipal or county building department to ask if one has been completed for the jurisdiction. If not, the community may contact the BCEGS Program Manager, Dale Thomure, at Dale.Thomure [at] verisk.com (Dale[dot]Thomure[at]verisk[dot]com).
• Jurisdictions interested in applying for the Capability and Capacity Building funds must contact their State Hazard Mitigation Officer to discuss the state’s priorities for the state allocation dollars ($2 million in fiscal year 2022). For example, many states will choose to put all allocation dollars towards a particular activity type (e.g., project scoping) or a single subapplication. The state allocation funding is limited and tend to be very competitive.  
• Jurisdictions must understand and address FEMA’s Technical and Qualitative Evaluation Criteria in their subapplication narratives to be competitive for BRIC funding.[11] Subapplications that fail to meet these criteria will likely not be selected to receive BRIC funding.

FMA

• To be competitive for the FMA funding, subapplicants must protect Repetitive Loss (“RL”) and Severe Repetitive Loss (“SRL”) properties. It is critical for jurisdictions applying for this funding to obtain the RL and SRL data as soon as possible and crosscheck the data with National Flood Insurance Program (“NFIP”) policy claims information. FEMA currently utilizes the NFIP PIVOT system to store NFIP claims information.[12]
• For Individual Mitigation Projects (e.g., property acquisitions, structure elevations, mitigation reconstruction), jurisdictions are encouraged to conduct community outreach early to gauge property owner interest. This outreach can be conducted prior to the release of the FEMA announcement. In some cases, jurisdictions with high rates of RL and SRL properties conduct outreach to property owners throughout the year to ensure they have an up-to-date list of interested property owners ready for a subapplication.
• Similarly, jurisdictions preparing subapplications with large numbers of properties are encouraged to build an in-house team or procure professional services to assist with property owner data collection and management.

General Good Practices  

The following are general good practices when developing a FEMA mitigation subapplication under all HMA programs (HMGP, BRIC, FMA, and PDM)

1. Utilize and Request Pre-Award Costs

Pre-award costs are a mechanism in the FEMA HMA programs that allow subapplicants to incur costs before FEMA has issued an award. These are soft costs needed to prepare a complete subapplication packet and may include costs for activities including: design and engineering, environmental and historic studies and data collection, community outreach, and subapplication and BCA preparation. No groundbreaking may take place before award so pre-award costs are constrained to the technical body of work needed to support the subapplication. A subapplicant requests pre-award costs by including them as a line item within their subapplication cost estimate. The activities listed above may require support from contractors, and subapplicants are encouraged to begin the procurement process early if they anticipate requiring assistance to develop these materials.

To be eligible for reimbursement, should the project be awarded, any procured services for pre-award activities must comply with 2 CFR Part 200.[13] If using in-house staff to complete these activities, subapplicants are encouraged to keep a robust accounting of staff hours and tasks completed. Importantly, because pre-award costs are incurred prior to FEMA award, these costs are incurred at the subapplicant’s risk. If FEMA does not award the project, these costs will not be reimbursed.

2. Frontload Environmental and Historic Preservation (“EHP”)  

It is important in the early stages of project identification and development to identify any EHP concerns or questions that may impact project approval by FEMA or project implementation. These are important considerations during the project development stage, as EHP compliance requirements may:

• impose time and cost implications for the project;
• include additional award conditions imposed by FEMA; or
• require the subapplicant to consider alternatives, identify alternate locations, and other project modifications.[14]

Subapplicants are urged to conduct environmental planning and historic preservation tasks prior to award (utilizing pre-award costs as discussed above). This may include consultations with various local, state, and federal agencies, as well as interested parties, to gauge what, if any, impacts the project may have on environmental, historical, and cultural resources. The consultations and data collection must inform the project scope of work, budget, and schedule and the resulting documentation should be included in the subapplication packet.

This data collection and consultation process is helpful in two ways:

• creates a more thorough project subapplication with increased viability for implementation; and
• assists in expediting FEMA’s EHP review and the award timeline for the project.

3. Phasing Projects

Another mechanism available under the FEMA HMA programs is project phasing. This mechanism is available in situations where a subapplicant does not have the technical or financial resources to provide the complete technical body of work needed for the state and FEMA to perform a complete eligibility, feasibility, and EHP review. Phasing allows a subapplicant to submit a whole project (engineering/design through construction) as one subapplication, but the funding is awarded in two parts. The project is split into two phases as described below.  

• Phase I typically includes:
  • Finalization of feasibility studies
  • Advanced design and engineering studies
  • Reassessment of the benefit-cost analysis (“BCA”)
  • Project site data collection. For example, if the project involves individual property retrofits, data on each structure may be collected during Phase I. 
  • Collection and finalization of EHP data and consultation. The project must meet EHP requirements before Phase II approval.
• Phase II is only awarded if the Phase I studies demonstrate that the project is eligible, technically feasible, cost-effective, and compliant with EHP regulations. Phase II consists of project implementation including:
  • construction;
  • project monitoring and inspections; and
  • project closeout.

Last Updated: March 16, 2023

How can a municipality use grants or federal funding to support professional development opportunities?

While there are no known federal grants which specifically fund professional development opportunities for municipal employees, some federal funding sources may allow professional development expenses as either a direct or indirect cost. For example, recipients of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) could potentially use these funds as a direct cost to “support public sector employment” by offering “worker retention incentives.”[1] Additionally, municipal staff professional development can be an eligible expense under Expenditure Category 6: Revenue Replacement as this may qualify as a government service provision.[2]

Professional development opportunities may also potentially be supported by allocating these expenses as indirect costs of a new or existing grants. However, municipalities should understand the Federal Uniform Guidance standards related to indirect costs.

All costs are subject to, among other things, 2 CFR Part 200 Subpart E which, among other pertinent guidance, addresses fundamental cost considerations to determine whether the indirect cost meets tests for:

• Allowability (§200.403),
• Reasonableness (§200.404), and
• Allocability (§200.405).[3]

Awardees such as a municipality should evaluate contemplated costs to determine if it meets the definitions under each applicable section. Regarding the classification of indirect costs, Section 200.412 of the Uniform Guidance states:

There is no universal rule for classifying certain costs as either direct or indirect (F&A) under every accounting system. A cost may be direct with respect to some specific service or function, but indirect with respect to the Federal award or other final cost objective. Therefore, it is essential that each item of cost incurred for the same purpose be treated consistently in like circumstances either as a direct or an indirect (F&A) cost in order to avoid possible double charging of Federal awards. Guidelines for determining direct and indirect (F&A) costs charged to Federal awards are provided in this subpart.[4]

Section 200.412 of the Uniform Guidance does not provide explicit criteria for determining direct or indirect costs. Rather, it emphasizes that municipalities must be consistent in their classification of indirect or direct for incurred costs of the same purpose.[5]

Last Updated: March 16, 2023

To what extent can a municipality use IIJA funds to hire employees/create departments to record and report federal fund usage and manage fraud, waste, and abuse?

Municipalities should, when considering award administration and allocation, operate under the assumption that Infrastructure Investments and Jobs Act (“IIJA”) recipients will be required, at a minimum, to adhere to the guidance set forth in the Uniform Guidance.[1] That is, municipalities will still be held responsible for ensuring federal funds are used for their intended purposes with regard to the effectiveness and efficiency of their operations; reliability of reporting for internal and external use; and compliance with any/all applicable laws and regulations, including but not limited to those concerning fraud, waste and abuse.[2]

While there are sections in the IIJA that discourage waste, fraud, and abuse (including but not limited to Title I – Broadband Grants[3], Title IV – Enabling Middle Mile Broadband Infrastructure,[4] Title IV – Minority Business Development Grants,[5] and Title VII – Administrative Powers of the Agency).[6] The law does not provide explicit  guidance on how recipient municipalities should prevent such issues or if funding can be used in the managing of mitigation.

At a minimum, however, recipient municipalities should consider the following non-exhaustive list of factors to maintain compliance with the IIJA:

• Municipalities should consider the fact that the receipt and use of IIJA funds could add additional administrative and reporting requirements for staff;
• Municipalities should confirm their existing capacity (employees/resources) and expertise with regard to federal awards when allocating and administering funding and their ability to monitor awards for waste, fraud, and abuse;
• Municipalities should factor in the capacity of any outside resources that may be available for assistance in allocating and administering funding and monitoring awards for waste, fraud, and abuse;
• Municipalities should be aware of, and prepared for, IIJA funding awards to be reviewed as part of the federal single audit process;
• Municipalities can use IIJA funding for cyber projects to assess potential threats that may impact critical operations and technology infrastructure; and
• Municipalities should proactively identify and allocate resources to ensure that IIJA spending can be administered in accordance with all relevant regulations and guidance, properly tracked, and well-documented as transparency for constituents, the federal government, internal and external audiences, leadership, and other stakeholders will be imperative.

How should a municipality approach mandatory participation in grant administration? Are there good practices to ensure the best engagement outcomes after requiring or incentivizing grant administration in similar funding opportunities?

As municipalities approach grant administration, it is important to incentivize participation rather than to mandate participation. It is critical for municipalities to have robust grant management infrastructure to comply with the terms of the grant and take advantage of the available opportunities.

A solid grants management infrastructure will allow an organization to develop strategic plans and programs, identify grant opportunities, streamline proposals, evaluate projects, and avoid complications and penalties. Each new funding opportunity is unique and has its own challenges to navigate. Organizations may benefit from capacity building through technical assistance programs. A community organization that has sufficient capacity can identify and secure stable, consistent, and long-term priorities for funding, and deliver grant-funded services in compliance with grant requirements. Communities with limited capacity miss out on opportunities and carry elevated risk.

The following list of non-exhaustive good practices may build community capacity by leveraging technical assistance:

• Invest in human capital, technology, and administrative and financial capacity;
• Provide expert advisory panels, trainings, conferences, and technical resources through a variety of channels (in-person, virtual, etc.);
• Distribute resources and training on (1) grant writing and administration, (2) program planning, implementation, and evaluation, and (3) leveraging community partnerships;
• Simplify compliance, provide administrative templates, and set expectations around grant compliance, reporting, and documentation;

Last Updated: March 9, 2023

What are the best ways for municipalities to avoid negative audit findings and the potential return of CSLFRF funds to Treasury?

Although there is no single solution and municipalities should carefully consult the underlying regulations and rules, to avoid negative audit findings and the potential return of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to the U.S. Department of the Treasury (“Treasury”), a municipality should, among other things, become familiar with the award terms and conditions outlined in the award agreement, and take steps to ensure compliance with applicable laws and regulations. For example, recipients of federal funds often must comply with the accounting guidelines and award management principles set forth in the Federal Office of Management and Budget’s (“OMB”) CFR Part 200 - Uniform Administrative Requirements, Cost Principles, and Audit Requirements guidance (“Uniform Guidance”), among other things.[1]

Many provisions contained in the Uniform Guidance apply to the CSLFRF[2] program under assistance listing number 21.027,[3] including the Cost Principles and Single Audit Act requirements. Noncompliance with the Uniform Guidance could ultimately lead to an audit finding in areas such as Internal Controls, Reporting, Cash Management, Procurement, Subrecipient Monitoring, and Allowable Costs/Cost Principles, or others.  Implementing comprehensive internal compliance policies, procedures, and controls may help prevent a potential audit finding.

Recipients may consider referring to the Assistance Listing for details on the specific provisions of the Uniform Guidance that do not apply to this program.[4] Relevant provisions of the Uniform Guidance applicable to the CLSFRF are cited below, and we reiterate that municipalities should carefully conduct their own due diligence of the applicable rules, regulations and guidance in this sensitive area.

Uniform Guidance Provisions Applicable to CSLFRF[5]

Meeting Compliance Requirements

When an auditor is developing audit procedures to test a municipality’s compliance with the requirements applicable to the CSLFRF program, the auditor may determine from the non-exhaustive list below which of the compliance requirements have been identified as subject to the audit:

• Activities Allowed or Unallowed

• Allowable Costs/Cost Principles
• Eligibility
• Period of Performance
• Procurement Suspension & Debarment
• Reporting
• Subrecipient Monitoring[6]

The auditor may then determine which requirements are likely to have a direct and material effect on the federal program at the auditee.

A municipality should prepare for the audit by, at a minimum, reviewing the 2021 Audit Compliance Supplement guidance to ensure their procedures and processes are compliant and will reduce the risk of an audit finding.^[7]

Although an audit can be an exhaustive process that includes an organizational-wide review of financial and compliance components, it may have a positive outcome for the municipality. Developing and implementing policies, procedures, and internal controls that standardize the grants management process may position a municipality against receiving an audit finding.

Last Updated: March 9, 2023

What are some of the specific roles that both community members and local governments can play in community-engaging partnerships? How can a municipality ensure that their communities are benefiting from these partnerships?

Community engagement is a key factor in federal grant programs. When communities are engaged “the likelihood that projects or solutions will be widely accepted” increases, and citizens are more committed to the projects’ success.[1] Some federal programs require reporting on a recipient’s community engagement efforts. For example, Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) guidance notes that to satisfy annual reporting related to community engagement, Recipients may describe completed or planned community engagement strategies specifically focused on their SLFRF program and projects or community engagement strategies that included SLFRF among other government programs[2].

Strategies for effectively engaging the community and generating buy-in from community members include but are not limited to:

• Implementing advisory boards
• Encouraging community engagement in budgeting
• Using mobile apps and web-based engagement platforms
• Deploying community surveys,
• Implementing focus groups
• Hosting open houses, workshops, forums, and
• Hosting public meetings and hearings.

These strategies encourage open communication between the public and local officials, engaging members of the public in projects by providing feedback and informing the government on the community’s priorities.[3] It is a good practice to set milestones or metrics for the initiative to ensure that engagement is meeting the target goal. There is no one best practice for community engagement; instead, there is a range of engagement options and roles that can be tailored to fit the needs of the specific government program or of the community.  

Community engagement can be achieved by drawing from a diverse group to develop creative, effective, practical solutions informed by local knowledge. This also includes empowering and integrating people from different backgrounds. Both lead to better outcomes, a more comprehensive program, and greater community engagement.

Establishing open communication between the local government or municipality’s leaders can also facilitates community engagement and solutions for issues affecting a diverse range of constituents. [4]

One example of an engagement platform is Connect Sammamish, a website used by the city of Sammamish in Washington State.[5] The website allowed the city to conduct surveys, communicate with the community about the city’s Transportation Master Plan, and build trust with community members by providing a centralized source for key updates.[6] Residents of Sammamish can use Connect Sammamish to view current and upcoming projects that the city is undertaking, learn about prior projects, and keep up to date with important information happening in the city.

Another example of a local government’s incorporation of open communication and community partnership good practices is the Housing Authority of the City of Austin’s (“HACA”) Digital Ambassador Program.[7] The Digital Ambassador Program leverages the knowledge of resident leaders to increase technological literacy and to make digital tools accessible to all HACA residents.[8]

HACA selects as digital ambassadors, residents with different levels of technology experience so that all levels of unconnected or technologically disadvantaged residents can be reached. HACA Digital Ambassadors received training on diverse topics, including adult technology learning principles, digital equity policies and programs, outreach strategies, civic engagement, and the use of digital tools for transportation, education, workforce development, energy efficiency, and social services.[9] HACA’s interaction with its digital ambassadors and the insight gleaned from the residents these ambassadors influenced also informed HACA’s digital communication plan.[10]

What are best practices for local governments (particularly rural communities), to consider so that they have a greater chance of receiving SLCGP funding from state leadership?

The State and Local Cybersecurity Grant Program ("SLCGP") is a grant program established by the Infrastructure Investment and Jobs Act ("IIJA") to help state, local, territorial, and tribal ("SLTT") governments effectively manage and reduce systemic cyber risk.[1]

The Department of Homeland Security ("DHS") is responsible for implementing the SLCGP grant program through the Cybersecurity and Infrastructure Security Agency ("CISA") and the Federal Emergency Management Agency ("FEMA").[2] The implementation of the SLCGP will occur over the period of performance of 48 months spanning from September 1, 2022, to August 31, 2026.[3]

For fiscal year 2022, $185 million was appropriated by Congress.[4] State-by-state SLCGP allocations can be found on pages 10 through 13 of the notice of funding opportunity ("NOFO").[5] As to SLCGP, CISA provides the following:

The established SAA for states and territories will be the only entities that can apply for grant awards under the SLCGP. Local entities receive sub-awards through states. The legislation requires states to distribute at least 80% of funds to local governments, with a minimum of 25% of the allocated funds distributed to rural areas.[6]

Rural local governments will receive a guaranteed minimum of 25% of the 80% allocated funds.[7] A rural area is an "area encompassing a population of less than 50,000 people that has not been designated in the most recent decennial census as an "urbanized area" by the Secretary of Commerce."[8]

It is vital to note that DHS will implement the SLCGP through collaboration with CISA and FEMA.[9] CISA will operate as the subject-matter expert regarding cybersecurity related issues, whereas FEMA will function in a grant administration and oversight function regarding appropriated funds.[10] This includes SLCGP award, allocation disbursement to eligible entities, and overarching financial management funding implementation oversight.[11]

The State Administrative Agency (“SAA”) is the only entity eligible to apply for and submit the application for the Homeland Security Grant Program (“HSGP”) and its component programs.[12]

Please refer here for a complete listing of each state's respective SAA point of contact.[13]

Good Practices

Listed below is a non-exhaustive survey of good practices local governments and rural communities can consider creating successful outcomes and increase their awareness of the SLCGP and their state's respective efforts regarding this grant program.

First, Rural communities can take preemptive steps to be ready to act on the SLCGP funds that pass through to them. These steps could include, among others:

1. Increasing staff capacity for SLCGP implementation and being prepared to act on their respective state's Cybersecurity Plan
2. Ensuring adequate internal controls are in place for the smooth facilitation of federal funds
3. Assembling a grant team and ensuring all individuals know their respective roles in supporting the grant
4. Including staff with prior grant management experience on the designated SLCGP grant management team
5. Regularly review the grant agreement to ensure all requirements are being met
6. Account for indirect costs and follow the appropriate steps for their negotiated indirect cost rate agreement with the cognizant agency or contact FEMA if they do not have a current negotiated indirect cost rate and wish to charge the de minimis rate.[14]

Second Rural communities are encouraged to review their state's overarching Cybersecurity Plan as CISA notes that:

Local governments will be part of the eligible entity's Cybersecurity Plan. These plans are meant to guide development of cybersecurity capabilities across the state or territory. The plans are not meant to be agency specific.[15]

With local governments reviewing their state's respective Cybersecurity Plan per the above, the aim is for these local governments to obtain a better awareness of how their state is planning to execute its cybersecurity and, consequently, SLCGP projects as well as better understand how their SAA will be coordinating and engaging with said local governments.

Each state's SAA will be responsible for “managing the grant application and award,” and as such, rural communities need to communicate closely with their SAAs regarding the grant funding pass-through process.[16] Local governments and rural communities are considered subapplicants to their respective SAAs, and thus must work with their state's Cybersecurity Planning Committee to receive subawards.[17]

Rural communities are encouraged to work closely with the state's Cybersecurity Planning Committee(s).[18] It is ultimately up to the state to determine, with the permission of the relevant local governments, where and how to pass-through funds if passing through items or services in lieu of funding.[19]

There are several aspects of the SLCGP that State SAAs must ensure rural communities are aware of. States' adherence to these elements will promote the smooth facilitation of this grant program. The various elements are as follows:

• Establishment of and composition of the Planning Committee;
• Cybersecurity Plan(s) or request for exception;
• Proposed projects that are consistent with the Cybersecurity Plan(s), or will be consistent with the Cybersecurity Plan if requesting a grant to develop a Plan, and SLCGP program objectives and requirements;
• Proposed projects are feasible and effective as reducing the risks the project was designed to address; and
• Proposed projects will be completed within the period of performance.[20]

All local government information technology directors or chief information officers should coordinate with their respective state SAA as quickly as possible regarding the next steps for their state's plans for applying for the SLCGP.[21]

Resources

For further applicable grant information and resources regarding the SLCGP, please reference the following:

1. SAA Contacts are located here.[22]
2. DHS Notice of Funding Opportunity Fiscal Year 2022 State and Local Cybersecurity Grant Program is located here.[23]
3. CISA SLCGP Grant Program is located here.[24]
4. FEMA Fiscal Year 2022 SLCGP Fact Sheet is located here.[25]
5. CISA SLCGP Frequently Asked Questions are located here.[26]

Last Updated: March 9, 2023