What are the rules on subgrants to community partners?

While the Final Rule does not provide a specific definition of “community partners,” in terms of the transfer of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to other entities, the U.S. Department of the Treasury (“Treasury”) is aligning the definition of subrecipient with Uniform Guidance. Specifically, the Final Rule states:

Per 2 CFR 200.101 (b)(2) of the Uniform Guidance, the terms and conditions of federal awards flow down to subawards to subrecipients. Therefore, non-federal entities, as defined in the Uniform Guidance, must comply with the applicable requirements in the Uniform Guidance regardless of whether the non-federal entity is a recipient or subrecipient of a federal award. This includes requirements such as the treatment of eligible uses of funds, procurement, and reporting requirements.

The Uniform Guidance definitions for both subaward and subrecipient specify that payments to individuals or entities that are direct beneficiaries of a federal award are not considered subrecipients. [1]

To determine the relevant rules, recipients should assess the rationale for why they are providing funds to the individual or entity. If the community partner is carrying out a CSFLRF program for the subrecipient, all terms and conditions of CSFLRF would apply to the subaward.

However, if the community partner is receiving funds as a result of experiencing a public health impact or negative impact of the pandemic, then it is a beneficiary and not subject to subrecipient monitoring or reporting requirements.[2] If the community partner is a beneficiary, then the recipient should document the COVID-19 public health or economic impact and how the response is related and reasonably proportional to the harm identified.[3] For example, general economic development or workforce development that is not directly addressing an economic impact of COVID-19 would not be eligible under this funding.[4]

Last Revised: March 22, 2022

What are some innovative uses for the ARP funds?

On January 6, 2022, the U.S. Department of the Treasury (“Treasury”) released its Final Rule on the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”).[1] This guidance permits flexibility in employing these funds to respond to the COVID-19 public health emergency and address its economic fallout. For example, the Final Rule provides an expanded set of households and communities that are presumed to be “impacted” and “disproportionately impacted” by the pandemic and broadens eligible water, sewer, and broadband infrastructure investments.[2] Treasury published a CSLFRF Fact Sheet on May 10, 2021, that lists the following objectives of the funding:

• support urgent COVID-19 response efforts to continue to decrease spread of the virus and bring the pandemic under control;
• replace lost public sector revenue to strengthen support for vital public services and help retain jobs;
• support immediate economic stabilization for households and businesses; and,
• address systemic public health and economic challenges that have contributed to the unequal impact of the pandemic.[3]

Recipients may refer to Treasury’s Overview of the Final Rule for examples of enumerated uses of CSLFRF funds.[4]

There are many examples of municipalities using or planning to use their CSLFRF funding allocations in innovative ways. A few examples include:

• assisting businesses with re-opening by allocating $100,000 to provide personal protective equipment (“PPE”) grants. The municipality has also allocated $7 million in CSLFRF to a Rent Rescue Grant Program to bolster small and medium-sized businesses that were most impacted by the economic downturn from the pandemic.[5]
• supporting small business resiliency by providing disaster loan and utility bill payment forgiveness. The municipality is also utilizing CSLFRF to support businesses adversely affected by COVID-19 with software upgrades, as well as digital marketing and strategic plan counseling.[6]
• supporting the construction of a community of transitional shelters designed to provide housing services for homeless veterans using a $100,000 investment from the county’s CSLFRF allocation.[7]
• providing the state tourism marketing authority with $12 million in CSLFRF to help tourism-related businesses recover and to promote health and safety for their patrons.[8]

Can a municipality use ARP funds to provide funds to residents who have applied for, but not received, unemployment benefits?

The U.S. Department of the Treasury (“Treasury”) does not explicitly address a municipality’s ability to provide funds to residents while waiting for unemployment benefits from a state. However, Treasury’s Final Rule, published on January 6, 2022, permits certain contributions to State Unemployment Trust Funds.[1] Further, the Final Rule reiterates “that responses to negative economic impacts should be reasonably proportional to the impact that they are intended to address. Uses that bear no relation or are grossly disproportionate to the type or extent of harm experienced would not be eligible uses.”[2]

Notably, the Final Rule states that assistance to households, particularly cash assistance, is an eligible use of funds.[3] Although the “Assistance to Households” eligible use category does not specifically discuss utilizing funds for unemployment while waiting on unemployment benefit payments from a state, it does consider specific types of “cash assistance” to individuals.[4] Several examples of assistance to households identified by Treasury include:

• food assistance;
• rent, mortgage, or utility assistance;
• counseling and legal aid to prevent eviction or homelessness;
• cash assistance (discussed in further detail below);
• emergency assistance for burials, home repairs, weatherization, or other needs;
• internet access or digital literacy assistance; or
• job training to address negative economic or public health impacts experienced due to a worker’s occupation or level of training.[5]

In the examples provided above, Treasury does not list unemployment benefits. However, the cash benefits component is worth considering, as the Final Rule states that cash transfers “must respond to the negative economic impacts of the pandemic on a household or class of households” and that “recipients may presume that low- and moderate-income households (as defined in the Final Rule), as well as households that experienced unemployment, food insecurity, or housing insecurity, experienced a negative economic impact due to the pandemic.”[6]

Last Revised: January 31, 2022

What are good practices for documenting and accounting for programs using federal funds?

As municipalities continue to spend aid and apply for additional grants and funding, they will find it helpful to regularly assess internal controls to ensure they have established measures sufficient to attempt to prevent mistakes or misconduct that might result in the misuse of federal funds. Municipalities can avoid clawbacks by preventing mistakes and deterring misconduct. Municipalities should consider safeguards that will make it more likely that they will be able to detect misappropriations or breaches of the rules governing the receipt and distribution of money.

Assessing internal controls is not only a best practice in grant management, but also something that the federal government expects municipalities to do. Specifically, 2 CFR 200.303, “Internal Controls,” states that:

[t]he non-federal entity must…[e]stablish and maintain effective internal control over the federal award that provides reasonable assurance that the non-federal entity is managing the federal award in compliance with federal statutes, regulations, and the terms and conditions of the federal award.[1]  

With the passage of numerous COVID-19 relief packages, municipalities have received millions of dollars from multiple funding sources that are then often passed on to subrecipients. In managing any grant program, the initial stage is the most important. Municipalities will find it difficult to adequately implement or monitor the grant program if their plan to manage, monitor, and oversee a funding program is not well-developed from the outset.[2]

Below are some suggested steps that municipalities can consider to strengthen the management of grant programs, including disbursements of funds to subrecipients. These steps may help prevent the misuse of funds and avoid potential clawbacks by federal auditors.

1. Leadership: Hire or contract a grant administrator with relevant grant administration experience and familiarity with the applicable Codes of Federal Regulation.
2. Transparency: Improve transparency with a data management system which serves as a central repository of information that: (i) accounts for the receipt and distribution of all grant funds; (ii) tracks the source and beneficiary of the funds; and (iii) justifies the proposed use of funds. A central repository can help manage a municipality’s relief programs and identify mistakes early in the process before they become larger or more systemic issues.
3. Risk Assessment: Analyze the terms and conditions of the award or subaward and conduct risk assessments to evaluate noncompliance risk. These assessments can also be employed to help determine the appropriate levels of oversight.[3] The following are examples of due diligence measures to be considered for inclusion in the risk assessments:

• Require subrecipients to complete a pre-award risk assessment questionnaire that will help determine the level of risk. The U.S. Department of Justice (“DOJ”) has provided a sample risk assessment questionnaire to help formulate and tailor specific assessment questionnaires - DOJ Sample Risk Assessment Questionnaire.
• Perform basic due diligence checks including (i) a SAM database search, available at https://sam.gov/content/exclusions, to determine if a person or entity is on the federal government excluded parties list and (ii) searches for recent liens, judgements, bankruptcy filings, etc. Municipalities can consider leveraging locally-based resources for due diligence expertise including banking and financial institutions, law enforcement, and regulatory agencies.
  • Many states and municipalities have their own debarment or excluded parties lists, and these should be checked as well.
• As part of the self-certification process, require the potential recipient to disclose all previously received grant funds as well as pending grant applications. Municipalities can consider accessing federal and local agency data sources and databases to randomly test the accuracy of these disclosures.

4. Subrecipient Agreement: Execute a subrecipient agreement or contract with the awarded entity. The following information can be considered for inclusion in the subrecipient agreement:

• Right-to-audit clause to provide future access to books and records maintained by subrecipients;
• Cooperation clause that obligates the subrecipient to cooperate with any future government review, audit, or investigation;
• Acknowledgement signed and in writing by subrecipients of having read and understood the federal grant requirements laid out in 2 CFR 200;[4]
• Language detailing the mechanism for the recovery of misspent grant money;
• Language describing the service to be provided and how it fits into the permissible uses of the grant program;
• Language requiring subrecipients to perform their own due diligence of employees, subcontractors, and vendors; and
• A certification that the information contained in the grant application and the subrecipient agreement is true and accurate; any false statements made as part of the certification or application can be prosecuted.

5. Oversight and Monitoring: A DOJ National Procurement Fraud Task Force (“NPFTF”) report titled “Best Practices for Combatting Grant Fraud” noted that grant awarding agencies are often focused on awarding the grant money and do not devote sufficient resources to the oversight of how those funds are spent. The report noted that awarding agencies often fail to: (i) sufficiently audit and review supporting documentation for grant expenditures; (ii) establish performance goals for programs; (iii) ensure that grantees submit performance data to demonstrate that grant monies are being used effectively and as intended; and (iv) properly close grants in a timely manner.[5] To try to detect and address program vulnerabilities before they potentially become systemic, municipalities can consider proactively performing oversight, auditing, and monitoring of their grant programs, including funds expended by subrecipients. To help ensure controls for proper documentation, tracking, and accountability are in place, municipalities can consider the following steps:

• Create internal policies that clearly communicate expectations regarding documenting and tracking expenditures and what procedures are to be followed to ensure accountability of the money spent. These policies should not only be distributed to the municipalities’ team but also to subrecipients. Subrecipients should acknowledge in writing that they have reviewed the policies and will adhere to the requirements.
• As part of the assessment process, make sure your municipality has sufficient resources in place to conduct assessments and provide oversight. If additional assistance is needed, consider hiring a private contractor or consultant to help supplement auditing and compliance staff. The various relief funds may provide the ability to use a portion of the federal funds to assist with the management of grant funding and aid. Refer to funding source guidance for more specific details.
• Clawbacks will most likely come as the result of an audit. As a result, prepare project documents in anticipation of an audit by creating an audit trail. The audit trail should include, but not be limited to: general ledgers that account for the receipt and disbursement of funds, budget records, payroll records to support payroll expenses related to COVID-19, contracts and subcontracts, and, where applicable, photographs supporting expenditures. 
• Consider starting your own municipal internal program audits as soon as possible. Regular proactive internal audits might help identify and correct issues that, if gone unnoticed, could result in future clawbacks.

6. Information Sharing Within and Among Agencies: The NPFTF report also noted that coordination and communication will help: (i) identify cross-cutting management sectors; (ii) spot problem grantees that accept awards from more than one agency; (iii) identify common fraud schemes; and (iv) provide opportunities for coordination and cooperation in outreach and training.[6] Municipalities may consider finding opportunities to maintain regular contact with local, state, and federal agencies in order to exchange lessons learned and to share best practices.

Date Revised: February 1, 2022

How can cities balance spending federal funds on transformative internal projects against the desire to give funds directly to the community?

Which year’s qualified census tract designations (“QCT”) are applicable under ARP and how should a city address changes in QCTs during the ARP-funded project?

Qualified Census Tracts (“QCTs”) are a common, readily accessible, and geographically granular method of identifying communities with a large proportion of low-income residents. Using an existing measure may speed implementation and decrease administrative burden, while identifying areas of need at a highly localized level.[1]

As per the U.S. Department of Housing and Urban Development (“HUD”) Federal Register Notice dated September 9, 2020, Statutorily Mandated Designation of Difficult Development Areas (“DDAs”) and Qualified Census Tracts for 2022, Section VIII Future Delegations, “HUD designates QCTs annually as new income and poverty rate data are released.”[2] In addition, “the 2022 lists of QCTs and DDAs are effective:

• For allocations of credit after December 31, 2021; or
• For purposes of IRC Section 42(h)(4), if the bonds are issued and the building is placed in service after December 31, 2021.

If an area is not on a subsequent list of QCTs or DDAs, the 2022 lists are effective for the area if:

• The allocation of credit to an applicant is made no later than the end of the 730-day period after the applicant submits a complete application to the Low-Income Housing Tax Credit (“LIHTC”) allocating agency, and the submission is made before the effective date of the subsequent lists.

For purposes of IRC Section 42(h)(4), if:

• The bonds are issued, or the building is placed in service no later than the end of the 730-day period after the applicant submits a complete application to the bond-issuing agency, and
• The submission is made before the effective date of the subsequent lists, provided that both the issuance of the bonds and the placement in service of the building occur after the application is submitted.”[3]

As outlined above, a QCT designation is good for at least two years (730 days after submission of an LIHTC application). Municipalities should check HUD notices to ensure they are using the most recent available data and should note this requirement in any policies and procedures for the program. As projects are implemented over a long period of time (implementation period), the municipality will likely only need to add the additional QCT designations. All previous designations will still apply, and they will not change going forward.[4]

The HUD, QCTs and DDAs can be located at: https://www.huduser.gov/portal/sadda/sadda_qct.html.

New or Modified Guidance

The Final Rule issued by the U.S. Department of the Treasury (“Treasury”) states that many different geographic, income-based, or poverty-based presumptions can continue to be used to designate disproportionately impacted populations or households. The Final Rule allows recipients to also presume that certain low-income households were disproportionately impacted by the pandemic, allowing additional flexibility to provide services to underserved households or communities, even those that may not be located within a QCT.[5] Data on household incomes is readily available at varying levels of geographic granularity (e.g., Census Tracts, counties).

Treasury notes that recipients may also identify other households, populations, and communities disproportionately impacted by the pandemic, in addition to those presumed to be disproportionately impacted.[6] The Final Rule recognizes categorical eligibility for the following programs and populations:

Impacted households: The 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; or
• Home Investment Partnerships Program (HOME), for affordable housing programs only.[7]

Disproportionately impacted households: The Treasury will recognize a household as disproportionately impacted if it otherwise qualifies for, or participates in, 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);
• Title I school attendance; or
• Pell Grants.[8]

Further, the Final Rule identifies a pathway to designate other disproportionately impacted classes. 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.[9] 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.[10]

Last Revised: January 26, 2022

How should a municipality account for component government units, e.g., 911 agency, when calculating revenue?

Municipalities should generally include revenue from component government units in their calculations of revenue loss for the purposes of accessing revenue replacement funds from the Coronavirus State and Local Fiscal Recovery Funds ("CSLFRF").

The U.S. Department of the Treasury (“Treasury”)’s Final Rule implementing CSLFRF defines general revenue based on the components of “General Revenue from Own Sources” in the Census Bureau’s Annual Survey of State and Local Government Finances.[1] The Final Rule defines the term “general revenue” as follows:

General revenue means 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 transactions, and intergovernmental transfers from the Federal Government, including transfers made pursuant to section 9901 of the American Rescue Plan Act. General revenue also includes revenue from liquor stores that are owned and operated by state and local governments. General revenue does not include revenues from utilities, except recipients may choose to include revenue from utilities that are part of their own government as general revenue provided the recipient does so consistently over the remainder of the period of performance. Revenue from Tribal business enterprises must be included in general revenue.[2]

Further, the Final Rule defines “tax revenue” in a manner consistent with the Census Bureau’s definition of the term, with certain changes (i.e., inclusion of certain intergovernmental transfers). Current charges are defined as “charges imposed for providing current services or for the sale of products in connection with general government activities.” They include revenues such as those produced by public education institutions, public hospitals, and toll revenues. Miscellaneous general revenue comprises 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.[3]  

The Final Rule establishes the process for accounting for general revenues that are to be considered by a recipient for the purposes of the revenue loss calculation, with two exceptions: recipients that operate utilities which are part of their own government may choose whether to include revenue from these utilities in their revenue loss calculation, and revenue from recipient-owned liquor stores should be considered part of general revenue.[4]

In addition, the Final Rule excludes “refunds and other correcting transactions and proceeds from issuance of debt or the sale of investments, agency or private trust transactions, and intergovernmental transfers from the Federal Government, including transfers made pursuant to section 9901 of the American Rescue Plan Act” from its definition of “general revenue.”[5] These activities are excluded to focus on sources generated from economic activity to support government services, rather than to account for a particular activity.[6]

All revenues included in the definition of general revenue are to be aggregated and calculated at the recipient level, rather than on an agency, fund, or revenue stream basis. Only the recipient itself should calculate revenue loss, as it is the aggregate revenue reduction of the recipient due to the public health emergency that is the critical figure to demonstrate declines in the recipients’ overall ability to pay for governmental services.[7] Likewise, the “provision of government services” eligible up to the amount of the recipient’s revenue loss can be provided generally on such government services, irrespective of the loss demonstrated by any specific agency, or fund.[8]

Dependent units of government, according to the U.S. Census Bureau Manual, lack “separate existence [which] is not attributed to entities lacking either fiscal or administrative independence.” Such governmental entities that lack fiscal or administrative independence, or the following characteristics, should likely generally be considered part of the recipient’s unit of government for the purposes of calculating revenue loss:

1. Control of the agency by a board composed wholly or mainly of parent government officials.
2. Control by the agency over facilities that supplement, serve, or take the place of facilities ordinarily provided by the creating government.
3. Provision that agency properties and responsibilities revert to the creating government after agency debt has been repaid.
4. Requirements for approval of agency plans by the creating government.
5. Legislative or executive specification by the parent government as to the location and type of facilities the agency is to construct and maintain.
6. Dependence of an agency for all or a substantial part of its revenues on appropriations or allocations made at the discretion of another state or local government.
7. Provision for the review and the detailed modification of agency budgets by another local government. County review of agency budgets in connection with statutory limitations on tax rates, however, is not, by itself, sufficient to establish lack of fiscal autonomy.[9]

For areas of uncertainty, the municipality may choose to assess the component unit in question and evaluate its revenue sources to understand whether they meet the standard of general revenue. As the definition of the General Revenue from Own Sources is based on the Census Bureau’s definition, the Census Bureau’s Government Finance Classification Manual can also be referenced in determining the correct classification of revenue.

Should sewage fees be included in a municipality’s revenue calculation?

The U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule defines general revenue based on the U.S. Census Bureau’s “General Revenue from Own Sources” found in the Annual Survey of State and Local Government Finances.[1] Prior to Treasury’s Final Rule, revenue from utilities was excluded from general revenue.[2] However, the Final Rule has expanded the definition of general revenue “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.”[3]

In addition to the expanded definition of general revenue, the Final Rule provides municipalities the option to elect the standard allowance of up to $10 million dollars for the entire period of performance as an alternative to calculating revenue loss.[4]

Last Revised: March 3, 2022

How will premium pay be taxed?

The Internal Revenue Service (“IRS”) released Frequently Asked Questions (“FAQ”) regarding the taxability and reporting of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”).[1]

IRS guidance states that premium payments are considered wages and therefore workers “must include the [premium] payment in gross income as compensation for services.”[2] This is the case “whether an amount is paid to [a recipient] by [its] state/local government, or by [its] employer, a payment that is in the nature of compensation for services is not excludable as a qualified disaster relief payment under section 139 of the Code.”[3]

From an employer perspective, premium pay payments are considered wages and employers must generally withhold federal income tax as well as social security tax and Medicare tax from employees’ wages.[4] Employers may also have to pay federal unemployment tax on the wages.[5]

Last Revised: April 1, 2022

What guidance should a municipality consider regarding the use of ARP funds to cover administrative costs?

The U.S. Department of the Treasury’s (“Treasury”) Final Rule on Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) affirms the use of CSLFRF for administrative expenses. Treasury clarifies:

direct and indirect administrative expenses are permissible uses of CSLFRF funds and are a separate eligible use category from “expenses to improve efficacy of public health or economic relief programs,” which refers to efforts to improve the effectiveness of public health and economic programs through use of data, evidence, and targeted consumer outreach.[1]

In the Final Rule, Treasury provides several categories of eligible administrative expenses. First, recipients may use funds for administrative costs to improve the efficacy of public health or economic relief programs through tools like program evaluation, data analysis, and targeted consumer outreach.[2]

In addition, recipients may use funds for administrative costs associated with programs to respond to the public health emergency and its negative economic impacts, including programs that are not funded by CSLFRF or not federally funded.[3] Treasury recognizes that responding to the public health and economic impacts of the pandemic requires many programs and activities, some of which are not funded by CSLFRF. Executing these programs effectively is considered part of responding to COVID-19.

Recipients may also use funds for direct and indirect administrative costs for administering the CSLFRF program and projects funded by the CSLFRF program.[4] Additional information that may be helpful in evaluating the use of CSLFRF for administrative expenses can be found in Treasury’s Compliance and Reporting Guidance.[5] Administrative costs must be reasonable, allocable, and accounted for consistently.[6]

CSLFRF recipients are required to adhere to the requirements of 2 CFR Part 200, Subpart E, Cost Principles.[7] Under 2 CFR Part 200.413, administrative costs that are typically charged to federal awards include, “compensation of employees who work on that award, their related fringe benefit costs, the costs of materials and other items of expense incurred for the Federal award.”[8] Municipalities should consider establishing payroll and finance account codes to track all time charged to activities that will be paid for under CSLFRF. These costs should be separated from work charged to other funding sources including but not limited to FEMA Public Assistance, Coronavirus Relief Funds, or other local, state, and federal funding sources to ensure no duplication of federal benefits. 

Last Revised: March 7, 2022

Are upgrades to network fiber and cybersecurity infrastructure eligible uses of ARP funds?

Municipalities may use Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) for upgrades to network fiber and cybersecurity infrastructure that are not directly tied to water or sewer infrastructure projects.

Sections 602(c)(1)(C) and 603(c)(1)(C) of the American Rescue Plan Act of 2021 (“ARP”) provide recipients with broad latitude to use CSLFRF funds for the provision of government services, to the extent of reduction in revenue.[1] Government services can include, but are not limited to: (i) maintenance or pay-go funded building of infrastructure, including roads; (ii) modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; (iii) health services; (iv) environmental remediation; (v) school or educational services; and (vi) the provision of police, fire, and other public safety services.[2]

The CSLFRF Final Rule also significantly broadens eligible broadband infrastructure investments to address challenges with broadband access, affordability, and reliability, and adds eligible water and sewer infrastructure investments, including a broader range of lead remediation and stormwater management projects.[3]

Under the Final Rule, CSLFRF funds can be used for eligible investments in broadband, which are those that are designed to provide services meeting adequate speeds and are provided to unserved and underserved households and businesses. Understanding that recipients have a wide range of broadband infrastructure needs, the Final Rule provides them with “flexibility to identify a need for additional broadband infrastructure investments: examples of need include lack of access to a connection that reliably meets or exceeds symmetrical 100 Mbps download and upload speeds, lack of affordable access to broadband service, or lack of reliable broadband service.”[4] To meet the immediate needs of unserved and underserved households and businesses, recipients are encouraged to focus on projects that deliver a physical broadband connection by prioritizing fiber-optic infrastructure wherever feasible, focusing on projects that achieve “last-mile” connections.[5]

Additionally, the Final Rule requires recipients to address the affordability needs of low-income consumers in accessing broadband networks funded by CSLFRF.[6] To do so, Treasury states that:

Recipients must require the service provider for a completed broadband infrastructure investment project that provides service to households to either participate in the Federal Communications Commission’s (“FCC”) Affordable Connectivity Program (“ACP”), or otherwise provide access to a broad-based affordability program to low income consumers in the proposed service area of the broadband infrastructure that provides benefits to households commensurate with those provided under the ACP.[7]

Treasury also encourages recipients to prioritize support for broadband networks owned, operated by, or affiliated with local governments, non-profits, and co-operatives’ providers with less pressure to turn profits and with a commitment to serving entire communities.[8]

Treasury allows for modernization of cybersecurity for existing and new broadband infrastructure as an eligible use of CSLFRF funds.[9] Although modernization of cybersecurity is an eligible use of funds, the Final Rule highlights that recipients should carry out investments in broadband infrastructure in ways that comply with applicable federal laws.[10]

Last Revised: February 16, 2022

May a municipality make repairs to a city-owned convention center as a governmental service to the extent of revenue loss?

Revenue Loss and the Provision of Government Services

A major component of the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) is that it allows municipalities to address reductions in revenue due to the COVID-19 pandemic by using revenue replacement funds for the provision of government services. Regarding the eligibility of different “government services” for CSLFRF funding, the Final Rule clarifies that:

[G]enerally speaking, services provided by the recipient governments are “government services” under the interim final rule and final rule, unless Treasury has stated otherwise. Government services 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. The aforementioned list of government services is not exclusive. However, recipients should be mindful that other restrictions may apply, including those articulated in the section Restrictions on Use.[1]

Although city-owned convention centers are not explicitly mentioned in the Final Rule, an important consideration is whether the contemplated repairs comport with the Final Rule’s requirement that revenue replacement funds be used for the provision of “government services.” Unless stated otherwise, government services include any service traditionally provided by the government.[2] Government services specified by Treasury include (as quoted above) “maintenance or pay-go funded building of infrastructure... and protection of critical infrastructure,” and as such, the critical inquiry is whether the maintenance on the convention center constitutes a “government service.”[3]

Potential uses that do not fall within other eligible use categories (e.g., responding to the public health and negative economic impacts of the pandemic; providing premium pay to essential workers; or making necessary investments in water, sewer and broadband infrastructure) may nevertheless be permissible as the provision of an eligible government service, which recipients can fund up to their amount of revenue loss.[4] Treasury allows the loss amount to be calculated by either using the revenue loss formula or using the standard allowance provision, a one-time election of $10 million to use under the lost revenue clause for the entire period of performance.[5] Recipients that select the standard allowance may use up to that amount for government services.[6]

Infrastructure spending beyond the amount allocated under the revenue loss provision is considered an ineligible expense, with exceptions for spending on water, sewer, and broadband investments.[7] For infrastructure spending to be eligible under another expense category, such as negative economic impacts, the project would need to respond to a specific pandemic public health need or negative economic impact.[8]                                                                                                       

It is important to recognize that, in making any determinations relative to use of funds, recipients must follow key compliance principles to substantiate use of funds and maintain a robust documentation and compliance system.[9]

Capital Expenditures

Capital expenditures: “…must be related and reasonably proportional to the pandemic impact identified and reasonably designed to benefit the impacted population or class.”[10] This is related to the public health or negative economic impact category and is not part of the revenue loss category analysis. Construction of convention centers or other large capital projects intended for general economic development are ineligible uses of funds.[11] Specifically, Treasury states:

Large capital expenditures intended for general economic development or to aid the travel, tourism, and hospitality industries – such as convention centers and stadiums – are, on balance, generally not reasonably proportional to addressing the negative economic impacts of the pandemic, as the efficacy of a large capital expenditure intended for general economic development in remedying pandemic harms may be very limited compared to its cost.[12]

However, when evaluating potential capital expenditure projects, Treasury recommends that recipients consider the possibility of improving existing capital assets that a municipality already owns.[13] In such a case, municipalities may review the framework for eligible uses beyond those enumerated to clarify the eligibility of the capital expenditure project.

Last Revised: February 24, 2022