What can cities use ARP funds for, broadly speaking?
The ARP authorized the newly established Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to provide assistance to state, local, tribal, and territorial (“SLTT”) governments.
The ARP provides $350 billion in assistance to SLTT governments through CSLFRF. States, territories, and tribal governments will receive $219.8 billion pursuant to the Coronavirus State Fiscal Recovery Fund (“CSFRF”), while local governments will receive $130.2 billion through the Coronavirus Local Fiscal Recovery Fund (“CLFRF”). Of the $130.2 billion, $45.6 billion is apportioned for metropolitan cities based on the Community Development Block Grant (“CDBG”) formula, $65.1 billion is for counties based on population, and $19.5 billion is for municipalities with populations under 50,000 (Non-Entitlement Units of Government, or “NEUs”) based on population.
As outlined in section 9901 of the ARP, eligible uses of CLFRF assistance include:
- supporting the COVID-19 public health response;
- addressing negative economic impacts (e.g., assistance to households, small business and non-profit support, assistance to unemployed workers, etc.);
- providing premium pay for essential workers;
- covering payroll expenses for public health and public safety employees;
- replacing revenue loss due to the COVID-19 public health emergency; and
- developing water, sewer, and broadband infrastructure.
Recipients Have Flexibility in Deciding How to Deploy Funds but Must be Mindful of Restrictions
In addition to the statutory guidance relating to CSLFRF mentioned above, on May 17, 2021, the U.S. Department of the Treasury (“Treasury”) published an Interim Final Rule (the “Rule”) to implement the new Fiscal Recovery Fund authorities. The Rule emphasizes the flexibility that recipients have in deciding how to use CSLFRF funds:
Within the eligible use categories outlined in the Fiscal Recovery Funds provisions of ARPA, State, local, and Tribal governments have flexibility to determine how best to use payments from the Fiscal Recovery Funds to meet the needs of their communities and populations. The Interim Final Rule facilitates swift and effective implementation by establishing a framework for determining the types of programs and services that are eligible under the ARPA along with examples of uses that State, local, and Tribal governments may consider.
The Rule also provides additional information delineating the potential eligibility of projects within the eligible use categories mentioned above. Recipients should consult the Rule prior to committing any funds to projects, even when the planned projects appear to fall within the categories listed in the statute.
Recipients should be aware of the restrictions imposed upon funds obtained from CSLFRF, including but not limited to:
- making deposits into pension funds or “rainy day funds;”
- using funds for the purpose of reducing taxes collected by states and territories;
- using funds as a non-federal match for any program that does not authorize the use of federal funds for cost-matching;
- paying principal or interest on outstanding debt; and
- paying settlements or judgments since these would not be considered provision of a government service.
Rules Regarding Funding Allocations
How much funding a local government is eligible for depends on whether the municipality is a “metropolitan city” or a “non-entitlement unit of local government,” as defined by the Housing and Community Development Act of 1974.
Treasury directs that states shall distribute funding proportionately among the total population of the non-entitlement units of local government (“NEUs”). The Rule provides further information about the distribution of CSLFRF funds to NEUs. The total amount distributed to NEUs may not exceed an amount equal to 75 percent of the most recent budget for the NEUs as of January 27, 2020.
State governments will receive a specific allocation of funds from Treasury and are responsible for distributing the funds to NEUs within their state. Award amounts are based on the population of the NEU. The aggregate allocations to states for distribution to NEUs are detailed here. Additionally, the status of payments to states for distribution to NEUs, which is updated weekly, is located here.
Allocations to metropolitan cities can be found here on the Coronavirus State and Local Fiscal Recovery (“CSLFR”) page.
In addition, tribal governments should be aware of and prepare for Treasury’s guidance regarding the disbursement in two tranches of CSLFRF funds to tribes and may refer to the CSLFRF Frequently Asked Questions (“FAQ”) document which addresses this.
Good Practices: Planning
Local governments receiving assistance from CSLFRF should consider the following non-exhaustive steps in developing plans for the use of funds:
- Stabilize government operations by replacing revenue and rehiring furloughed employees.
- Conduct a comprehensive capacity assessment and unmet needs analysis.
- Review eligible uses for funds obtained from CSLFRF and assess potential uses.
- Identify water, sewer, and broadband infrastructure priorities that may be eligible for funding through CSLFRF.
- Form a cross-sector recovery oversight committee and engage the public.
- Assess and catalog available funding to prioritize needs.
- Develop or update local recovery plan.
- Be mindful of the nature of CSLFRF as a one-time source of funds when considering ongoing programs that extend beyond the CSLFRF covered period.
With respect to CSLFRF, municipalities can sign up for email updates from Treasury for any changes to the Rule or FAQs.
Good Practices: Reporting Requirements
Treasury has published Compliance and Reporting Guidance for CSLFRF.
All recipients of CSLFRF funding other than NEUs were required to submit one Interim Report, which included the government’s expenditures by category at the summary level. The Interim Report was to cover spending from the date the local government-received funds to July 31, 2021, and was due by August 31, 2021, or 60 days after receiving funding if the funding was received by October 15, 2021. This report is similar to the report required by the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Coronavirus Relief Fund (“CRF”), but with modifications for expenditure categories and the addition of data elements related to specific eligible uses.
States, territories, metropolitan cities receiving $10 million or more in CSLFRF funding, and Tribal Governments receiving $30 million or more in CSLFRF funding will be required to submit quarterly project and expenditure reports, including financial data, information on contracts, and subawards over $50,000. The first report will cover spending from the date CSLFRF funds are received to December 31, 2021, and is due by January 31, 2022. Subsequent reports, covering only a single quarter, will be due 30 days after each quarter’s end. These reports are also similar to the reports required by the CRF, but with modifications for expenditure categories and the addition of data elements related to specific eligible uses.
Metropolitan cities receiving less than $10 million, Tribal governments receiving less than $30 million, and all NEUs will be required to submit project and expenditure reports on an annual basis. The first report will cover spending from the date CLSFRF funds are received to March 31, 2022 and is due by April 30, 2022. Subsequent reports will be due annually by April 30 through 2027.
The NEU distribution Template User Guide provides instructions and additional details to assist recipients in completing the Draft NEU Distribution Reporting Template. For reference, states and territories are required to provide an update on distributions to eligible NEUs under the following circumstances:
- As part of the Interim Report due on August 31, 2021.
- Every month until all distributions have been made.
- Where information or status has been changed.
States, territories, and municipalities with a population of over 250,000 residents are required to submit a Recovery Plan Performance Report that includes descriptions of projects funded, information on performance indicators, and the objectives of each award. The initial Recovery Plan Performance Report will cover activities from the date CSLFRF funds are received to July 31, 2021, and was due by August 31, 2021, or 60 days after receiving funding, and due annually thereafter on July 31 through 2026, with the final report due March 31, 2027.
On November 15, 2021, Treasury updated the Recovery Plan Performance Report Template. The Recovery Plan “provides information on the recipient’s projects and how they plan to ensure program outcomes are achieved in an effective and equitable manner.”  It is recommended, but not required, that recipients use this template to provide performance data, which is then posted on the recipient’s website and provided to Treasury.  Technical guidance published on August 9, 2021, provides recommendations on navigating the Treasury Portal, advises on classifying and submitting formal reports and expenditures, and answers FAQs on reporting to Treasury on the use of CSLFRF. 
Good Practices: Public Engagement
When Treasury published the Rule, it emphasized the need for public input during recipients’ decision-making process relating to the use of CSLFRF funds. For example, the Rule states that:
Implementation of the Fiscal Recovery Funds also reflect the importance of public input, transparency, and accountability… Treasury urges State, territorial, Tribal, and local governments to engage their constituents and communities in developing plans to use these payments, given the scale of funding and its potential to catalyze broader economic recovery and rebuilding. 
It is important for recipients of CSLFRF to take steps to ensure that the public is involved in community decision-making about the use of this assistance.
Good Practices: Disproportionate Impact Considerations
The Rule includes several references to the COVID-19 pandemic’s disproportionate impact on households and small businesses, especially low-income workers and communities and people of color. For example, it notes that:
[A]lthough the pandemic’s impacts have been widespread, both the public health and economic impacts of the pandemic have fallen most severely on communities and populations disadvantaged before it began. Low-income communities, people of color, and Tribal communities have faced higher rates of infection, hospitalization, and death, as well as higher rates of unemployment and lack of basic necessities like food and housing. Pre-existing social vulnerabilities magnified the pandemic in these communities, where a reduced ability to work from home and, frequently, denser housing amplified the risk of infection. Higher rates of pre-existing health conditions also may have contributed to more severe COVID-19 health outcomes. Similarly, communities or households facing economic insecurity before the pandemic were less able to weather business closures, job losses, or declines in earnings and were less able to participate in remote work or education due to the inequities in access to reliable and affordable broadband infrastructure. Finally, though schools in all areas faced challenges, those in high poverty areas had fewer resources to adapt to remote and hybrid learning models. Unfortunately, the pandemic also has reversed many gains made by communities of color in the prior economic expansion.
The Rule also states that:
[T]he pandemic and the necessary actions taken to control the spread had a severe impact on households and small businesses, including in particular low-income workers and communities and people of color. While eligible uses under sections 602(c)(1)(A) and 603(c)(1)(A) provide flexibility to recipients to identify the most pressing local needs, Treasury encourages recipients to provide assistance to those households, businesses, and non-profits in communities most disproportionately impacted by the pandemic. 
Therefore, it is important for recipients of CSLFRF to ensure that disproportionate impact considerations are analyzed while making decisions about the use of such assistance.
Last Revised: November 19, 2021