What are some good practices you would recommend when planning for COVID relief? Can municipalities access the plans of other cities?

Municipalities need a comprehensive and strategic approach to make the most effective use of the American Rescue Plan Act of 2021’s (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”). As addressed in the U.S. Department of the Treasury’s (“Treasury”) CSLFRF Final Rule and the CSLFRF Frequently Asked Questions (“FAQs”), the broad and long-term uses of CSLFRF can include:

• addressing the negative economic impacts of COVID-19;
• responding to the ongoing COVID-19 pandemic;
• providing premium pay to eligible workers;
• supporting investments in water, sewer, and broadband infrastructure;
• provision of government services to the extent of reduction in revenue;
• supporting the costs of consultants; and
• supporting public jobs programs.[1]

Below are some considerations and suggested practices.

1. Identify Funding Sources

As an initial step, municipalities should identify all available funding to create a strategy that defines when and how funds should be used. Municipalities should consider: (i) which sources are more restrictive vs. least restrictive; and (ii) the short-term and long-term fiscal impact of fund uses.

Where possible, municipalities should prioritize more restrictive funding over more flexible funding. For example, utilizing Federal Emergency Management Agency (“FEMA”) Public Assistance (“PA”) funding for all eligible activities before using Coronavirus Relief Funds (“CRF”) derived from the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES”) for expenditures that are ineligible for FEMA reimbursement may result in a more efficient and effective use of federal funding. Additionally, FEMA PA funding typically is not capped or competitive, as it is based on actual or estimated project costs;[2] thus, prioritizing FEMA PA funding may help maximize overall federal funding.

Municipalities experienced different economic and physical health impacts from COVID-19. Municipalities should tailor their respective response plans to meet their specific needs. Municipalities experiencing more significant economic shortfalls than others should plan strategically for the use of CSLFRF through the revenue loss provision of the ARP. The Final Rule gives recipients the “broad latitude” to use funds for the provision of government services to the extent of reduction in revenue due to the COVID-19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency.[3] Government services can include, but are not limited to:

• maintenance or pay-go funded building of 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.[4]

The Final Rule permits recipients to elect a fixed amount of revenue loss, set at $10 million total for the entire period of performance, that can be used to fund government services as an alternative to calculating revenue loss.[5] This specifically allows smaller municipalities greater flexibility in use of funds for government services.[6] Municipalities should note that the decision to elect Treasury’s standard allowance is irrevocable, and the standard allowance cannot exceed a municipality’s total CSLFRF allotment. Municipalities may also use CSLFRF to rebuild public sector capacity.[7]

2. Strategize and Prioritize

As a secondary step, municipalities should perform unmet needs assessments, gap analyses, and impact assessments to gauge the impact of COVID-19 on its community. Doing so requires evaluation of the pre-COVID-19 status of the community as well as the conditions resulting from COVID-19. The municipality can then provide a tailored menu of response options for allocating CSLFRF to maximize program effectiveness.

3. Future Prosperity and Growth

When developing a strategy beyond providing services and replacing revenue, municipalities will need to strategically address and deploy funds to maximize future prosperity and growth. Some considerations may include:

• immediacy of assistance to residents and small businesses, particularly those in disproportionately impacted and historically disadvantaged communities;
• inclusivity of minority-owned businesses and people of color; and
• complementing federal and state funding and initiatives.

Capital improvements such as costs for water, sewer, and broadband infrastructure are allowable uses of CSLFRF.[8] Certain capital expenditures require a written justification, which must include the following:

(i) description of the harm or need to be addressed;

(ii) an explanation of why a capital expenditure is appropriate; and

(iii) a comparison of the proposed capital expenditure and at least two other alternative capital expenditures to demonstrate why the proposed capital expenditure is superior.[9]

Municipalities can consider identifying existing capital plans that could be expedited through ARP funding and would benefit the community’s recovery from the COVID-19 public health emergency.

4. Collaborate

Because some CSLFRF funds will flow through state governments to local governments, communities should examine opportunities to collaborate on funding regional projects or regional recovery planning initiatives. Local officials should consider engaging the local business community, nonprofits, and community leaders to provide input on:

• the recovery planning process;
• setting goals;
• recommending areas for investment; and
• tracking the performance and distribution of funds.

Municipalities should consider working collaboratively with state agencies and other CSLFRF recipients, as recipients of CSLFRF are permitted to pool funds either by “expend[ing] funds directly on the [joint] project or by transfer[ring] funds to another government undertaking the project on behalf of multiple recipients.”[10] Through direct outreach to similarly-funded entities, municipalities could identify parallel or complementary project ideas in the form of regional recovery initiatives or other planning projects. This could enable local governments to leverage additional opportunities with respect to the $1.9 trillion in the ARP.

Municipalities may consult the National Association of Counties (“NACo”) case studies on “How Counties are Investing Coronavirus Relief Funds.” Although these examples focus on CRF expenditures, the initiatives and projects compiled by NACo provide overall best practice examples for the use of CSLFRF. Case studies are organized by the following:

• vaccine distribution;
• housing and rental assistance;
• nonprofit support;
• small business support;
• economic and workforce development;
• social safety-net services;
• food assistance;
• hospitality and tourism development;
• hazard pay;
• broadband expansion; and
• allocations to smaller municipalities.[11]

A wide range of similar resources are available for municipalities to consult.[12],[13],[14]

5. Maintain Sufficient Oversight

Municipalities must regularly assess their internal controls to ensure sufficient measures are in place to prevent mistakes or misconduct that might result in the misuse of federal funds.[15] Internal controls and oversight, including oversight of subrecipients, are addressed in these previously published responses:

• What are good practices for documenting and accounting for programs using federal funds?[16]
• What are some of my city's obligations and responsibilities to prevent fraud related to ARP funds?[17]

Last Updated: March 15, 2022

What guidelines can a municipality apply to determine which populations, households, or geographic areas have been disproportionately impacted for the funding purposes of the American Rescue Plan Act (“ARP”)?

The U.S. Department of the Treasury’s (“Treasury”) Final Rule to implement the American Rescue Plan Act’s (“ARP”) Coronavirus State and Local Fiscal Recovery Funds “(CSLFRF”) defines disproportionately impacted households as those that experienced a disproportionate, or meaningfully more severe, impact from the COVID-19 pandemic.[1] The Final Rule states that pre-existing disparities in health and economic outcomes magnified the impact of the COVID-19 public health emergency on certain households and communities. Under the Final Rule, recipients may presume that the pandemic disproportionately impacted households that are:

• Located in qualified census tracts (“QCTs”),
• Served by Tribal governments,
• Low-income households,
• Located in the U.S. territories, or
• Served by territorial governments.[2]

Many different geographic, income-based, or poverty-based presumptions could be used to designate disproportionately impacted populations or households. Permitting recipients to use a combination of QCTs, low-income households, and services provided by local governments as presumptions balances these various methods.[3] Specifically, QCTs are a commonly used designation of geographic areas based on low incomes or high poverty rates of households in a community. For recipients providing geographically targeted services, QCTs may provide a simple metric and readily available maps to use for targeting relief. Treasury recognizes that using QCTs alone would not capture all underserved populations for a variety of reasons, including those noted by recipients. Allowing recipients to presume that low-income households were disproportionately impacted, the Final Rule provides greater flexibility to address pandemic impacts in underserved households and communities.[4] Data on household incomes is also readily available at varying levels of geographic granularity (e.g., Census Tracts, counties), again permitting flexibility to adapt to local circumstances and needs.

To ease administrative burdens, Treasury recognizes that recipients may also identify other households, populations, and communities disproportionately impacted by the pandemic based on their eligibility for other programs with similar income tests.[5] The Final Rule recognizes categorical eligibility for the following programs and populations:

Impacted households: Treasury will recognize a household as impacted if it otherwise qualifies for any of the following programs:

• Children’s Health Insurance Program (CHIP),
• Childcare Subsidies through the Child Care and Development Fund (CCDF) Program,
• Medicaid,
• National Housing Trust Fund (HTF), for affordable housing programs only, and
• Home Investment Partnerships Program (HOME), for affordable housing programs only.[6]

Disproportionately impacted households: Treasury will recognize a household as disproportionately impacted if it otherwise qualifies for any of the following programs:

• Temporary Assistance for Needy Families (TANF),
• Supplemental Nutrition Assistance Program (SNAP),
• Free and Reduced-Price Lunch (NSLP) and/or School Breakfast (SBP) programs,
• Medicare Part D Low-income Subsidies,
• Supplemental Security Income (SSI),
• Head Start and/or Early Head Start,
• Special Supplemental Nutrition Program for Women, Infants, and Children (WIC),
• Section 8 Vouchers,
• Low-Income Home Energy Assistance Program (LIHEAP), and
• Pell Grants, and
• For services to address educational disparities, Treasury will recognize Title I eligible schools as disproportionately impacted and responsive services that support the school generally or support the whole school as eligible.[7]

In addition to the “presumptive eligibility” category described above, the Final Rule identifies a pathway to designate other disproportionately impacted classes. To designate other disproportionately impacted classes, Treasury states that:

Recipients may identify classes of households, communities, small businesses, nonprofits, or populations that have experienced a disproportionate impact based on academic research or government research publications, through analysis of their own data, or through analysis of other existing data sources.[8] To augment their analysis, or when quantitative data is not readily available, recipients may also consider qualitative research and sources like resident interviews or feedback from relevant state and local agencies, such as public health departments or social services departments. In both cases, recipients should consider the quality of the research, data, and applicability of analysis to their determination.[9]

Last Updated: January 31, 2022

Is street paving a permissible use of ARP funds?

We receive a franchise fee from various utility companies in place of their paying a business license fee. Are franchise fees excluded from the general revenue calculations?

On January 6, 2022, the U.S. Department of the Treasury (“Treasury”) issued the Coronavirus State and Local Fiscal Recovery Fund (“CSLFRF”) Final Rule pursuant to the American Rescue Plan Act of 2021 (“ARP”). The Final Rule does not specifically address franchise fees; however, this does not necessarily mean that franchise fees must be excluded from general revenue calculations in all cases.  Treasury’s definition of general revenue includes “revenue collected by a recipient and generated from its underlying economy, and it would capture a range of different types of tax revenues, as well as other types of revenue that are available to support government services.”[1] Franchise fees, as described above, are a payment from the utility company to the municipality for use of public space or right-of-way.[2]

Treasury has included language in the Final Rule regarding updates to the definition of general revenue in response to public comment:

Treasury has adjusted the definition to allow recipients that operate utilities that are part of their own government to choose whether to include revenue from these utilities in their revenue loss calculation. This change responds to comments from recipients indicating that revenue from utilities is used to fund other government services and that utility revenues have declined on aggregate.[3]

Furthermore, for utilities and other entities (e.g., certain service districts) that are not a part of a government recipient, a transfer from the utility to the recipient is considered an intergovernmental transfer and therefore is included in the definition of general revenue.[4] As such, recipients may choose to include government-operated utilities, but must include non-government operated utilities as general revenue.[5]

Neither Treasury’s appendices to the CSLFRF Frequently Asked Questions (“FAQ”) nor the Census Bureau Government Finance and Employment Classification Manual explicitly describe the classification of franchise fees or other fees paid by utilities for land use. However, the Census Bureau Manual describes public utility sales taxes as:

Taxes imposed distinctively on public utilities, both privately- and publicly-owned, such as public passenger and freight transportation companies, telephone, telegraph, and light and power, and others; and measured by gross receipts, gross earnings, or units of service sold, either as a direct tax on consumers or as a percentage of gross receipts of utility.[6] 

Additional information may be provided when the Treasury issues new FAQs regarding the Final Rule. In addition, recipients should consider the guidance issued in the Statement Regarding Compliance with the Final Rule.[7]

Last Updated: February 20, 2022

Are municipalities permitted to use ARP funds to pay for death services? If yes, what restrictions are there?

Municipalities may be permitted to use funds received from the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to pay for death services incurred by households. The American Rescue Plan Act of 2021 (“ARP”) allows municipalities to use CSLFRF funds “to respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID-19) or its negative economic impacts, including assistance to households.”[1] However, guidance from the U.S. Department of the Treasury (“Treasury”) does not provide specific restrictions regarding the issue of death services. Municipalities must adhere to basic program considerations when expending funds for eligible projects.

Treasury’s Final Rule on CSLFRF contains a non-exhaustive list of programs or services that provide assistance to households and may be funded in response to COVID-19 or the negative economic impacts of the public health emergency. This list specifically mentions “emergency assistance for burials” as an eligible use of CSLFRF funds.[2] A municipality could potentially interpret this language as covering death services, but should first consult with licensed legal and accounting professionals to minimize the risk that the government will claw back funds.  More specifically, the Final Rule also lists “benefits for the surviving family members of individuals who have died from COVID-19, including cash assistance to surviving spouses or dependents of individuals who died of COVID-19” as an enumerated eligible use, without any specific intended use of funds listed.[3]

When determining what may be eligible under “addressing negative economic impacts” use of funds, “the recipient should assess whether, and the extent to which, there has been an economic harm, such as loss of earnings or revenue, that resulted from the COVID–19 public health emergency.”[4], [5] The need for burial services for a person who passed away due to COVID-19 would likely fit in the category of being an unexpected negative economic impact to a household.

Households are presumed to be ‘impacted,’ and thus eligible for assistance to households, if:

• They are low- or-moderate income households (defined as at or below 300% of federal poverty guidelines or 65% of county area median income, given the size of the household);
• They are located within a Qualified Census Tract;
• They receive services provided by tribal governments;
• They have experienced unemployment or increased food or housing insecurity; or,
• They qualify for the Children’s Health Insurance Program, Childcare Subsidies through the Child Care Development Fund (CCDF) Program, Medicaid, or other federal programs.[6], [7]

Treasury guidance does not lay out restrictions when it comes to paying for death services or other household assistance; however, as noted above, Treasury requires a recipient to consider whether, and the extent to which, the household has experienced a negative economic impact from the pandemic. If, for example, a household has experienced a COVID-19 related death, and burial services are needed, this would arguably constitute a negative economic impact from the pandemic and, as such, related costs could be covered. As in all cases where Treasury guidance does not provide express, definitive language identifying a potential use of CSLFRF funds as eligible, municipalities should consult with licensed, certified legal and accounting professionals prior to obligating CSLFRF funds.

Last Updated: March 31, 2022.

Can cities use ARP funds to hire vendors to respond to public health issues unrelated to COVID-19 (e.g., increased bulk trash)?

Are expenses related to building or enhancing a municipality’s data and innovation capacities an eligible use of ARP funds?

Expenses related to building or enhancing a municipality’s data and innovation capacities may be eligible uses of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) under the Negative Economic Impact category related to the Public Sector Capacity and Workforce sub-category to ensure effective service delivery of municipal operations.

The U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule provided municipalities “substantial flexibility to determine how best to use payments from the CSLFRF program to meet the needs of their communities.”[1] The Final Rule, released on January 6, 2022, has adopted the Interim Final Rule and amended it to provide “broader flexibility and greater simplicity in the program, in response to public comments.”[2]

In response to public comments about the use of CSLFRF for data and technology upgrades, Treasury recognized in the Final Rule that “collecting high-quality data and developing community-driven, evidence-based programs requires resources to hire and build the capacity of staff, adopt new processes and systems, and use new technology and tools in order to effectively develop, execute, and evaluate programs.”[3]

The Final Rule provides a non-exhaustive list of investments in public sector capacity and workforce that qualify as eligible uses of CSLFRF in response to the negative economic impacts of the public health emergency, including payment for program evaluation and evidence resources, data analysis resources, technology infrastructure, community outreach and engagement, and capacity building.[4]

Examples of eligible uses for improving technology described in the Final Rule include:

resources to improve access to and the user-experience of government information technology systems, including upgrades to hardware and software as well as improvements to public-facing websites or to data management systems, to increase public access and improve public delivery of government programs and services (including in the judicial, legislative, or executive branches).[5]

Examples of eligible uses for capacity building described in the Final Rule include:

resources to support using data and evidence in designing, executing, and evaluating programs, including hiring public sector staff, contractors, academics, consultants, and others with expertise in evaluation, data, technology, and community engagement as well as technical assistance support for public sector staff, staff of subrecipients, and community partners to support effective implementation of SLFRF-funded programs and programs that respond to the public health emergency and its negative economic impacts, or which households, small businesses, or impacted industries are accessing during the pandemic that are funded by other sources.[6]

Examples of eligible uses for data analysis described in the Final Rule include:

resources to gather, assess, and use data for effective policy-making and real-time tracking of program performance to support effective implementation of SLFRF-funded programs and programs that respond to the public health emergency and its negative economic impacts, or which households, small businesses, or impacted industries are accessing during the pandemic that are funded by other sources. These resources include but are not limited to data gathering, data cleaning, data analysis, data infrastructure, data management, data sharing, data transparency, performance management, outcomes-based budgeting, outcomes-based procurement, and other data needs. 

Treasury further clarified that the enhancement of public health data systems could include:

investments in “software, databases, and other information technology resources that support responses to the COVID-19 public health emergency but also provide benefits for other use cases for long-term capacity of public health departments and systems.

Last Updated: January 31, 2022

With respect to broadband infrastructure, do eligible uses of ARP funds include: (i) expenses related to making broadband affordable for residents; and (ii) providing residents with devices for accessing broadband internet (e.g., laptops)?

Expenses related to broadband affordability and devices necessary to access the internet are both eligible uses under the American Rescue Plan Act of 2021 (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”).[1] The U.S. Department of the Treasury’s (“Treasury”) Final Rule addresses the “gap networks” as a term that refers not only to the affordability of broadband infrastructure but also equipment such as routers, repeaters, and access points. [2] There are instances where broadband is available but is not accessible to households in some areas due to cost. Treasury guidance suggests that Treasury intends that municipalities will discern how to best serve communities at the local level. Concerning internet access and digital literacy, Treasury has included a wide range of programs and services, including those providing equipment such as tablets, computers, and routers, that will subsidize costs to households.[3]

The Final Rule states that eligible investments in broadband are those designed to provide services meeting adequate speeds and provided to underserved households and businesses. Understanding that states, territories, localities, and Tribal governments have a wide range of varied broadband infrastructure needs, the Final Rule provides award recipients with the flexibility to identify the specific locations within their communities to be served and to otherwise design the project.[4]

Treasury’s Supplementary Information discussion regarding broadband affordability encourages recipients to consider ways to integrate affordability options into their programs and to prioritize delivery of physical broadband connections that achieve “last mile” connections.[5] The CSLFRF Frequently Asked Question (“FAQs”) #6.5 also establishes minimum upload and download speeds of eligible projects.[6] It should be noted that additional information may be provided when Treasury issues new FAQs specific to the Final Rule. However, the information provided in the FAQ referenced (FAQ #6.5 and FAQ #6.6) remains true under the Final Rule.

FAQ #6.6 provides additional guidance regarding eligibility and states that recipients may use funds to assist households facing negative economic impacts, including digital literacy training and other programs that promote access to the internet and/or modernize cybersecurity as part of the provision of government services up to the amount of revenue lost due to the negative impacts of COVID-19.[7]

In addition, Treasury issued guidance on August 9, 2021, that outlines reporting requirements for broadband expenditures and adds further detail to the general reporting expectations for CSLFRF recipients. The Treasury Reporting Plan Template specifically lists broadband expenses and assigns those to be reported under the “EC5” category.[8] Municipalities may also reference the Treasury Recipient Portal Reporting Guide, which specifies the tiers of how expenses track to eligible use.[9] Treasury also encourages municipalities to consider the guidance issued in the Statement Regarding Compliance with the Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule and Final Rule.[10]

Last Updated: January 26, 2022

If a municipality transfers revenue from a utility fund to a general fund, can that be included in the calculation for general revenue?

The U.S. Department of the Treasury (“Treasury”) issued the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule as part of the American Rescue Plan Act of 2021 (“ARP”). The Final Rule keeps the Interim Final Rule’s definition of general revenue as “revenue collected by a recipient and generated from its underlying economy…  [that] capture[s] a range of different types of tax revenues, as well as other types of revenue that are available to support government services.”[1] However, the Final Rule also adds two new provisions to the definition, one of which addresses utility revenue.

The Final Rule allows recipients to choose whether to include revenue from utilities that are part of their own government in their revenue loss calculation.[2] The Final Rule further adds that “for utilities or other entities (e.g., certain service districts) that are not part of the recipient government, a transfer from the utility to the recipient constitutes an intergovernmental transfer and therefore is included in the definition of ‘general revenue.’”[3] Therefore, government operated utilities are optional to be included as general revenue, while non-government operated utilities must be included.

Additional information may be provided when Treasury issues new Frequently Asked Questions (“FAQs”) specific to the Final Rule.[4] Treasury also encourages municipalities to consider the guidance issued in the Statement Regarding Compliance with the Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule and Final Rule.[5]

Last Revised: February 1, 2022

Should a municipality that derives revenue from marijuana include that source in its revenue calculation?

Neither the American Rescue Plan Act of 2021 (“ARP”) nor associated regulatory guidance regarding the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) directly address the issue of marijuana revenue. However, the Internal Revenue Code’s treatment of similar revenue streams for taxation purposes indicates, though not to a definitive or certain extent at this time, that marijuana revenue may be included in revenue calculations for the purposes of revenue replacement calculations.

The U.S. Department of the Treasury (“Treasury”) has not explicitly addressed revenue derived from marijuana or other federally controlled substances. The CSLFRF Frequently Asked Questions (“FAQs”) include sales tax and license tax in their definition of tax revenue and a component of “General Revenue,” as shown in its appendix chart. The chart contains no stated exclusion for revenues from products that may be illegal at the federal level.[1]

While several states have legalized marijuana, the Internal Revenue Service (“IRS”) has long considered receipts from the sale of illegal substances as revenue. Notably, the Internal Revenue Code addresses the issue of deductions for the cost of conducting illegal drug sales:

[N]o deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances…which is prohibited by Federal law or the law of any State in which such trade or business is conducted.[2]

The IRS also uses more explicit language: “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8, or on Schedule C (Form 1040) if from your self-employment activity.”[3]

While this standard relates to income tax rather than a municipality’s calculation of revenue for CSLFRF purposes, it offers some indication that the federal government generally considers revenue from the marijuana industry to be reportable revenue for purposes of taxation. It is possible, although not certain, that a municipality could argue that the same reasoning should apply to marijuana revenue under the ARP’s revenue replacement rubric. Ultimately, given the lack of regulatory guidance directly addressing marijuana revenue under the CSLFRF, it remains unclear whether a specific municipality may include marijuana revenue in its calculation of “General Revenue” for purposes of revenue loss calculation. Municipalities should consider submitting queries regarding their individual circumstances to Treasury as well as consulting with local, licensed attorneys and certified accounting professionals to determine the best approach for their respective jurisdictions.

Last Updated: March 31, 2022

Does a municipality need to direct revenue replacement funds to the sources of lost revenue?

The American Rescue Plan Act of 2021 (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) do not expressly require recipients to direct CSLFRF to address revenue losses from one or more particular sources. Nor does the associated regulatory guidance indicate that specific amounts of funding must be directed to specific sources of revenue loss.

Rather, CSLFRF assistance can be used to address a broad range of issues. As noted in the U.S. Department of the Treasury’s (“Treasury”) CSLFRF Final Rule, published on January 6, 2022, this assistance may be applied to four eligible use categories:

1. Responding to the public health and negative economic impacts of the pandemic (which includes several sub-categories) 
2. Providing premium pay to essential workers 
3. Providing government services to the extent of revenue loss due to the pandemic, and
4. Making necessary investments in water, sewer, or broadband infrastructure.[1]

In addition, the Final Rule states: “First, under the revenue loss eligible use category, recipients have broad latitude to use funds for government services up to their amount of revenue loss due to the pandemic.”[2]

Treasury’s January 2022 Frequently Asked Questions (“FAQ”) also provide relevant information at FAQ #3.2, which addresses revenue calculation and whether it should be calculated on an entity-wide basis or a source-by-source basis (e.g., property tax, income tax, sales tax, etc.). FAQ #3.2 states:

Recipients should calculate revenue on an entity-wide basis. This approach minimizes the administrative burden for recipients, provides for greater consistency across recipients, and presents a more accurate representation of the net impact of the COVID-19 public health emergency on a recipient’s revenue, rather than relying on financial reporting prepared by each recipient, which vary in methodology used and which generally aggregates revenue by purpose rather than by source.[3]

In summary, given Treasury’s emphasis on recipient flexibility and its entity-wide revenue loss calculation, a municipality should be able to use CSLFRF funding in its discretion for eligible purposes. After the loss due to COVID-19 has been calculated, revenue replacement funds should be used for the provision of government services. Government services generally include any service traditionally provided by a government unless Treasury has stated otherwise. The following are some common examples, although this list is not exhaustive:

• Construction of schools and hospitals;
• Road building and maintenance, and other infrastructure;
• Health services;
• General government administration, staff, and administrative facilities;
• Environmental remediation; and
• Provision of police, fire, and other public safety services (including purchase of fire trucks and police vehicles).[4]

The “government services” category offers the most flexible range of eligible uses under the CSLFRF program, and funds are subject to streamlined reporting and compliance requirements. Recipients should be mindful that certain restrictions, which are detailed further in the Restrictions on Use section and apply to all uses of funds, apply to government services as well.[5]

It should be noted that additional information may be provided when Treasury issues new FAQs specific to the Final Rule as indicated in the Interim Final Rule FAQ.[6] In addition, Treasury encourages municipalities to consider the guidance issued in the Statement Regarding Compliance with the Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule and Final Rule.[7]

Last Updated: March 7, 2022

Are costs to build facilities and establish programs for job training eligible for ARP funding?

The U.S. Department of the Treasury's ("Treasury") guidance to date for the Coronavirus State and Local Fiscal Recovery Funds ("CSLFRF") of the American Rescue Plan Act of 2021 ("ARP") suggests that it is likely permissible to build or renovate infrastructure to establish training space for job training programs as long as the intended purpose is to "provide assistance to households or populations facing negative economic impacts due to COVID-19."[1]

Treasury's Final Rule on the CSLFRF provides a non-exclusive list of programs and services through which the CSLFRF of the ARP can be used to support communities working to reduce and respond to the negative repercussions caused by the COVID-19 pandemic as it relates to job training, which as Treasury states, "has been re-categorized for increased clarity to the eligible use for 'assistance to unemployed and underemployed workers.'"[2]

Treasury has explicitly stated in its CSLFRF Overview of the Final Rule that it "recognizes the enumerated projects below, which have been expanded under the final rule, [are] eligible to respond to impacts of the pandemic on households and communities."

Assistance to individuals who want and are available for work, including job training, public jobs programs and fairs, support for childcare and transportation to and from a jobsite or interview, incentives for newly-employed workers, subsidized employment, grants to hire underserved workers, assistance to unemployed individuals to start small businesses & development of job and workforce training centers.[3]

Additionally, if these proposed facilities and their respective programs' intended purposes were to target the prevention of violence, then additional enumerated uses include:           

Community violence intervention programs, including…Evidence-based practices like focused deterrence, with wraparound services such as behavioral therapy, trauma recovery, job training, education, housing and relocation services, and financial assistance.[4]

Furthermore, Treasury explicitly states in the Final Rule that it:

is also enumerating that job and workforce training centers are eligible capital expenditures, so long as they adhere to the standards and presumptions detailed in the section Capital Expenditures in General Provisions: Other.[5]

For further information on the "standards and presumptions" related to capital expenditure projects utilizing CSLFRF mentioned above, recipients may reference pages 190 through 208 of the Final Rule. Importantly, Treasury will require projects with total expected capital expenditure costs of $1 million or greater to undergo additional analysis, including a written justification, to justify their capital expenditure.[6]

Treasury's Final Rule underscores that the list of programs and services and their enumerated eligibility are non-exclusive by explicitly stating that:

the eligible use category for responding to the public health and negative economic impacts of the pandemic provides a non-exhaustive list of enumerated eligible uses, which means that the listed eligible uses include some, but not all, of the uses of funds that could be eligible. The Eligible Uses section provides a standard for determining if other uses of funds, beyond those specifically enumerated, are eligible. If a recipient would like to pursue a use of funds that is not specifically enumerated, the recipient should use the standard and other guidance provided in the section Public Health and Negative Economic Impacts to assess whether the use of funds is eligible.[7]

Treasury indicates that although fund recipients generally may not use funds for general economic development or workforce development, CSLFRF funds are likely eligible for job training activities if provided to beneficiaries whom the pandemic has reasonably impacted. The Final Rule states:

Treasury maintains the interim final rule's approach that general economic development or workforce development, meaning activities that do not respond to negative economic impacts of the pandemic and rather seek to more generally enhance the jurisdiction's business climate, would generally not be eligible under this eligible use category. As noted above, to identify an eligible use of funds under this category, a recipient must identify a beneficiary or class of beneficiaries that experienced a harm or impact due to the pandemic, and eligible uses of funds must be reasonably designed to respond to the harm, benefit the beneficiaries that experienced it, and be related and reasonably proportional to that harm or impact.[8]

Concerning whether recipients may use funds to establish a public jobs program, the Final Rule states:

further guidance also provided that "public jobs programs, subsidized employment, combined education and on-the-job training programs, or job training to accelerate rehiring or address negative economic or public health impacts experienced due to a worker's occupation or level of training" are all enumerated eligible uses as assistance to unemployed or underemployed workers.

The interim final rule defined eligible beneficiaries of assistance as "individuals who want and are available for work, including those who have looked for work sometime in the past 12 months or who are employed part time but who want and are available for full-time work." This definition is based on definitions used by the Bureau of Labor Statistics to define individuals currently unemployed, as well as persons marginally attached to the labor force and working part-time for economic reasons. The latter two classifications are types of labor underutilization, or "underemployed" workers. Finally, the interim final rule specified that assistance to unemployed workers included both workers who lost their job during the pandemic and resulting recession and workers unemployed when the pandemic began who saw further deterioration of their economic prospects due to the pandemic.[9]

Thus, the Final Rule "[c]onfirm[s] that job fairs or grants to businesses to hire underserved workers are eligible uses under this section."[10]

Notably, Treasury further explains that it is:

making clear that recipients may provide job training or other enumerated types of assistance to individuals that are currently employed but are seeking to move to a job that provides better opportunities for economic advancement, such as higher wages or more opportunities for career advancement.[11]

It should be noted that additional information may be provided when Treasury issues new FAQs specific to the Final Rule, as indicated in the Interim Final Rule FAQ.[12] In addition, Treasury encourages municipalities to consider the guidance issued in the Statement Regarding Compliance with the Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule and Final Rule.[13]

Last Updated: March 9, 2022