Is there a limit on what percentage of ARP funds can be allocated to revenue replacement?

The U.S. Department of Treasury (“Treasury”) does not limit the amount or ratio of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) that can be allocated for revenue replacement so long as the amount correctly corresponds to the recipient’s determined revenue loss. Treasury’s Final Rule on CSLFRF grants municipalities broad discretion to use payments for the provision of government services, treating these as an eligible use for any or all of the municipality’s CSLFRF allocation up to the amount of revenue that has been lost as revenue replacement.[1] The municipality must calculate its revenue loss according to the formula and guidance provided by Treasury.[2]

Alternatively, the Final Rule allows recipients to choose to use a “standard allowance” of $10 million to spend on government services through the period of performance.[3] This is a one-time allowance.[4] Recipients must choose whether to take the standard allowance or to calculate revenue loss on an annual basis.[5]

The Final Rule also updates how municipalities may perform the revenue loss calculation and the types of revenue loss that should and should not be included. For example, the Final Rule allows recipients to perform the revenue loss calculation on a calendar year or fiscal year basis.[6] Recipients should consult pages 245 to 250 of the Final Rule for more information on these updates when performing the revenue loss calculation.

The Final Rule maintains that

 [g]overnment 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.[7]

Although the Final Rule grants broad latitude to municipalities to use allocated funds as revenue replacement, it does not include an exhaustive list of eligible activities. However, uses must be limited to the provision of government services.[8]

Treasury outlines several ineligible uses. Paying interest or principal on outstanding debt, replenishing rainy day or other reserve funds, or paying settlements or judgments would not be considered provisions of a government service, because 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.[9], [10]

Last Revised: March 25, 2022

For purposes of calculating revenue, if the municipality owns an asset but does not report the asset on its books (e.g., zoo or performing arts center), should that revenue be included in its calculation?

The U.S. Department of the Treasury (“Treasury”) has not issued specific guidance regarding whether a municipality should include revenues of assets it owns but does not report on its books. Treasury has, however, provided several helpful guidelines which are summarized below.

First, the Final Rule has adopted the definition of “general revenue” as the following:

Money that is received from tax revenue, current charges, and miscellaneous general revenue, excluding refunds and other correcting transactions and proceeds from issuance of debt or the sale of investments, agency or private trust institutions, and intergovernmental transfers from the Federal Government.[1]

The Final Rule creates a standard allowance option of $10 million to ease the administrative burden of calculating revenue loss by “allowing recipients to select between a standard amount of revenue loss or complete a full revenue loss calculation. Recipients that select the standard allowance may use that amount for government services.”[2]

Moreover, the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Frequently Asked Questions (“FAQs”) state that municipalities may “consider the classification and instructions used to complete Census Bureau’s Annual Survey,” and specify that recipients can consider all current charges for the Census Bureau’s Annual Survey as eligible under “general revenue” under the Final Rule. [3] 

Per the Annual Survey, general revenue current charges include “[c]harges of publicly owned commercial enterprises not classified elsewhere, such as markets, cement plants, cemeteries, etc.”[4] Notably, the Annual Survey confirms that the definition of “current charges” includes the “income of commercial enterprises” which might be common revenues from assets owned by a municipality that are unreported. Additionally, the Annual Survey lists revenues that are considered “current charges,” including:

gross revenue of facilities operated by a government (swimming pools, recreational marinas and piers, golf courses, skating rinks, museums, zoos, etc.); auxiliary facilities in public recreation areas (camping areas, refreshment stands, gift shops, etc.); lease o r use fees from stadiums, auditoriums, and community and convention centers; and rentals from concessions at such facilities.[5]

Though the case of assets not reported in a municipality’s books is not explicitly referenced in terms of revenue loss, the guidance suggests that these assets, including zoos and/or performing arts centers, may be included in the general revenue calculation, depending on the circumstances.  Municipalities finding themselves in such circumstances should obtain the advice of licensed accounting and/or legal professionals to ensure their revenue calculations are correct and in accordance with the law.

Last Updated: February 20, 2022

When calculating revenue, how should a municipality account for losses related to individual third-party management agreements with entities such as stadiums, convention centers, and golf courses?

Many third-party management agreements may qualify as “revenue” in municipal revenue loss calculations. The definition of “general revenue” used by the U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule is based largely on the components reported under “General Revenue from Own Sources” in the Census Bureau’s Annual Survey of State and Local Government Finances.[1]  

When calculating revenue loss, a municipality may consider including actual revenue loss from third-party management agreements together with their other general government revenues. The Final Rule adopts the following definition of “general revenue”:

Money that is received from tax revenue, current charges, and miscellaneous general revenue, excluding refunds and other correcting transactions and proceeds from issuance of debt or the sale of investments, agency or private trust institutions, and intergovernmental transfers from the Federal Government.[2]

For reference, “current charges” are defined as “charges imposed for providing current services or for the sale of products in connection with general government activities,” which include revenues from public education institutions, public hospitals, and tolls.[3] Moreover, “miscellaneous general revenue” includes “all other general revenue of governments from their own sources (i.e., other than utility and insurance trust revenue), including rents, royalties, lottery proceeds, and fines.”[4]

Treasury anticipates releasing updated Frequently Asked Questions (“FAQs”) to provide additional guidance on the Final Rule. In the interim, CSLFRF recipients may refer to FAQ # 3.3, which states that the following types of revenue will be considered “gross revenue”:

• gross revenue of facilities operated by a government (swimming pools, recreational marinas and piers, golf courses, skating rinks, museums, zoos, etc.);
• auxiliary facilities in public recreation areas (camping areas, refreshment stands, gift shops, etc.);
• lease or use fees from stadiums, auditoriums, and community and convention centers; and
• rentals from concessions at such facilities.[5]

To ease administrative burden when calculating revenue loss, the Final Rule “offers a standard allowance for revenue loss of $10 million, allowing recipients to select between a standard amount of revenue loss or complete a full revenue loss calculation. Recipients that select the standard allowance may use that amount for government services” over the period of performance.[6]

Taking into consideration the current definition of general revenue provided by the Final Rule, the inclusion of the standard allowance, and the information provided by FAQs, it is likely that municipalities can account for revenue loss from third-party management arrangements as general revenue.

When calculating revenue, how should one-time expenses be treated? Should one-time non-operational expenses be excluded when calculating revenue?

The United States Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule defines general revenue to include “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] Treasury’s definition of general revenue was expanded in the Final Rule 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” and to add “liquor store revenue to the definition of general revenue.”[2], [3]

While the Final Rule does not address one-time expenses, Treasury states:

In response to requests that the definition of general revenue exclude revenue from special assessments, settlements that make the recipient whole for past expenditures, and one-time revenues such as revenue from the sale of property, Treasury is maintaining its position in the final rule that such revenue is included in general revenue. While such revenues may be less predictable than other sources of revenue (e.g., property taxes), these are not uncommon sources of revenue for recipients, and their inclusion provides a more complete view of the financial health of a recipient government and is consistent with the Census Bureau methodology.[4]

Treasury is expected to issue Frequently Asked Questions (“FAQs”) for the Final Rule at a later date, and it is possible the updated response will provide more guidance on one-time expenses.[5]

Treasury’s definition of general revenue is based on the Census Bureau’s “General Revenue from Own Sources” in the Annual Survey of State and Local Government Finances.[6] Following Treasury’s guidance, recipients that seek further clarification on the definition of general revenue may refer to the classification and instructions used to complete the Census Bureau’s Annual Survey.[7]

Last Revised: March 16, 2022

Can ARP or other federal funds be used to hire a third-party vendor to help ensure proper documentation, tracking, and accountability?

ARP or other federal funds may be used to hire a third-party vendor to help ensure proper documentation, tracking, and accountability. The U.S. Department of Treasury (“Treasury”) has made clear that American Rescue Plan (“ARP”) funds can be used to hire a third-party vendor to help ensure proper documentation, tracking, and accountability. As of June 8, 2021, Treasury’s frequently asked questions (“FAQs”) regarding the Coronavirus Local Fiscal Recovery Funds (“CLFRF”) noted that “[r]ecipients may use funds for administering the [CLFRF] program, including costs of consultants to support effective management and oversight, including consultation for ensuring compliance with legal, regulatory, and other requirements.[1]

The FAQs further note that “[r]ecipients may use funds to cover the portion of payroll and benefits of employees corresponding to time spent on administrative work necessary due to the COVID–19 public health emergency and its negative economic impacts. This includes, but is not limited to, costs related to disbursing payments of Fiscal Recovery Funds and managing new grant programs established using Fiscal Recovery Funds.”^[2]

In addition, the Code of Federal Regulations permits recipients to provide administrative services for a one-time program by individuals or entities other than municipal employees.^[3] Municipalities may also consult state and local procurement standards which dictate the utilization of federal grant allowances.  Each municipality should consider consulting the specific Award Terms and Conditions[4] which it will receive from Treasury. Item 6 of that document, titled “Administrative Costs,” authorizes the municipality to use funds provided to cover both direct and indirect administrative costs. 

Finally, Treasury has indicated that it will provide additional guidance. If the municipality determines that it can procure third-party vendors, it should follow its local procurement code which must meet or exceed the standards outlined in the Federal Uniform Guidance, 2 CFR Part 200.[5]

Last Updated: June 9, 2021

Can municipalities use ARP funds to fund educational programs (e.g., Pre-K classrooms or gun violence prevention programs)?

According to guidance issued by the U.S. Department of the Treasury (“Treasury”), the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) from the American Rescue Plan Act of 2021 (“ARP”) can be used to fund educational programs with the goal of addressing the social, emotional, and mental health needs of students within certain parameters.

Treasury’s CSLFRF Final Rule notes that all communities are eligible and would be supported in the development of a comprehensive approach to address violence.[1] The Final Rule’s guidance in addressing crime reduction includes sexual assault, human trafficking, domestic and gun violence as enumerated eligible uses. Eligible uses for violence intervention programs include “funding more intervention workers, increasing their pay, providing training and professional development for intervention workers, and hiring and training workers to administer the programs.”[2]

Regarding funding for educational services (including Pre-K classrooms), CSLFRF funds can be used to pay for government services to the extent of the 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] In essence, the amount a municipality is able to claim as a revenue loss due to the pandemic can be used for the provision of government services, including costs for “school or educational services.” [4]

In addition to the lost revenue provision discussed above, Treasury confirms that certain types of educational services are eligible uses within the context of a Qualified Census Tract (“QCT”). The Final Rule identifies “early learning services” and other education services as enumerated eligible uses in disproportionately impacted communities to address educational disparities.[5]

Treasury is maintaining these enumerated eligible uses in the final rule, which are now organized under the heading of “services to address educational disparities. Treasury reiterates that these uses include addressing educational disparities exacerbated by COVID-19, including but not limited to: increasing resources for high-poverty school districts, educational services like tutoring or afterschool programs, summer education and enrichment programs, and supports for students’ social, emotional, and mental health needs.[6]

For more information on eligible uses of CSLFRF pertaining to higher education, see the following Bloomberg Federal Assistance e311 Q&A:

Is assistance with community college, college tuition or other higher education challenges an eligible use of ARP funds?

It should be noted that additional information may be provided when Treasury issues new Frequently Asked Questions (“FAQ”) specific to the Final Rule.[7] In addition, Treasury encourages municipalities to consider the guidance issued in the Statement Regarding Compliance with the Coronavirus State and Local Fiscal Recovery Funds Final Rule.[8]

Last Updated: February 16, 2022

May municipalities use CLFRF and/or CRF disbursements to cover the cost of vaccine incentives?

The U.S. Department of the Treasury (“Treasury”) has included vaccination programs as an eligible use of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”). Treasury’s CSLFRF Final Rule states:

[a] recipient may use funds to respond to the public health emergency…for one or more of the following purposes…Responding to the public health impacts of the public health emergency…including vaccination programs and incentives.[1]

In addition, Treasury addresses this question in the Supplementary Information discussion which accompanies the Final Rule. Treasury states:

Treasury issued guidance (in its publication of the Final Rule) clarifying that “[vaccine] programs that provide incentives reasonably expected to increase the number of people who choose to get vaccinated, or that motivate people to get vaccinated sooner than they otherwise would have, are an allowable use of funds so long as such costs are reasonably proportional to the expected public health benefit.” This use of funds remains permissible under the final rule.[2]

Finally, Treasury published a series of Frequently Asked Questions (“FAQs”) relating to the CSLFRF authorities. FAQ #2.12 addresses this question as follows:

[Vaccine] programs that provide incentives reasonably expected to increase the number of people who choose to get vaccinated, or that motivate people to get vaccinated sooner than they otherwise would have, are an allowable use of funds so long as such costs are reasonably proportional to the expected public health benefit.[3]

While CSLFRF award recipients may use funds for the purpose of eligible vaccine incentive programs, recipients should consider all compliance and reporting requirements enumerated in the Uniform Guidance[4] and Treasury’s Compliance and Reporting Guidance[5] before implementing such programs.

Last Revised: February 16, 2022

How will the “use of funds” category authorizing spending of ARP funds “to respond to the public health emergency with respect to COVID–19 or its negative economic impacts, including assistance to households, small businesses, and nonprofits…” be defined?

In defining eligible use of funds, the American Rescue Plan Act of 2021 (“ARP”) permits use of payments from the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to respond to the public health emergency and negative economic impacts of COVID-19.[1] Generally, the U.S. Department of the Treasury (“Treasury”) places the burden of assessing whether a program meets this requirement on recipients.

Treasury’s Final Rule provides a non-exclusive list of how funds may be used to address the public health emergency, including: COVID-19 mitigation and prevention, medical expenses, behavioral health care, and preventing and responding to violence. Examples of eligible uses can be found in Treasury’s Overview of the Final Rule, and the public is considered impacted for the purposes of the above responses to the public health emergency.[2]

In considering whether a program or service responds to the negative economic impacts of the public health emergency, Treasury states that a recipient should consider whether: (i) economic harm exists; (ii) this harm was caused or made worse by the COVID-19 public health emergency; and (iii) the proposed program or service responds to this negative economic impact.[3] Negative economic impacts that are not related to the COVID-19 public health emergency are not eligible.[4] Treasury further notes that programs and services must be related and reasonably proportional to the extent and type of harm experienced.[5]

Treasury’s Final Rule includes various examples of programs that respond to the negative economic impacts of the public health emergency. It is important to note that these examples are clearly identified as non-exclusive and other programs may be considered eligible using Treasury’s evaluation criteria.[6] Examples include, but are not limited to:

• Assistance to households in addressing:
  • food assistance;
  • emergency housing assistance;
  • health insurance coverage expansion;
  • benefits for surviving family members of individuals who have died from COVID-19;
  • assistance to individuals who want and are available for work;
  • financial services for the unbanked and underbanked;
  • burials, home repair & home weatherization;
  • programs, devices & equipment for internet access and digital literacy, including subsidies for costs of access;
  • cash assistance;
  • paid sick, medical, and family leave programs;
  • assistance in accessing and applying for public benefits or services;
  • childcare and early learning services, home visiting programs, services for child welfare involved families and foster youth & childcare facilities;
  • assistance to address the impact of learning loss for K-12 students;
  • programs or services to support long-term housing security; and
  • certain contributions to an Unemployment Insurance Trust Fund; [7]:
• Assistance to small businesses, nonprofits, or impacted industries, such as:
  • loans or grants to mitigate financial hardship such as by supporting payroll and benefits, costs to retain employees, and mortgage, rent, utility, and other operating costs;
  • support of operations and maintenance of existing equipment and facilities (impacted industries only);
  • technical assistance, counseling, or other services to support business planning;
  • rehabilitation of commercial properties, storefront improvements & façade improvements (disproportionately impacted small businesses only);
  • support for microbusinesses, including financial, childcare, and transportation costs (disproportionately impacted small businesses only); and
  • technical assistance, business incubators & grants for start-up or expansion costs for small businesses (disproportionately impacted small businesses only). [8]
• Expenses to improve the efficacy of economic relief programs, such as:
  • data analysis;
  • targeted consumer outreach;
  • improvements to data or technology infrastructure; and
  • impact evaluations.
  • administrative costs for programs responding to the public health emergency and its economic impacts; and
  • addressing administrative needs caused or exacerbated by the pandemic.[9]

Treasury will recognize a household or population as impacted by the pandemic if it has experienced unemployment, increased food or housing insecurity, or has low to moderate income.[10] Treasury provides a general criteria to determine if a household falls into the category of low to moderate income based on Federal Poverty Guidelines (FPG) or Area Median Income (AMI).[11] A population is also considered as impacted if it otherwise qualifies for:

• Children’s Health Insurance Program (CHIP);
• Childcare Subsidies through the Child Care and Development Fund (CCDF) Program;
• Medicaid;
• National Housing Trust Fund (HTF) (affordable housing programs only); or
• Home Investment Partnerships Program (HOME) (affordable housing programs only).[12]

Treasury will recognize a household as disproportionately impacted by the pandemic if they have low income, reside in a Qualified Census Tract, reside in the U.S. territories, or are receiving services from territorial or Tribal governments. Certain communities can also be designated as low income, if criteria are met.[13] The Final Rule also clarifies that Treasury will recognize a household as disproportionately impacted if it otherwise qualifies for certain federal benefits including:

• 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);
• Pell Grants;
• 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. [14]

Disproportionately impacted households may qualify for the enumerated uses listed in the Final Rule under both the ‘Impacted’ and ‘Disproportionately Impacted’ categories.[15]

The Final Rule has expanded several uses of CSLFRF funds to apply to all of those “impacted” by the pandemic. These include but are not limited to:

• assistance applying for public benefits or services;
• programs or services that address or mitigate the impacts of the COVID-19 public health emergency on childhood health or welfare, including:
  • childcare;
  • early learning services;  
  • programs to provide home visits; and
  • services for families involved in the child welfare system and foster youth;
• programs to address the impacts of lost instructional time for students; and
• programs or services that address housing insecurity, lack of affordable housing, or homelessness.[16]

Additionally, Treasury has enumerated uses that are solely eligible for communities that have been disproportionately impacted by the pandemic:

• payment for community health workers to help households access health & social services;
• remediation of lead paint or other lead hazards;
• primary care clinics, hospitals, integration of health services into other settings, and other investments in medical equipment & facilities designed to address health disparities;
• housing vouchers & assistance relocating to neighborhoods with higher economic opportunity;
• investments in neighborhoods to promote improved health outcomes;
• improvements to vacant and abandoned properties;
• services to address educational disparities; and
• schools and other educational equipment & facilities.[17]

Treasury’s CSLFRF Frequently Asked Questions (“FAQs”) provide further guidance to recipients of CSLFRF funding on eligible uses of funds to address negative economic impacts.[18] The FAQs currently reflect the Interim Final Rule, and Treasury is planning to update the FAQ at a later date.

Last Revised: January 31, 2022

What types of broadband improvement projects are potentially eligible for ARP funding?

On January 6, 2022, the U.S. Department of the Treasury (“Treasury”) issued its Final Rule on the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”). The Final Rule encourages recipients to consider the general affordability of broadband infrastructure projects and incorporate “at least one low-cost option offered without data usage caps and at speeds that are sufficient for a household with multiple users to simultaneously telework and engage in remote learning.”[1] This measure allows the focus of broadband projects to prioritize supporting underserved communities that have been disproportionately impacted by the pandemic.[2]

Further terms for the eligible use of funds for broadband infrastructure are defined in the Final Rule.[3] Treasury considers a necessary investment in broadband infrastructure to be one that is  “responsive to an identified need to achieve or maintain an adequate minimum level of service.”[4] Treasury considers a necessary investment in infrastructure – including broadband – to be one that will “establish or improve broadband service to underserved populations to reach an adequate level to permit a household to work or attend school, and that are unlikely to be met with private sources of funds,”[5] and also is:

1. responsive to an identified need to achieve or maintain an adequate minimum level of service, which may include a reasonable projection of increased need, whether due to population growth or otherwise and
2. a cost-effective means for meeting that need, taking into account available alternatives.[6]

Eligibility of use for broadband infrastructure is further addressed in the CSLFRF Fact Sheet as of May 10, 2021.[7] More specifically, Treasury notes that funds may be used to “help remedy [ ] shortfalls […] in broadband infrastructure”[8] in “unserved or underserved” areas.[9]

However, Treasury has also clarified its expectations regarding the target population for infrastructure or broadband projects—not all such projects will be considered eligible for CSLFRF. For instance, uses of funds intended to generally grow the economy and therefore enhance opportunities for workers and businesses would not be an eligible use, because such assistance is not reasonably designed to impact individuals or classes that have been identified as having experienced a negative economic impact.[10]

Further, municipalities that invest in broadband infrastructure projects should ensure that “water, sewer, and broadband projects use strong labor standards, including project labor agreements and community benefits agreements that offer wages at or above the prevailing rate and include local hire provisions, not only to promote effective and efficient delivery of high-quality infrastructure projects but also to support the economic recovery through strong employment opportunities for workers.”[11] Treasury recommends that municipalities consider fiber optic infrastructure projects where possible.[12] Municipalities may also use funds for related programs, such as modernization of cybersecurity for existing and new broadband networks.[13]

The Final Rule “further supports the expansion of affordable access to broadband service for households by requiring that recipients use a provider that participates in a qualifying affordability plan,”[14] such as the Federal Communications Commission’s (“FCC”) Affordable Connectivity Program (“ACP”).[15]

The Final Rule provides specific technical attributes and requirements for eligible broadband projects, stating that:

…eligible projects be designed to, upon completion, reliably meet or exceed symmetrical 100 Mbps download and upload speeds. As was the case under the interim final rule, in cases where it is not practicable, because of the excessive cost of the project or geography or topography of the area to be served by the project, eligible projects may be designed to reliably meet or exceed 100 Mbps download speed and between at least 20 Mbps and 100 Mbps upload speed and be scalable to a minimum of 100 Mbps download speed and 100 Mbps upload speed.[16]

Treasury encourages recipients to consider using CSLFRF money for infrastructure or broadband projects that focus on projects geared toward establishing or improving service connectivity to individual households. Specifically, Treasury states:

while recipients are permitted to make investments in “middle-mile” connections that otherwise satisfy the requirements of the final rule, Treasury continues to encourage recipients to focus on projects that will achieve last-mile connections—whether by focusing directly on funding last-mile projects or by ensuring that funded middle-mile projects have commitments in place to support new and/or improved last-mile service.[17]

Treasury also provides flexibility for recipients on broadband infrastructure eligibility, specifically for “recipients to determine eligible areas to be served, middle-mile projects, pre-project development costs, broadband connections to schools or libraries, and the applicability of the National Environmental Policy Act (NEPA) and the Davis-Bacon Act.”[18]

Additional information may be provided when Treasury issues new Frequently Asked Questions (“FAQ”) specific to the Final Rule. [19] 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.[20]

Last Updated: January 26, 2022

What are the restrictions placed on funds directed towards public sector revenue loss?

The U.S. Department of the Treasury (“Treasury”) provides examples of both qualifying and non-qualifying revenue loss under the Final Rule. The revenue loss provision is the broadest and most flexible category in the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) program. Under this provision, recipients may spend funds on any service traditionally provided by governments. While Treasury provides a non-exhaustive list of enumerated eligible uses in the Final Rule, recipients must still comply with CSLFRF regulations and cannot spend funds on ineligible uses.

Calculating Revenue Loss

Generally, to calculate revenue loss for purposes of using funds from the American Rescue Plan Act’s (“ARP”) CSLFRF to replace lost revenue, municipalities may determine their jurisdiction’s specific revenue loss by “choosing a standard allowance of up to $10 million in aggregate, not to exceed their award amount, during the program,” or by “calculating their jurisdiction’s specific revenue loss each year using Treasury’s formula, which compares actual revenue to a [counterfactual] trend.”[1] The counterfactual trend “begins with the last full fiscal year prior to the public health emergency (as required by statute) and projects forward with an annualized growth adjustment.”[2]  Treasury’s Final Rule includes a four-step formula to calculate revenue loss:

• Step 1: Identify revenues collected in the most recent full fiscal year prior to the public health emergency (i.e., last full fiscal year before January 27, 2020), called the base year revenue.
• Step 2: Estimate counterfactual revenue, which is the amount of revenue the recipient would have expected in the absence of the downturn caused by the pandemic…
• Step 3: Identify actual revenue, which equals revenues collected over the twelve months immediately preceding the calculation date.
• Step 4: The extent of the reduction in revenue is equal to counterfactual revenue less actual revenue. If actual revenue exceeds counterfactual revenue, the extent of the reduction in revenue is set to zero for that calculation date.[3]

To the extent it has experienced a qualifying revenue loss, a municipality may use CSLFRF funds for the “provision of government services to the extent of the reduction in revenue experienced due to the COVID-19 public health emergency.”[4] Under the Revenue Loss Category, the Final Rule states that “recipients have broad latitude to use funds for government services up to their amount of revenue loss due to the pandemic.”[5] The Final Rule provides examples of qualified government services, including, but not limited to:

• Construction of schools and hospitals;
• Road building and maintenance, and other infrastructure;
• Health services;
• General government administration, staff, and administrative facilities;
• Environmental remediation;
• Provision of police, fire, and other public safety services (including purchase of fire trucks and police vehicles).[6]

However, the Final Rule also describes a non-exhaustive list of items that do not qualify as government services or eligible use of funds, including:

• debt service and reserve replenishment costs;[7]
• contributions to rainy day funds and similar financial reserves constitute savings for future spending needs;[8]
• satisfaction of any obligation arising under or pursuant to a settlement agreement, judgment, consent decree, or judicially confirmed debt restructuring in a judicial, administrative, or regulatory proceeding, except if the settlement or judgment requires the recipient to provide services to respond to the COVID-19 public health emergency or its negative economic impacts or to provide government services;[9]
• for a program that undermines practices included in the CDC’s guidelines and recommendations for stopping the spread of COVID-19;[10]
• violative of the conflict of interest requirements contained in the Award Terms and Conditions or the Office of Management and Budget’s Uniform Guidance, including any self-dealing or violation of ethics rules;[11]
• violative of other background laws that limit the scope of activities that may be conducted as “government services,” including other state and federal laws;[12] and
• explicitly restricted use of ARP funds, such as:
  • pension deposits that are an extraordinary payment of an accrued, unfunded liability;[13] or
  • use of funds for non-federal match where barred by regulation or statute.[14]

Treasury published additional guidance related to revenue loss in their January 2022, Frequently Asked Questions (“FAQ”) document.[15] The document notes that recipients are not required to use audited financials when calculating revenue loss.[16] Where audited data is not available, recipients are not required to obtain audited data, but still must submit complete and accurate information.[17] Treasury also states “recipients should use their own data sources to calculate general revenue, and do not need to rely on published revenue data from the Census Bureau.”[18] Due to differences in timing, data sources, and definitions, recipients’ self-reported general revenue figures may differ somewhat from those published by the Census Bureau.[19] Recipients may provide data on a cash, accrual, or modified accrual basis, provided that recipients are consistent in their choice of methodology throughout the covered period and until reporting is no longer required.[20]

The Final Rule also offers a standard allowance for revenue loss of $10 million, allowing recipients to opt for either a standard amount of revenue loss or complete a full revenue loss calculation.[21] Recipients selecting the standard allowance may use that amount for government services as described above and discussed in the Final Rule.[22]

In addition, Treasury requires projects with total expected capital expenditures costs exceeding $1 million to undergo additional analysis and increased reporting requirements to justify the capital expenditure.[23] Recipients are expected to meet the substantive requirements of a written justification for the capital expenditures. The written justification should (i) describe the harm or need to be addressed; (ii) explain why a capital expenditure is appropriate to address the harm or need; and (iii) compare the proposed capital expenditure against alternative capital expenditures that could be made.[24]

Further, when preparing their written justification:

1. Recipients should provide a description of the specific harm or need to be addressed, and why the harm was exacerbated or caused by the public health emergency. 
2. Recipients should provide an independent assessment demonstrating why a capital expenditure is appropriate to address the specified harm or need. This should include an explanation of why existing capital equipment, property, or facilities would be inadequate to addressing the harm or need and why policy changes or additional funding to pertinent programs or services would be insufficient without the corresponding capital expenditures.
3. Recipients should assess the proposed capital expenditure against at least two alternative types or sizes of capital expenditures that are potentially effective and reasonably feasible.[25]

Last Revised: March 25, 2022

What are the parameters on using lost revenue funds?

The Final Rule identifies four categories of allowable uses for Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) funds:

• To respond to the public health emergency or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality;
• To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers;
• For the provision of government services to the extent of the 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; and,
• To make necessary investments in water, sewer, or broadband infrastructure.[1]

The Final Rule identifies non-exclusive examples of eligible use as well as certain prohibitions of use.[2] Municipalities should review the Final Rule and the associated Frequently Asked Questions (“FAQs”) as they begin to determine how to spend their funds. To aid in these determinations, the Final Rule also outlines restrictions on the use of CSLFRF funds. These restrictions include deposits into pension funds, offseting a reduction in net tax revenue, paying interest or principal on outstanding debt, replenishing rainy day or other reserve funds, or paying settlements or judgements.[3]

Recipients have a choice between two options to determine their amount of revenue loss. Once the choice is made, recipients cannot switch between these approaches.[4]

1. Recipients may elect a “standard allowance” of $10 million to spend on government services through the period of performance.

• Under this option, which is newly offered in the Final Rule, Treasury presumes that up to $10 million in revenue has been lost due to the public health emergency and recipients are permitted to use that amount (not to exceed the award amount) to fund “government services.” The standard allowance provides an estimate of revenue loss that is based on an extensive analysis of average revenue loss across states and localities, and offers a simple, convenient way to determine revenue loss, particularly for CSLFRF’s smallest recipients. All recipients may elect to use this standard allowance instead of calculating lost revenue using the formula below, including those with total allocations of $10 million or less. Electing the standard allowance does not increase or decrease a recipient’s total allocation.[5]

2. Recipients may calculate their actual revenue loss according to the formula articulated in the Final Rule.

• Under this option, recipients calculate revenue loss at four distinct points in time, either at the end of each calendar year (e.g., December 31 for years 2020, 2021, 2022, and 2023) or the end of each fiscal year of the recipient. Under the flexibility provided in the Final Rule, recipients can choose whether to use calendar or fiscal year dates but must be consistent throughout the period of performance. Treasury has also provided several adjustments to the definition of general revenue in the Final Rule.[6]

After recipients have determined their lost revenue, they can then use CSLFRF funds to pay for government services up to the revenue loss amount. Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise.[7] Examples provided by Treasury may include but are not limited to:

• 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).[8]

The revenue replacement eligible use offers municipalities more flexibility than other CSLFRF eligible use categories. Funds are subject to streamlined reporting and compliance requirements. Recipients should be mindful that certain restrictions, which are detailed further in the Final Rule’s restrictions on use section and apply to all uses of funds, apply to government services as well.[9]

Notably, Treasury may provide additional information when it issues new FAQs specific to the Final Rule.[10]

What are the eligibility differences between CRF and ARP funding?

As stated in Question 6 of the Treasury’s FAQs,[1]  “[g]enerally, funding uses eligible under CRF as a response to the direct public health impacts of COVID-19 will continue to be eligible under CSFRF/CLFRF, with the following two exceptions: (1) the standard for eligibility of public health and safety payrolls has been updated; and (2) expenses related to the issuance of tax-anticipation notes are not an eligible funding use.”