Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

Can ARP funds from revenue loss calculations serve as a match to other federal programs like traditional municipal dollars?

At this time, funds received as part of the American Rescue Plan Act of 2021 (“ARP”) from revenue loss calculations may not serve as a match to other federal programs like traditional municipal dollars.

The U.S. Department of the Treasury’s (“Treasury”) May 10, 2021, Interim Final Rule (the “Rule”) includes a comprehensive formula that municipalities should apply to calculate their respective revenue loss due to the pandemic.[1] Once a municipality has calculated its lost revenue, it generally has “broad latitude to use the Fiscal Recovery Funds for the provision of government service to the extent of reduction in revenue.”[2]

However, Treasury has issued clear guidance on forbidden uses of the ARP’s Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”), including an overarching restriction on using ARP funds allocated to municipalities for non-federal matching when barred by existing regulation or statute.[3] As an example, the Rule states that “payments from the [State and Local] Fiscal Recovery Funds may not be used to satisfy the State share of Medicaid.”[4]

Likewise, Treasury’s Frequently Asked Questions (“FAQ”) on CSLFRF address whether recipients of ARP funding may use funds to satisfy non-federal matching requirements broadly, as well as under the Stafford Act:

Fiscal Recovery Funds are subject to pre-existing limitations in other federal statutes and regulations and may not be used as non-federal match for other Federal programs whose statute or regulations bar the use of Federal funds to meet matching requirements. For example, expenses for the state share of Medicaid are not an eligible use.[5]

Municipalities who have received CSLFRF funding should keep abreast of ongoing developments and discussions regarding non-federal matching. Members of the U.S. Senate have expressed bipartisan support for the idea that CSLFRF recipients could use CSLFRF funds instead of their revenues to satisfy non-federal match requirements for federal discretionary grant programs they may contribute to and benefit from, such as: (i) U.S. Department of Agriculture’s (“USDA”) Water & Wastewater Disposal Grant Program, (ii) USDA’s Broadband ReConnect Program, (iii) U.S. Economic Development Administration’s  Public Works Program, or (iv) other similar federal programs.[6] CSLFRF recipients should be aware of uses that could potentially become eligible as the COVID-19 emergency continues to evolve over time and Treasury updates its guidance.

Last Revised: September 1, 2021

 

[1] Treas. Reg. 31 CFR 35 at 58-59, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[2] Id., at 60.

[3] Id., at 96-97.  

[4] Id., at 97.

[5] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.4, at 19, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.  

[6] Senator Joe Manchin, “Manchin, Collins lead bipartisan push to expand relief funding uses to include local funding matches for federal grants,” available at: https://www.manchin.senate.gov/newsroom/press-releases/manchin-collins-lead-bipartisan-push-to-expand-relief-funding-uses-to-include-local-funding-matches-for-federal-grants.

Program

COVID-19 Federal Assistance e311

Topics

Timing of Funds

Are payroll costs for public health, safety, and other public sector staff responding to COVID-19 incurred prior to March 3, 2021, eligible for reimbursement through the CSLFR grant?

The U.S. Department of the Treasury ("Treasury") Coronavirus State and Local Fiscal Recovery Funds ("CSLFRF") Interim Final Rule (the "Rule") specifies that Fiscal Recovery Funds cannot be used for expenses incurred prior to March 3, 2021.[1] This includes payroll costs for public health, safety, and other public sector staff responding to the COVID-19 public health emergency.

The Rule:

[P]ermits funds to be used to cover costs incurred beginning on March 3, 2021. This aligns the period for use of Fiscal Recovery Funds with the period during which these funds may not be used to offset reductions in net tax revenue. Permitting Fiscal Recovery Funds to be used to cover costs incurred beginning on this date will also mean that recipients that began incurring costs in the anticipation of enactment of the [American Rescue Plan Act of 2021 (“ARP”)] and in advance of the issuance of this rule and receipt of payment from the Fiscal Recovery Funds would be able to cover them using these payments. [2]

It may therefore be helpful for municipalities to explore other funding sources to reimburse relevant costs incurred prior to March 3, 2021. Other funding sources may include Federal Emergency Management Agency (“FEMA”) Public Assistance (“PA”)[3] or funding through the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Coronavirus Relief Fund (“CRF”),[4] which impose less restrictive timelines on eligible expenses than CSLFRF.

Last Revised: August 26, 2021

[2] Id., at 99 (emphasis added).

[3] Public Assistance Disaster-Specific Guidance - COVID-19 Declarations | FEMA.gov, available at https://www.fema.gov/media-collection/public-assistance-disaster-specific-guidance-covid-19-declarations

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

Can revenue loss from 2020 be used to pay for any budget shortfalls for 2021?

The answer to this question depends on how broadly the phrase “any budget shortfall” is defined.  As described below, numerous eligible uses of the Coronavirus Local Fiscal Recovery Funds (“CLFRF”) exist; however, the U.S. Department of the Treasury (“Treasury”) has imposed some noteworthy restrictions on municipalities’ use of CLFRF funds. To the extent that “any budget shortfall” might include prohibited uses of CLFRF money, municipalities cannot of course use those funds to pay for the ineligible activities.   

At bottom, municipalities may use revenue replacement funds to pay for budget shortfalls in 2021 so long as they relate to actual programmatic activity pursuant to the municipality’s provision of government services:[1]

The Interim Final Rule gives recipients broad latitude to use funds for the provision of government services to the extent of reduction in revenue. Government services can include, but are not limited to, maintenance of infrastructure or pay-go spending for building new infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services.[2]

Once a municipality qualifies to receive all or a portion of its funding through the ARP’s revenue replacement provision based on the 2020 calculation, it can use the funds to make up programmatic shortfalls in the 2021 budget year.[3] The ARP does not directly replace revenue shortfalls in government accounts.[4]

Moreover, Treasury has identified some specific applications that do not qualify for revenue replacement funding using CSLFRF money:

However, paying interest or principal on outstanding debt, replenishing rainy day or other reserve funds, or paying settlements or judgments would not be considered provision of a government service, since these uses of funds do not entail direct provision of services to citizens. This restriction on paying interest or principal on any outstanding debt instrument, includes, for example, short-term revenue or tax anticipation notes, or paying fees or issuance costs associated with the issuance of new debt. In addition, the overarching restrictions on all program funds (e.g., restriction on pension deposits, restriction on using funds for non-federal match where barred by regulation or statute) would apply.[5]

The Supplementary Information to Treasury’s Interim Final Rule (the “Rule”) further discusses restrictions on the use of CLFRF funds.[6]

In summary, to the extent that ineligible types of expenses constitute budget shortfalls, CLFRF assistance cannot be used for these purposes. However, municipalities have broad latitude to use these funds for a wide variety of other pandemic-related expenses, as described in the statute and the Rule.[7] It is noteworthy that the Rule authorizes the use of this assistance “to cover costs incurred by the State, territory, Tribal government, or local government by December 31, 2024.”[8]  And the CLFRF “period of performance will run until December 31, 2026, which will provide recipients a reasonable amount of time to complete projects funded with payments from the Fiscal Recovery Funds.”[9]

Last Revised: August 31, 2021

[1] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.8, at 15, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[2] Id (emphasis added).

[3] Id., at 20.

[4] Id.

[5] Id., at 15 (emphasis added).

[6] Treas. Reg. 31 CFR 35 at 78-79, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[7] Id., at 10-78.

[8] Id., at 97.

[9] Id., at 99.

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

After the Revenue Loss Amount has been calculated, is it permissible to use funds for expenses incurred prior to March 3, 2021?

Municipalities may not use CSLFRF funds to cover costs incurred prior to March 3, 2021.[1] 

As specified in the U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Interim Final Rule (the “Rule”), municipalities must employ a “forward looking” approach for the use of CSLFRF funds.[2] The Rule:

[P]ermits funds to be used to cover costs incurred beginning on March 3, 2021. This aligns the period for use of Fiscal Recovery Funds with the period during which these funds may not be used to offset reductions in net tax revenue. Permitting Fiscal Recovery Funds to be used to cover costs incurred beginning on this date will also mean that recipients that began incurring costs in the anticipation of enactment of the [American Rescue Plan Act of 2021 (“ARP”)] and in advance of the issuance of this rule and receipt of payment from the Fiscal Recovery Funds would be able to cover them using these payments.[3]

Further, the Rule's associated Frequently Asked Questions ("FAQs") regarding CSLFRF are under Revenue Loss state:

The Interim Final Rule gives recipients broad latitude to use funds for the provision of government services to the extent of reduction in revenue ... However, use of funds for government services must be forward looking for costs incurred by the recipient after March 3, 2021.[4]

However, while a municipality may only use CSLFRF funds to cover expenses incurred prior to March 3, 2021, costs for eligible infrastructure projects that were started prior to March 3, 2021 may be eligible so long as the costs to which CSLFRF is being applied were incurred subsequent to March 3, 2021.[5]

Municipalities may wish to examine Federal Emergency Management Agency (“FEMA”) Public Assistance (“PA”) funds as an alternative for certain COVID-related expenses incurred prior to March 3, 2021. As of August 17, 2021, the White House has extended FEMA’s 100% reimbursement for COVID emergency protective measures and extended COVID Title 32 authorization – at 100% cost share – through December 31, 2021. This allows for retroactive 100% reimbursement of costs for eligible safe-opening and operations work prior to January 2021 (back to January 20, 2020), thus providing additional opportunity for expense reimbursement through PA funds.[6]

Last Revised: August 26, 2021

[1] The ARP does permit some retroactive payments that predate March 3, 2021 for authorized uses of ARP funds other than revenue loss provision, such as the use of ARP funds for retroactive premium pay or for household economic assistance payments for harms and costs that predate March 3, 2021. In both cases, though the work or cost can have occurred prior to the effective date of March 3, 2021, the payments for premium pay or economic assistance cannot have been obligated by the municipality prior to that effective date. See Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.7, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[3] Id., at 99.

[4] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.7, at 21, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[5] Id.

[6] The White House, “Memorandum on Maximizing Assistance to Respond to COVID-⁠19,” available at https://www.whitehouse.gov/briefing-room/presidential-actions/2021/08/17/memorandum-on-maximizing-assistance-to-respond-to-covid-19/.

Program

COVID-19 Federal Assistance e311

Topics

Compliance & Reporting, Fund Planning & Allocation

Under the American Rescue Plan Act (“ARP”), what factors will be utilized to determine the amount of funds available to pay public sector staff in its response to COVID-19? What documentation will be required?

According to the U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Interim Final Rule (the “Rule”), eligible uses include “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.”[1] After March 3, 2021,[2] the municipality may use CSLFRF funds for the payroll and benefits expenses incurred “for the portion of the time spent responding to the COVID-19 public health emergency.”[3] As an alternative, municipalities may consider pursuing the Federal Emergency Management Agency (“FEMA”) Public Assistance (“PA”) program for overtime costs incurred to respond to the COVID-19 pandemic from January 20, 2021 through December 31, 2021.[4]

Treasury’s CSLFRF Frequently Asked Questions (“FAQ”) address the issue of payroll documentation requirements for public safety, public health, health care, human services, and similar employees:

For administrative convenience, the recipient may consider a public health and safety employee to be entirely devoted to mitigating or responding to the COVID-19 public health emergency, and therefore fully covered, if the employee, or his or her operating unit or division, is primarily dedicated (e.g., more than half of the employee’s time is dedicated) to responding to the COVID-19 public health emergency. Recipients may use presumptions for assessing whether an employee, division, or operating unit is primarily dedicated to COVID-19 response. The recipient should maintain records to support its assessment, such as payroll records, attestations from supervisors or staff, or regular work product or correspondence demonstrating work on the COVID-19 response. Recipients need not routinely track staff hours. Recipients should periodically reassess their determinations.[5]

As of August 23, 2021, recipients must also report the number of full-time municipal or other employees responding to COVID-19.[6] Where employees’ time is not entirely dedicated to COVID-19 response, it is likely advisable to follow program requirements for FEMA PA and other similar federal programs. Along those lines, such programs have used payroll and benefits policies to determine the proper reimbursement of funds.[7] 

Last Revised: August 26, 2021

[2] Id., at 99.

[3] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #2.15, at 9, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[5] Id., at FAQ #2.14, at 8–9 (emphasis added).

[6] U.S. Department of the Treasury, Compliance and Reporting Guidance (as of June 24, 2021) – at 19, available at: SLFRF-Compliance-and-Reporting-Guidance.pdf (treasury.gov).

[7] FEMA, Public Assistance Program and Policy Guide (Version 4, Effective June 1, 2020) – Applicant (Force Account) Labor, at 68-72, available at: https://www.fema.gov/sites/default/files/documents/fema_pappg-v4-updated-links_policy_6-1-2020.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation, Program Administration

Can a municipality use American Rescue Plan (“ARP”) dollars to establish and fund a Land Bank Program? The objective of the Land Bank will be to convert city-owned properties within a QCT into affordable housing.

Although the U.S. Department of the Treasury (“Treasury”) has not addressed the use of American Rescue Plan Act (“ARP”) funds in this particular context, guidance issued to date indicates that affordable housing projects within the bounds of a Qualified Census Tract (“QCT”) likely qualify as an allowable use of ARP funds. Municipalities have particularly broad discretion as to how they employ ARP funds within QCTs. As discussed below, Treasury’s Interim Final Rule (the “Rule”) does not explicitly identify salaries as a qualified use of funds, but it does generally address housing services and implies that a land bank's operations could in certain circumstances qualify as eligible for ARP funding. Further, Treasury guidance indicates that it falls to each municipality to assess whether a land bank’s particular operations qualify as  housing services that meet the eligibility requirements of the ARP.

Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) provide opportunities for local governments to alleviate the immediate economic impacts of the COVID-19 pandemic on housing insecurity while addressing conditions that contributed to poor public health and economic outcomes during the pandemic; namely, concentrated areas with limited economic opportunity and inadequate or poor-quality housing (such as a QCT).[1] Generally, municipalities have broad latitude in how they use the ARP’s CSLFRF funds within the geographic bounds of a QCT. The Rule identifies a range of services and programs that are presumed to be eligible uses of ARP funds when provided within a QCT; Treasury’s Frequently Asked Questions (“FAQs”) discuss this in further detail.[2] As a rationale for this approach, Treasury notes that QCTs are “a common readily-accessible and geographically granular method of identifying communities with a large proportion of low-income residents.”[3]

Services presumed eligible for ARP funding when provided within a QCT include:

  • Services to address homelessness, such as supportive housing, and to improve access to stable, affordable housing among unhoused individuals;
  • Affordable housing development to increase the supply of affordable and high-quality living units; and
  • Housing vouchers, residential counseling, or housing navigation assistance to facilitate household moves to neighborhoods with high levels of economic opportunity and mobility for low-income residents to help residents increase their economic opportunity and reduce concentrated areas of low economic opportunity.[4]

Notably, the Rule states that “supportive housing and other services to improve access to stable, affordable housing among individuals who are homeless” are covered within QCTs.[5] Thus, a municipality seeking to fund a land bank with funds provided under the CSLFRF should consider structuring the land bank arrangement to support improving access to affordable housing for the homeless.  Moreover, Treasury’s FAQs note that, although general infrastructure projects typically are ineligible for ARP funding, “affordable housing in a QCT” would qualify for ARP funding as a response to “a specific negative impact of the pandemic.”[6]

A municipality planning to implement a land bank project should undertake a thorough review of the Rule, particularly the sections that discuss presumptively eligible applications of funds within a QCT, and consider designing their land bank’s structure and operations to satisfy those descriptions. The Center for Community Progress analysis provides additional guidance and good practices to consider when applying CSLFRF funds to a land bank project.[7]

Last Revised: August 19, 2021

[2] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) - FAQ #21.11, at 7, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[5] Id., at 142.

[6] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) - FAQ #4.2, at 19, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[7] Center for Community Progress, “Community Progress Weighs in on $350 Billion ARPA State and Local Recovery Fund,” available at: https://www.communityprogress.net/blog/community-progress-weighs-treasury-arpa-350-billion-state-local-fiscal-recovery-fund.

Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation

Is the purchase of body-worn cameras and non-lethal (i.e. TASER) equipment for police an eligible use of American Rescue Plan (ARP) funds?

There are at least two potential avenues through which funds from the ARP Coronavirus Local Fiscal Recovery Funds (“CLFRF”) can probably be used to pay for body-worn cameras, electroshock weapons, or other nonlethal (such as TASER) equipment for police.

First potential avenue: A municipality could assert that the COVID-19 public health emergency caused an increase in violence, and the purchase of equipment for law enforcement officers such as body worn cameras and TASERs are therefore eligible expenses.[1] Municipalities are required to demonstrate a nexus to the pandemic for purchases to qualify as eligible uses of CLFRF funds.

In communities where an increase in violence or increased difficulty in accessing or
providing services to respond to or mitigate the effects of violence, is a result of the
pandemic
they may use funds to address that harm. This spending may include:

  • Investing in technology and equipment to allow law enforcement to more efficiently
    and effectively respond to the rise in gun violence resulting from the pandemic

     

As discussed in the Interim Final Rule, uses of CSFRF/CLFRF funds that respond to an
identified harm must 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.[2]

Another potential avenue: Municipalities may attempt to utilize the ARP’s revenue replacement provision for this purpose. The U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”) states that “[r]ecipients may use payments from the Fiscal Recovery Funds for the provision of government services to the extent of the reduction in revenue experienced due to the COVID-19 public health emergency.”[3] Moreover, ‘the provision of government services’ is defined broadly by the Rule, and includes police and public safety work.[4] As such, if a municipality can establish that there was a reduction in revenue (pursuant to the revenue loss calculation formulas discussed on pages 56-61 of the Rule), the funds dedicated to revenue replacement could likely be used to pay for police equipment, including monitoring and non-lethal equipment.[5]

Current Treasury guidance identifies additional ways municipalities may use ARP funds to support public safety activities. More information on uses of ARP funds for public safety can be found in the FAQs (specifically, FAQ #4.8). Municipalities may also find the U.S. Department of Education’s June 2021 guidance, How American Rescue Plan Funds Can Prevent and Respond to Crime and Promote Public Safety, a useful resource.

Last Updated: August 17, 2021

[1] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.8, at 21-22, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[2] Id (emphasis added).

[3] Treas. Reg. 31 CFR 35 at 51-52, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[4] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.8, at 15, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[5] Treas. Reg. 31 CFR 35 at 56-61, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

Can a municipality account for a municipal airport’s lost revenue when calculating total lost revenue for the municipality under the ARP?

Yes, a municipal airport’s lost revenue can be included when calculating total lost revenue for a municipality under the American Rescue Plan Act’s (“ARP”) Coronavirus Local Fiscal Recovery Funds (“CLFRF”).

U.S. Department of Treasury (“Treasury”) guidance directs municipalities to determine which of its revenue streams fall under the definition of “general revenue,” which in turn is based on (though not identical to) the Census Bureau’s concept of “General Revenue from Own Sources” as published in the Annual Survey of State and Local Government Finances.[1]

The CLFRF Interim Final Rule (the “Rule”) defines “general revenue” as “money that is received from tax revenue, current charges, and miscellaneous general revenue...”[2] Airport revenue fits within this definition as it clearly falls under the category of “current charges.”[3]

Treasury also states that revenues from all commercial-type activities of a recipient’s government are covered by the Rule’s definition of “general revenue,” with certain exceptions, namely, operations of publicly-owned and controlled water supply systems, electric power systems, gas supply systems, and public mass transit systems.[4] Treasury specifies that commercial-type activities include revenue from airports.[5]

CLFRF Frequently Asked Question #3.14 can assist in addressing questions about whether a particular entity performing commercial-type activities can be considered a part of a recipient’s government.[6]

Last Revised: August 5, 2021

[1] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.1, at 13, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[3] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – Appendix, at 42, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[4] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.15, at 18, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[5] Id.

[6] Id.

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

Can a municipality use American Rescue Plan Act (“ARP”) funds to pay lost revenue for a partner organization, like the City's Parking Authority, even where the partner organization is a separate entity?

The American Rescue Plan Act of 2021 (“ARP”) allows the transfer of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) from the recipient to certain organizations including non-profits and private organizations. Whether a private organization’s services qualify as an acceptable use of ARP funds for revenue replacement depends on whether that entity satisfies the criteria of an independent or a government entity. 

Specifically, the ARP provides:

A metropolitan city, nonentitlement unit of local government, or county receiving a payment from funds made available under this section may transfer funds to a private nonprofit organization (as that term is defined in paragraph (17) of section 401 of the McKinney-Vento Homeless Assistance Act (42 U.S.C. 11360(17)), a public benefit corporation involved in the transportation of passengers or cargo, or a special-purpose unit of State or local government.[1]  

The U.S. Department of Treasury’s (“Treasury”) CSLFRF Interim Final Rule (the “Rule”) notes that the list of transferees listed above is non-exhaustive, and that other constituent units of government may also be eligible.[2] The Rule states:

State, local, territorial, and Tribal governments that receive a Federal award directly from a Federal awarding agency, such as Treasury, are “recipients.” A transferee receiving a transfer from a recipient under sections 602(c)(3) and 603(c)(3) will be a subrecipient. Subrecipients are entities that receive a subaward from a recipient to carry out a program or project on behalf of the recipient with the recipient’s Federal award funding. The recipient remains responsible for monitoring and overseeing the subrecipient’s use of Fiscal Recovery Funds and other activities related to the award to ensure that the subrecipient complies with the statutory and regulatory requirements and the terms and conditions of the award. Recipients also remain responsible for reporting to Treasury on their subrecipients’ use of payments from the Fiscal Recovery Funds for the duration of the award[3]

Any subrecipient of CSLFRF must follow the same regulations and restrictions as the recipient. In addition, the recipient is responsible for monitoring and oversight to ensure that subrecipients’ use of funds falls under an eligible use.[4]

Treasury further addresses this issue in its CSLFRF FAQ (updated June 24, 2021):

1.3. Are special-purpose units of government eligible to receive funds?

Special-purpose units of local government will not receive funding allocations; however, a state, territory, local, or Tribal government may transfer funds to a special-purpose unit of government. Special-purpose districts perform specific functions in the community, such as fire, water, sewer or mosquito abatement district.[5]

Municipalities may also transfer funds to non-profit and private organizations.[6]

Treasury guidance has clarified that parking fees qualify as a Current Charge for the purpose of the Census Bureau’s Annual Survey. Because the Rule’s concept of “General Revenue” includes all Current Charges,[7] parking fees would be included in the Rule’s concept of “General Revenue” for the purposes of the municipality’s revenue loss calculation.[8]

Other Treasury guidance may assist municipalities in determining whether a municipality’s parking authority can be considered a separate entity which provides “government services:”

In determining whether a particular entity is part of a recipient’s government for purposes of measuring a recipient’s government revenue, recipients should identify all the entities included in their government and the general revenue attributable to these entities on a best-efforts basis. Recipients are encouraged to consider how their administrative structure is organized under state and local statutes. In cases in which the autonomy of certain authorities, commissions, boards, districts, or other entities is not readily distinguishable from the recipient’s government, recipients may adopt the Census Bureau’s criteria for judging whether an entity is independent from, or a constituent of, a given government. For an entity to be independent, it generally meets all four of the following conditions:

  • The entity is an organized entity and possesses corporate powers, such as perpetual succession, the right to sue and be sued, having a name, the ability to make contracts, and the ability to acquire and dispose of property.
  • The entity has governmental character, meaning that it provides public services, or wields authority through a popularly elected governing body or officers appointed by public officials. A high degree of responsibility to the public, demonstrated by public reporting requirements or by accessibility of records for public inspection, also evidences governmental character.
  • The entity has substantial fiscal independence, meaning it can determine its budget without review and modification by other governments. For instance, the entity can determine its own taxes, charges, and debt issuance without another government’s supervision.
  • The entity has substantial administrative independence, meaning it has a popularly elected governing body, or has a governing body representing two or more governments, or, in the event its governing body is appointed by another government, the entity performs functions that are essentially different from those of, and are not subject to specification by, its creating government.

If an entity does not meet all four of these conditions, a recipient may classify the entity as part of the recipient’s government and assign the portion of General Revenue that corresponds to the entity.[9]

To further assist recipients in applying the forgoing criteria, recipients may refer to the Census Bureau’s Individual State Descriptions: 2017 Census of Governments[10] publication, which lists specific entities and classes of entities classified as either independent (defined by Census as “special purpose governments”) or constituent (defined by Census as “dependent agencies”) on a state-by-state basis. Recipients should note that the Census Bureau’s lists are not exhaustive and that Census classifications are based on an analysis of state and local statutes as of 2017 and subject to the Census Bureau’s judgement.[11]

Last Revised: August 11, 2021

[1] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., Section 603 (c)(3) https://www.congress.gov/bill/117th-congress/house-bill/1319/text#HAECAA3A95C4E4FFAB6AA46CE5F9CB2B5.

[3] Id., at 106, (emphasis added).

[4] Id.

[5] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021), – FAQ #1.3, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[6] Id. at #1.8.

[7] Id. at #3.9.

[8] Id.

[9] Id. at #3.14, (emphasis added).

[11] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021), – FAQ #3.14, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Compliance & Reporting

What are some good practices municipalities can follow to ensure that subrecipients meet all compliance requirements?

Subrecipients that are not prepared to manage large sums of money and meet reporting requirements may put their subawards at a higher risk for excessive or ineligible costs. A reoccurring theme found in audits is that grant recipients frequently fail to properly manage subrecipients to ensure grant fund expenditures comply with Federal requirements.[1]

Municipalities should include the following language in subrecipient agreements:

  • right-to-audit clause where the subrecipient acknowledges that they will provide Federal, state, and local government agencies future access to books and records. It was noted in a United States Department of Justice (“DOJ”) National Procurement Fraud Task Force (“NPFTF”) report titled “Best Practices for Combatting Grant Fraud” that “grant awarding agencies are often focused on awarding the grant money and do not devote sufficient resources to the oversight of how those funds are spent.”[2] Regular audits are a key component to proper oversight;
  • cooperation clause that obligates the subrecipient to cooperate with any future government review, audit, or investigation;
  • language detailing the mechanism for the recovery of misspent grant money. The agreement should inform the subrecipient that whoever wrongfully misapplies funds or provides false statements can be held civilly and/or criminally liable; and
  • certification that all information contained in the grant application and the subrecipient agreement is true and accurate and that any false statements made as part of the certification process can result in criminal prosecution.
  • obligation to regularly submit reports to the direct grant recipient detailing all expenditures and how they meet eligibility requirements;
  • ensure that goods or services provided fall within the permissible time-period established by the Federal program;
  • maintain records to include receipts, expenditures, price quotes, funding justifications, and oversight measures of funds;[3]   
  • read and agree to follow all terms and conditions outlined in the contract between the Federal government and the direct grant recipient;
  • provide oversight and follow Federal procurement requirements under grant and subaward regulations, specifically 2 CFR Part 200.300-332, as well as all applicable local, state, tribal and territorial requirements;  
  • perform sufficient levels of due diligence to ensure contracts for goods, services, and supplies are entered into with responsible parties. At a minimum, a check of the Federal government’s System for Award Management must be done to make sure that any company or individual receiving funds is not suspended or debarred.[4] (Note: Many States and municipalities also have their own debarment lists and these can be checked as well. The Office of the Inspector General for the U.S. General Services provides a helpful search tool that identifies debarment lists by state – https://www.gsaig.gov/content/suspension-and-debarment-sites-state);
  • establish oversight measures to ensure that contractors, vendors, and suppliers perform in accordance with terms, conditions, and specifications of their contracts or purchase orders.[5] For example, conducting regular audits, ensuring sufficient supervision and having written standards of conduct in place covering conflicts of interest and governing the performance of employees engaged in the selection, award and administration of contracts;
  • identify personnel responsible for verifying all project costs;
  • establish a COVID-19 fraud whistleblower hotline for employees, the public and contractors. Hotline information can be posted at government facilities, distributed to contractors/vendors and placed in public areas that are most likely to be observed by the members of the community;
  • return unused funds to the Federal government;
  • disclose in the application process all COVID-19 Federal funds applied for through government and private entities;
  • acknowledge that program funds will not be used to cover expenses already covered by other government or private entities. Using a grants management software system can help delineate costs by attributing a funding source to a specific cost that can be reviewed for eligibility at the transactional level. Such a system will also make it easier to ensure that a cost is not unintentionally claimed under multiple funding sources; and
  • ensure that all information contained in the grant application and the subrecipient agreement is true and accurate and that any false statements made as part of the certifications can be prosecuted.

The U.S. Department of Housing and Urban Development has published a Guidebook for Grantees on Subrecipient Oversight, which includes a template for subrecipient agreements.[6] This template, along with the sample subrecipient agreements prepared by the State of Oregon and New York (linked below), may provide helpful information as municipalities prepare their own subrecipient agreements.

NOTE: The Federal Emergency Management Agency (“FEMA”) produced a Fact Sheet on April 6, 2021, that provided the below recommendations on documenting and accounting disasters costs.[7] Municipalities and subrecipients can use these recommendations to assist them in implementing good practices regarding documentation, and ultimately make it easier to meet the Federal government’s reporting requirements and/or other reporting requirements imposed by municipalities or states:

  • designate a person to coordinate the accumulation of records (i.e., receipts, invoices, etc.);
  • establish a separate and distinct account for recording revenue and expenditures and a separate identifier for each distinct FEMA project. (This same thought process can be used for separating CARES and ARP funds and the individual projects within each.);
  • ensure that the final expenditures for each project are supported by the dollar amounts recorded within your accounting system of record;
  • ensure that each expenditure is recorded and linked to supporting documentation (i.e., checks, invoices, etc.) that can be easily retrieved; and
  • ensure that expenditures claimed are necessary to respond to the COVID-19 pandemic, reasonable pursuant to federal regulations and federal cost principles, and conform to standard program eligibility and other federal requirements.[8]

Last Revised: August 11, 2021

[1] FEMA Disaster Financial Management Guide: “Guidance for State, Local, Tribal and Territorial Partners,” April 2020 available at https://www.fema.gov/sites/default/files/2020-07/disaster-financial-management-guide.pdf

[2] National Procurement Fraud Task Force (NPFTF): “A Guide to Grant Oversight and Best Practices for Combatting Fraud,” February 2009, at 13, available at https://www.oig.dot.gov/sites/default/files/files/Grant_Fraud.pdf

[6] U.S. Department of Housing and Urban Development Managing CDBG, a Guidebook on Subrecipient Oversight, Chapter 3, March 2005, available at https://www.hud.gov/sites/documents/DOC_17086.PDF.

[7] FEMA Fact Sheet:  Federal Emergency Management Agency, Fact Sheet, Audit-Related Guidance for Entities Receiving FEMA Public Assistance Funds,” April 6, 2021, available at: https://www.fema.gov/sites/default/files/documents/fema_audit-related-guidance-entities-receiving_public-assistance_4-6-2021.pdf

[8] Id.

Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation

May a municipality use non-CSLFRF fiscal support to fund loan principal? Can CSLFRF fiscal support only pay for projected costs incurred? Is the loan principal qualified as a projected cost?

Under certain circumstances, municipalities may utilize non-American Rescue Plan Act (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to support payments on forgivable loans maturing after December 31, 2026. The U.S. Department of the Treasury’s (“Treasury”) recent update to the CSLFRF Frequently Asked Question (“FAQ”) #4.10 states in pertinent part:

Funds may be used in conjunction with other funding sources, provided that the costs are eligible costs under each source program and are compliant with all other related statutory and regulatory requirements and policies.[1]

A municipality can therefore use other funds in addition to CSLFRF assistance for eligible projects, likely including funding loan principal.[2]

Two: Can CSLFRF fiscal support only pay for projected costs incurred? 

It would be prudent for municipalities to wait for the issuance of Treasury’s Final Rule on CSLFRF programs prior to expending funds in these ways. Treasury’s training module entitled “SLFRF Recovery Plan Reporting: Evidence-based interventions and project evaluations” (dated August 11, 2021, recording not yet posted) encourages municipalities to ask for clarification on specific programs being considered.[3]

Treasury FAQ #4.11 states that recipients may use CSLFRF assistance to fund the principal on loans that either mature or are forgiven on or before December 31, 2026. [4] However, in cases where loans will mature after December 31, 2026, Treasury states that “the recipient may use Fiscal Recovery Funds for only the projected cost of the loan.”[5] Treasury’s Interim Final Rule (the “Rule”) sets the “period of performance through December 31, 2026, which provides recipients a reasonable amount of time to complete projects funded with payments from the Fiscal Recovery Funds.”[6] The Rule also requires that recipients obligate their CSLFRF funds by December 31, 2024.[7]

If a maturity date extends beyond the CSLFRF period of performance (December 31, 2026), municipalities must estimate costs that will be obligated by the December 31, 2024, deadline, as well as costs that will be expended (including repayment by recipients of these CSLFRF-funded loans) by December 31, 2026. As stated in the FAQs:

[A] recipient could contribute Fiscal Recovery Funds to a revolving loan fund, provided that the revolving loan fund makes loans that are eligible uses and the Fiscal Recovery Funds contributed represent the projected cost of loans made over the life of the revolving loan fund.[8]

Treasury’s FAQ #4.11 also outlines how municipalities may estimate the cost of loans.[9]

C: Is the loan principal qualified as a projected cost?

Although it is possible that non-CSLFRF fiscal support for forgivable loans may be used by a municipality for loans that mature after December 31, 2026, it would be prudent to wait for the ARP’s Final Rule prior to making any municipally granted loan expenditures (and recovery of principal to a CSLFRF-supported revolving fund). Other existing federal funds generally follow a period of performance that requires completion of projects and closeout requirements by the funding project’s end date.[10] 

Municipalities should seek guidance from Treasury regarding loans with maturity for either the blending of CSLFRF funds with other funds for activities beyond eligible use or those loans given to subrecipients that extend beyond the end date of December 31, 2026.

Last Revised: August 19, 2021

[1] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.10, at 24-25, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[2] Id., at #4.11, at 25.

[4] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.11, at 25-26, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[5] Id. (emphasis added).

[7] Id., at 97-98. 

[8] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.11, at 25-26, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[9] Id.

[10] For example, FEMA requires recipients of its public assistance funds to complete funded projects by the end of the period of performance. https://www.fema.gov/hmgp-appeal-categories/period-performance; see also https://www.govregs.com/regulations/expand/title45_chapterA_part75_subpartD_subjgrp24_section75.309#regulation_0_9.

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

Can revenue streams from water and sewer funds be included in utility revenue for the purposes of revenue loss calculation?

Under the Coronavirus Local Fiscal Recovery Funds (“CLFRF”) program, water and sewer revenue streams are treated differently for the purposes of calculating a municipality’s revenue losses due to COVID-19.  Municipalities can include sewer revenues as “general revenue,” in their respective calculations of lost revenue but must exclude revenues derived from water services. 

The U.S. Department of Treasury’s (“Treasury”) CLFRF Interim Final Rule identifies “general revenue from own sources” as the term encompassing revenue streams that municipalities may include in the revenue loss calculation. Treasury’s definition of “general revenue” expressly “exclude[s] revenue generated by utilities.”[1] Sewer systems do not generate utility revenue but rather generate general revenues and are therefore allowable in the loss calculation as confirmed in Treasury’s Frequently Asked Questions (“FAQ”)[2].

Treasury guidance generally adopts the Census Bureau’s Government Finance and Employment Classification manual’s definition of “utility revenue” as the standard for identifying the various utility-generated revenue streams that must be excluded from the municipality’s general revenue. Notably, this definition includes revenue from operations of “publicly-owned and controlled water supply systems, electric power systems, gas supply systems, and public mass transit systems.”[3]  In contrast, sewer revenues are not part of utility revenues and may be included in the revenue loss calculation.[4]

Treasury’s FAQ includes a chart in the appendix delineating several revenue streams that municipalities should include or exclude for purposes of the revenue loss calculation; the chart examples (see Revenue → General Revenue Own Sources Current Charges → Examples) indicates that sewer and solid waste system revenues should be included, while water supply systems revenues should be excluded (see Revenue → Utility Revenue → … water supply systems).[5]

Likewise, the Census Bureau Government Finance and Employment Classification manual indicate that “[f]or combined water-sewer system,” municipalities should “include [as general revenue from own sources] segregable amounts derived from sewerage activities” when determining the amount of revenue derived from sewage.[6]

Last Revised: August 6, 2021

[2] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.15, at 18, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[3] Id.

[4] Id.

[5] Id., at [42].

[6] U.S. Bureau of the Census Government Finance and Employment Classification Manual (Updated 2006), at 4-36, available at: https://www2.census.gov/govs/pubs/classification/2006_classification_manual.pdf.