How can municipalities ensure that received funds reach the public as quickly as possible while making a long-term impact?

Local governments are expected to receive a total of two disbursements from the American Rescue Plan Act of 2021 (“ARP”) under the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”).[1] Local leaders will have an opportunity to invest in future growth and mitigate the impacts of COVID-19 which extend beyond near-term expenditure needs. These near-term needs include replacing lost revenue and/or expenditures that were required in response to COVID-19.[2] The U.S. Department of the Treasury (“Treasury”) will make available the second distribution to states and local governments no sooner than twelve months after the first payment.[3]

To complete a submission on behalf of your jurisdiction, municipalities will be asked to provide the following information when requesting funding through the Treasury submission portal:

• jurisdiction name, taxpayer ID number, DUNS number, and address;
• authorized representative name, title, and email;
• contact person name, title, phone, and email;
• funds transfer information, including recipient’s financial institution, address, phone, and routing number and account number; and
• completed certification document (to be signed by the authorized representative).[4]

Municipalities can also consider undertaking a needs-assessment prior to the actual receipt of funds to: (i) determine local priorities; (ii) ensure that the right projects are being funded; and (iii) determine whether any other sources of funding are available. Because most provisions of Uniform Guidance (2 CFR Part 200) apply to these funds,[5] municipalities can also consider taking proactive steps to ensure compliance. Examples of proactive steps that municipalities can take include preparing templates for Requests for Proposals (“RFPs”) and Notices of Funding Availability (“NOFA”) and strengthening internal policies and procedures specific to the management and administration of these funds. Effective internal controls are generally required for recipients of federal funds,[6] and may help ensure funds are distributed effectively, efficiently, and in compliance with the terms and conditions of the CSLFRF program. In addition, municipalities can consider the following good practices to help ensure compliance:

• identifying resources to provide ongoing eligibility reviews of programmatic costs;
• providing system infrastructure to support grant management and documentation collection;
• staging resources to report costs each quarter to Treasury;
• documenting the use of funds and critical decisions in anticipation of OIG audits; and
• performing closeout and reconciliation of all costs incurred.

To ensure funds are reaching the public as soon as possible, it is important to make certain that funds are put toward eligible uses. Treasury notes in its Final Rule on CSLFRF that eligible uses include:

• supporting the public health response;
• addressing the negative economic impacts of the public health emergency;
• providing premium pay for essential workers;
• providing government services to the extent of lost public sector revenue; and
• investing in water, sewer, and broadband infrastructure.[7]

Further, the Final Rule notes that ineligible uses include:

• for states and territories, funding cannot be used to directly or indirectly offset a reduction in net tax revenue due to a change in state or territory law;
• funding a deposit to a pension fund (except for Tribal governments);
• funding debt service or replenishing financial reserves;
• using funds for expenditures that conflict with the statutory purpose of the ARP;
• using funds in violation of the conflict-of-interest requirements; and
• using funds that are in conflict of federal, state, and local laws and regulations.[8] 

Local governments can consider providing aid to the most impacted industry sectors and the employees in those sectors. For example, the Final Rule states:

from February 2020 to February 2021, the hospitality and leisure industry lost nearly 3.5 million jobs. While the entire industry was impacted, 72 percent of the job losses occurred in the lowest wage service occupations compared to only a 6 percent rate of job loss in the highest wage management and finance jobs.[9]

By continuing to work with existing stakeholders that have been active in communities’ COVID-19 public health emergency response and recovery efforts, local governments may be better able to quickly initiate agreements and expeditiously mobilize funding for their communities. Partnerships with nonprofits and philanthropy groups may enable organizations to quickly distribute funding to the groups most affected by the pandemic.[10]

In addition, municipalities should note that Treasury allows municipalities to incur or obligate costs until December 31, 2024, but provides recipients with a deadline of December 31, 2026, to expend CSLFRF.[11]

Last Revised: April 1, 2022

Where can we look to find out when funds will be available for municipalities, Entitlement Communities, and Non-Entitlement Communities (who will receive their funding from their states)?

The American Rescue Plan Act (“ARP”) established the Coronavirus State Fiscal Recovery Fund (“CSFRF”) and the Coronavirus Local Fiscal Recovery Fund (“CLFRF”) to provide flexible funding to a broad range of recipients, including:

• “Metropolitan cities” (generally cities with populations of 50,000 or greater), and
• Smaller “non-entitlement units” (generally local governments with populations of less than 50,000).

Metropolitan Cities

The U.S. Department of Treasury (“Treasury”) has posted detailed information on how to request funds on their website at: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-fund/request-funding.

Treasury will directly disburse funds to eligible cities. While local governments designated as non-entitlement units are eligible to receive ARP funds, they will receive funding from their applicable state government rather than from the Treasury Department.

Treasury’s list of metropolitan cities eligible for direct disbursements and their allocation amounts is available here: https://home.treasury.gov/system/files/136/fiscalrecoveryfunds-metrocitiesfunding1-508A.pdf.

Municipalities that are eligible for direct disbursement, may request funds through the Treasury Submission Portal. In order to apply, an authorized representative will need to provide the following information:

• Jurisdiction name, taxpayer ID number, DUNS Number, and address
• Authorized representative name, title, and email
• Contact person name, title, phone, and email
• Funds transfer information, including recipient’s financial institution, address, phone, and routing number and account number
• Completed certification document (to be signed by the authorized representative)

Municipalities will need to obtain a free DUNS number to register. An entity that does not have a valid DUNS number can visit https://fedgov.dnb.com/webform/ or call 1-866-705-5711 to begin the registration process.

Municipalities will also need an active registration with the System for Award Management (SAM) database at SAM.gov. An entity that does not have an active SAM registration can visit SAM.gov to begin the free entity registration or renewal process, which may take up to three weeks. 

Jurisdictions must submit a request to receive ARP funding even if they have previously applied for other programs through the Treasury Submission Portal. Eligible jurisdictions will receive communications regarding the status of their submission via the email address provided in the Treasury Submission Portal.

For additional information from the Treasury on requesting funds and the Treasury Submission Portal, recipients can access the Treasury’s “Request Funding” website: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-fund/request-funding.

Disbursements will be distributed to Metropolitan Cities and states in two tranches:

First Tranche

• Were disbursed within 60 days of enactment of the bill (May 11, 2021)
• Will equal 50% of the total allocation
• States must disburse funds to recipient cities within 30 days of receipt unless granted an extension

Second Tranche

• Will be disbursed no earlier than 12 months after the first disbursement (no sooner than May 11, 2022)
• Will equal the remaining 50% allocation amount
• There is currently no language that specifies a deadline for states to disburse funds to recipient cities

Non-Entitlement Units of Government

For non-entitlement units of local government, which generally include local governments that serve populations less than 50,000, ARP funds will flow through their respective state governments. State governments will receive a specific allocation of these funds from Treasury for this purpose and will be responsible for disbursing these funds to non-entitlement units within their state. Funding for State governments will be split “into two equal payments for all State governments, except for States where the unemployment rate is 2.0 or more percentage points above its pre-pandemic level.”[1] More information about which State governments have received split payments can be found at: https://home.treasury.gov/system/files/136/split-payments-to-states-public1-508A.pdf. The funding split is subject to change as new State unemployment data is released.[2] The unemployment exceptions to State governments split funding does not impact the timeline for non-entitlement units receiving funding from their respective State governments.[3] Non-entitlements units should consult with their respective States for additional information on their process for disbursing funds. In addition, each non-entitlements unit must have a valid DUNS number to comply with the Fund’s reporting requirements. If your entity does not have a valid DUNS number, you can begin the registration process at https://fedgov.dnb.com/webform or call 1-866-705-5711.

Lastly, non-entitlement units of local government can find additional information published by Treasury here: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-fund/non-entitlement-units

Last Revised: November 12, 2021

What does the ARP say about the costs pertaining to enhancing/incorporating procurement opportunities for minority business enterprises (“MBE”) to expand diversity and inclusion?

With the release of the U. S. Department of the Treasury’s (“Treasury”) Final Rule, Treasury has not provided explicit guidance on enhancing procurement opportunities for minority business enterprises (“MBE”). However, the Final Rule has outlined various means to assist with municipalities seeking to use funding received under the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to support MBE.

The ARP expressly identifies four broad categories of eligible uses for CSLFRF, and the Final Rule further clarifies the authorized uses of ARP funds. Since Fiscal Recovery Funds are subject to the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 C.F.R. 200) (the “Uniform Guidance”), the non-federal entity must take all necessary affirmative steps to assure that minority businesses, women’s business enterprises, and labor surplus area firms are used when possible.[1]  

Furthermore, it may be helpful for municipalities to include training and professional development resources to make accessible the information necessary for MBEs to successfully compete for and win contract and grant opportunities made available with ARP funds. It may also be beneficial to design and implement programs with CSLFRF that respond to the negative economic impacts faced by MBEs due to the public health emergency.[2] For a list of “enumerated eligible uses of funds for assistance to small businesses,” see the Final Rule.[3]

As a final point, the Final Rule indicates the following:

Recipients may also designate a class of small businesses that experienced a negative economic impact or disproportionate negative economic impact (e.g., microbusinesses, small businesses in certain economic sectors), design an intervention to fit the impact, and document that the individual entity is a member of the class.[4]

In short, recipients can “designate a class of small businesses” that have experienced a negative economic impact due to the pandemic. A recipient could consider designating MBE businesses within this class, as long as the recipient tailors the intervention to address the negative impact of the pandemic and documents that the individual subrecipient is a member of the designated MBE class.

Last Revised: February 3, 2022

In calculating revenue reduction, when should municipalities use a 4.1% revenue growth rate instead of the “average annual revenue growth in the three full fiscal year prior to the COVID-19 public health emergency"?

Recipients should consider using the 5.2% revenue growth rate for the calculation of revenue loss[1] under the U.S. Department of the Treasury’s ("Treasury") Final Rule on the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) instead of the “average annual revenue growth in the three full fiscal years prior to the COVID-19 public health emergency” when:

1. they choose not to take advantage of the new standard allowance for revenue loss;[2] or
2. 5.2% exceeds the recipient's average annual revenue growth in the three full fiscal years prior to the public health emergency.[3]

Under the standard allowance introduced in the Final Rule, Treasury allows recipients to make a one-time selection of $10 million under the lost revenue clause. If selecting this option, the recipient does not need to calculate its revenue loss on an annual basis and can use the $10 million (not to exceed the award amount) to fund “government services over the course of the [CSLFRF] period of performance.”[4] Treasury has introduced this option to provide recipients with “the flexibility to use minimal administrative capacity on the [revenue loss] calculation if desired.”[5]

Alternatively, recipients may use a formula articulated in the Final Rule to calculate revenue loss. This formula can be found on pages 236 through 237 of the Final Rule, and the steps for calculating revenue loss per this formula are also provided below.[6] The formula directs recipients, including municipalities, to compare actual revenue to a “counterfactual trend representing what could have plausibly been expected to occur in the absence of the pandemic.”[7] 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.”[8] Revenue reduction equals the 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.[9]

Concerning the measurement of revenue growth in the counterfactual trend, municipalities use “a growth adjustment of either 5.2 percent per year or the recipient’s average annual revenue growth over the three full fiscal years prior to the COVID-19 public health emergency, whichever is higher.”[10]

The process for calculating revenue loss prescribed by the Final Rule is summarized below:

• 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 equal to base year revenue * [(1 + growth adjustment) ^(n/12)], where n is the number of months elapsed since the end of the base year to the calculation date, and growth adjustment is the greater of 5.2 percent and the recipient’s average annual revenue growth in the three full fiscal or calendar years prior to the COVID-19 public health emergency. Recipients must be consistent in their calculation of annual revenue, and calculate either fiscal or calendar year actual revenue throughout the duration of the SLFRF program.
• Step 3: Identify actual revenue, which equals revenues collected over the past twelve months as of 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.[11]

The revenue loss calculation is for “the aggregate revenue reduction of the recipient due to the public health emergency” and cannot be calculated for individual revenue sources or dependent government agencies.[12] Recipients may provide data on a cash, accrual, or modified accrual basis, but must be consistent in their choice of methodology throughout the covered period until reporting is no longer required.[13]

If a recipient is unsure whether a particular revenue source is included in the Final Rule’s definition of “General Revenue,” the recipient may consider the classification and instructions used to complete the Census Bureau’s Annual Survey.[14]

Last Updated: February 16, 2022

Can municipalities apply for less than their total calculated revenue loss under the ARP's revenue replacement provision (H.R. 1319, Subtitle M, § 603(c)(1)(C)), e.g. seeking $5 million in revenue replacement funds out of $19 million total revenue lost?

Can a municipality use CRF or another funding source to subsidize revenue loss from metered parking used for outdoor dining?

The CARES Act’s Coronavirus Relief Fund (“CRF”) most likely allows expenditures to replace revenue lost by vendors whose metered parking is impacted by street closures related to COVID-19 social distancing and other public health safety protocols.  FAQ #24^[1] of the U.S. Treasury guidance issued on January 15, 2021, states:  

“Governments have discretion to determine what payments are necessary. A program that is aimed at assisting small businesses with the costs of business interruption caused by required closures should be tailored to assist those businesses in need of such assistance. The amount of a grant to a small business to reimburse the costs of business interruption caused by required closures would also be an eligible expenditure under section 601(d) of the Social Security Act, as outlined in the Guidance.” 

FAQ #25 of the same guidance states that this discretion is available with or without a stay at home order: 

“Fund payments may be used for economic support in the absence of a stay-at-home order if such expenditures are determined by the government to be necessary. This may include, for example, a grant program to benefit small businesses that close voluntarily to promote social distancing measures or that are affected by decreased customer demand as a result of the COVID–19 public health emergency.” 

While the use of CRF funds appears to be permitted for this purpose, CRF funds should still be allocated using the appropriate method. The two FAQs referenced above discuss a grant and subrecipient relationship to a small business. If the municipality allocates the funding to the commercial entity in this manner it must 1) ensure that the entity first meets the definition of a small business; and 2) follow all relevant local and federal grants management compliance requirements, such as undertaking a risk assessment and monitoring subrecipients. The municipality can find additional compliance information in the Office of Management and Budget’s 2020 Compliance Supplement Addendum.^[2]

However, if the funding is not allocated through a grant, but rather through a contractual arrangement, then the municipality should follow its local procurement code.^[3] Municipalities have at least two options when allocating CRF funds through a contractual arrangement.  First, a municipality can ensure that its duty to make up lost proceeds for the vendor is spelled out in the contract. In this scenario, the municipality’s financial duties to the vendor should be clearly defined. Second, the municipality can enter into a short-term arrangement to lease or rent the spaces required for socially distanced restaurant operations.  In either scenario, a municipality should take care to: 1) follow the appropriate procurement processes; 2) establish a nexus between the COVID-19 crisis and the project to be funded; and 3) confirm that the relevant expenditures occurred during the CRF covered period.  Simply paying an invoice presented by the vendor without a contract in place will likely not be an allowable use and will risk recoupment.  

In any case, a municipality should consider implementing processes to detect and prevent potential duplication of benefits.  Federal, state, and local COVID-19 relief programs have allocated considerable resources to businesses for lost revenues and other impacts from COVID-19.  A municipality employing best practices will ensure that it is not providing funding for activities that have already been recouped by the business entity through other programs. 

Moving forward, the Coronavirus Local Fiscal Recovery Fund (“CLFRF”) program established by the American Rescue Plan (“ARP”) Act of 2021 may offer another funding option for this purpose.^[4]  FAQ #9^[5]  of the U.S. Treasury guidance issued on May 10, 2021 lists the following as an eligible use:

“Loans or grants to mitigate financial hardship such as declines in revenues or impacts of periods of business closure, for example by supporting payroll and benefits costs, costs to retain employees, mortgage, rent, or utilities costs, and other operating costs;”  

While the purpose appears to remain allowable under the CLFRF, compliance and reporting requirements apply, and the procurement requirements will most likely remain identical to those required under the CRF.

Last Revised: May 24, 2021

What are the restrictions on how a municipality can spend funds claimed as a result of lost revenue in an enterprise fund?

As detailed below, because the U.S. Department of the Treasury (“Treasury”) mandates that revenue loss must be calculated on an “entity-wide basis,” a municipality has broad latitude in deciding how to allocate funding for the provision of government services. While simply replenishing an enterprise fund is not an allowable purpose, funding activities for which an enterprise fund usually pays would be allowable if these activities relate to the provision of government services. Using revenue replacement funds to provide services normally paid for by the enterprise funds that lost revenue may allow those funds to restabilize over time.

The Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) established by the American Rescue Plan Act of 2021 (“ARP”) were designed to help “mitigate the fiscal effects stemming from the public health emergency with respect to the Coronavirus Disease (‘COVID-19’).”[1] CSLFRF provides opportunities for municipalities to address reductions in revenue due to COVID-19. Section 603(c)(1)(C) of the ARP states that CSLFRF funds may be used for (among other uses):

the provision of government services to the extent of the reduction in revenue of such metropolitan city, nonentitlement unit of local government, or county due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the metropolitan city, nonentitlement unit of local government, or county prior to the emergency.[2]

One consideration in accounting for the CSLFRF funds is the requirement in Treasury’s Final Rule implementing CSLFRF that revenue must be calculated on an entity-wide basis.[3] Because of this requirement, the municipality will have to calculate its total revenue loss before determining whether to use CSLFRF funds for addressing revenue loss experienced in a single enterprise fund. Funds awarded through revenue replacement must be used for the provision of government services.[4] The Final Rule further states:

Treasury continues to believe that the lists of activities that either are or are not providing government services are accurate but is clarifying here that, generally 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.[5]

Under the Final Rule, the following uses of funds are not eligible under this eligible use category:

• contributions to rainy day funds, financial reserves, or similar funds;
• payment of interest or principal on outstanding debt instruments;
• fees or issuance costs associated with the issuance of new debt; and
• satisfaction of any obligation arising under or pursuant to a settlement agreement, judgment, consent decree, or judicially confirmed debt restructuring plan in a judicial, administrative, or regulatory proceeding, except to the extent the judgment or settlement requires the provision of services that would respond to the COVID-19 public health emergency.[6]

Last Revised: February 16, 2022

Can a municipality use ARP funds on operational costs and capital improvements to facilities impacted by lost revenue from pandemic which, prior to COVID-19, generated their own revenue?

Under the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) established by the American Rescue Plan Act of 2021 (“ARP”), municipalities have broad, but not unlimited, discretion to allocate the resources provided to them. Operational costs at facilities that qualify for CSLFRF assistance are eligible costs for CSLFRF funding through December 31, 2024, if the operational costs fall under one of the four eligible uses categories listed below. One of those categories indicates that most “government services,” including operational costs for a component that generates its own revenue, are eligible to the extent of reduction in revenue due to the pandemic, with some exceptions. The three other categories require that expenditures meet separate specific eligibility requirements. Treasury expanded the eligibility of capital expenditures with the issuance of its Final Rule, as discussed in further detail below.

Subsection 603(c)(1) of the Social Security Act (which was enacted pursuant to section 9901 of the ARP and applies to local governments), allows CSLFRF assistance to be used as follows: 

(1) USE OF FUNDS.—Subject to paragraph (2), and except as provided in paragraphs (3) and (4), a metropolitan city, nonentitlement unit of local government, or county shall only use the funds provided under a payment made under this section to cover costs incurred by the metropolitan city, nonentitlement unit of local government, or county, by December 31, 2024— 

(A) to respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality; 

(B) to respond to workers performing essential work during the COVID–19 public health emergency by providing premium pay to eligible workers of the metropolitan city, nonentitlement unit of local government, or county that are performing such essential work, or by providing grants to eligible employers that have eligible workers who perform essential work; 

(C) for the provision of government services to the extent of the reduction in revenue of such metropolitan city, nonentitlement unit of local government, or county due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the metropolitan city, nonentitlement unit of local government, or county prior to the emergency; or 

(D) to make necessary investments in water, sewer, or broadband infrastructure.[1] 

The permissible uses outlined in the ARP provide municipalities with different options to support impacted industries and critical segments of the local economy whether they are owned and operated by the private sector or a government entity. On January 6, 2022, the U.S. Department of the Treasury (“Treasury”) published its Final Rule relating to the CSLFRF.^[2] The Supplementary Information that accompanies the Final Rule outlines some of the uses of CSLFRF assistance as follows:

The interim final rule expressly permitted use of funds for a limited number of capital expenditures that mostly pertained to COVID-19 prevention and mitigation. These included capital investments in public facilities to meet pandemic operational needs, such as physical plant improvements to public hospitals and health clinics; adaptations to public buildings to implement COVID-19 mitigation tactics; ventilation improvements in congregate settings, health care settings, or other key locations; assistance to small businesses and nonprofits and aid to impacted industries to implement COVID-19 prevention or mitigation tactics, such as physical plant changes to enable social distancing. For disproportionately impacted populations and communities, the interim final rule also expressly permitted development of affordable housing to increase the supply of affordable and high-quality living units.[3]

Treasury also states in the Final Rule’s Supplementary Information discussion:

Capital expenditures, in certain cases, can be appropriate responses to the public health and economic impacts of the pandemic, in addition to programs and services. Like other eligible uses of SLFRF funds in this category, capital expenditures should be a related and reasonably proportional response to a public health or negative economic impact of the pandemic. The final rule clarifies and expands how SLFRF funds may be used for certain capital expenditures, including criteria and documentation requirements specified in this section, as applicable.[4]

The Final Rule’s Supplementary Information Discussion elaborates on capital expenditure eligibility as follows:

Treasury provides presumptions and guidelines for capital expenditures that are enumerated earlier in sections Public Health, Negative Economic Impacts, and General Provisions: Other under the Public Health and Negative Economic Impact eligible use category (“enumerated projects”), along with capital expenditures beyond those enumerated by Treasury. In addition to satisfying the two-part framework in Standards: Designating a Public Health Impact and Standards: Designating a Negative Economic Impact for identifying and designing a response to a pandemic harm, Treasury will require projects with total expected capital expenditure costs of $1 million or greater to undergo additional analysis to justify their capital expenditure. Increased reporting requirements will be required for projects that are larger in size, as well as projects that are not enumerated as eligible by Treasury, with certain exceptions for Tribal governments discussed below. Smaller projects with total expected capital expenditures below $1 million will not be required to undergo additional analysis to justify their capital expenditure, as such projects will be presumed to be reasonably proportional, provided that they are responding to a harm caused or exacerbated by the public health emergency…[5]

In addition, Treasury describes the process of reporting on capital expenditures as follows:

As with all uses, recipients that undertake capital expenditures beyond those enumerated as eligible by Treasury must meet the two-part framework under Standards: Designating a Public Health Impact and Standards: Designating a Negative Economic Impact under General Provisions: Structure and Standards, including the requirement that responses are related and reasonably proportional to the harm or impact identified. As part of that assessment, these recipients may also be asked to complete a Written Justification. Recipients (other than Tribal governments) are subject to the following presumptions for the Written Justification of the capital expenditure, based on the total expected capital expenditures of the project:

• Projects with total expected capital expenditures of under $1 million: Treasury provides a safe harbor for unenumerated projects with total expected capital expenditures of under $1 million and will not require recipients to complete, submit, or meet the substantive requirements of a Written Justification of the capital expenditure. Recipients should still make a determination as to whether the capital expenditure is part of a response that is related and reasonably proportional to the public health emergency or its negative economic impacts.
• Projects with total expected capital expenditures of $1 million or over: Recipients should complete a Written Justification of the capital expenditure and make an independent assessment that their proposed capital expenditure meets the substantive requirements of the Written Justification. Further, recipients will be asked to submit the Written Justification as part of regular reporting to Treasury.

Treasury employs a risk-based approach to overall program management and monitoring, which may result in heightened scrutiny on larger projects. Accordingly, recipients pursuing projects with larger capital expenditures should complete more detailed analyses for their Written Justification, commensurate with the scale of the project.[6]

Treasury also requires that the written justification on capital expenditures of $10 million or greater be included in the recipient’s regular reporting to Treasury.[7]

Finally, it is noteworthy that Treasury describes the background relating to the use of CSLFRF assistance for capital improvements as follows:

In the interim final rule, Treasury noted that a “general infrastructure project, for example, typically would not be included [in this eligible use category] unless the project responded to a specific pandemic public health need.” Numerous commenters requested that Treasury permit investments in infrastructure as a response to the public health and negative economic impacts of the pandemic…. In the final rule, Treasury is maintaining the approach under the interim final rule that general infrastructure projects, including roads, streets, and surface transportation infrastructure, would generally not be eligible, unless the project responded to a specific pandemic public health need or a specific negative economic impact. Note, however, that Treasury has clarified that capital expenditures that are related and reasonably proportional to responding to the public health and economic impacts of the pandemic are eligible uses of funds….[8]

Treasury describes its rationale for this approach as follows:

In the interim final rule, Treasury permitted funds to be used for a limited number of capital expenditures mostly related to the COVID-19 public health response. This decision granted recipients some discretion to use [CSLFRF] funds to address COVID-19 prevention and mitigation through certain investments in equipment, real property, and facilities, which Treasury recognized as critical components of the public health response. In the final rule, Treasury considered maintaining the provisions in the interim final rule or expanding allowable capital expenditures to provide recipients greater flexibility to pursue other capital investments that are responsive to the public health emergency and its negative economic impacts. While expanding allowable capital expenditures may increase the risk that recipients will undertake large expenditures that do not sufficiently address intended harms, or address harms in a less cost-efficient manner than an alternative investment (e.g., a program or service), expanding allowable capital expenditures would likely help fill critical gaps in recipients’ response to the pandemic and provide equipment and facilities that generate benefits beyond SLFRF’s period of performance. To preserve flexibility while mitigating risks, the final rule allows recipients to undertake an expanded set of capital expenditures while requiring additional written justifications for projects with an expected total cost at or over $1 million. Treasury believes this approach balances the implementation of appropriate risk-based compliance requirements and the provision of administrative convenience for smaller capital expenditures, while generally allowing recipients the flexibility to undertake a greater variety of responsive capital expenditures.[9]

An overview of the capital expenditure requirements can be found in the Final Rule between pages 190 through 205. A succinct overview of these requirements can also be found in Coronavirus State & Local Fiscal Recovery Funds: Overview of the Final Rule between pages 30 through 31.[10]

Last Revised: February 24, 2022

May municipalities use ARP funds to make up lost revenue from delinquent tax collections? If so, what are the requirements to provide relief to delinquent taxpayers?

Municipalities will have the opportunity to use resources from the American Rescue Plan Act of 2021 (“ARP”) funds, such as the Coronavirus Local Fiscal Recovery Fund (“CLFRF”), to support government services impacted by revenue loss.^[1] It is unclear at this time whether municipalities will have greater flexibility related to tax reductions and outright tax relief than States and territories. Section 9901 of the ARP (amending 42 U.S.C. § 301-1305, at § 602(c)(2)(A)),^[2] which applies only to the direct State and territory allocations, includes the following language around the restriction on use of funds: 

“(A) IN GENERAL.—A State or territory shall not use the funds provided under this section or transferred pursuant to section 603(c)(4) to either directly or indirectly offset a reduction in the net tax revenue of such State or territory resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax (by providing for a reduction in a rate, a rebate, a deduction, a credit, or otherwise) or delays the imposition of any tax or tax increase.” 

While the early interpretations of this section have discussed formal tax breaks or credits, this section uses the phrase “reduces any tax” vaguely before clarifying that this can occur through numerous mechanisms and not just a formal legislative or appropriation action.  

Based on the guidance issued by the Department of the Treasury regarding the earlier Coronavirus Relief Fund of the CARES Act, general financial support to beneficiaries that has a secondary impact of allowing individuals and entities the financial capacity to pay outstanding tax and utility liabilities for things such as rental assistance, food insecurity, job training, and healthcare costs may be allowable under CLFRF. However, guidance from the Treasury has yet to indicate what is allowable under the ARP. This guidance will ultimately indicate whether regulatory language will extend the above-mentioned prohibition on state use to local governments. In the meantime, municipalities should approach this topic cautiously and consider other types of financial assistance to households, small businesses, and non-profits impacted by COVID that do not include the direct forgiveness or relief of outstanding tax obligations. 

Last Revised: April 21, 2021

How can a municipality use federal funds to cover lost revenue and replenish reserves used to cover lost revenue?

The American Rescue Plan Act of 2021 (“ARP”) authorizes the use of Coronavirus State and Local Fiscal Recovery Funds ("CSLFRF") to address reductions in revenue due to COVID-19. However, the U.S. Department of the Treasury ("Treasury") has issued guidance that indicates that replenishing reserve fund balances is not an allowable use of ARP funds.[1] “Government services” is the broadest category of expenditures under the CSLFRF; expenditures for virtually any government service traditionally provided by the government are eligible except where prohibited.

The ARP established the CSLFRF to "mitigate the fiscal effects stemming from the public health emergency with respect to the Coronavirus Disease."[2] A significant component of CSLFRF assistance is the ability of municipalities to address reductions in revenue due to the COVID-19 public health emergency. Section 603(c)(1)(C) of the Social Security Act, as amended by Section 9901 of the ARP, states that, among other purposes, funds may be used: 

for the provision of government services to the extent of the reduction in revenue of such metropolitan city, nonentitlement unit of local government, or county due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the metropolitan city, nonentitlement unit of local government, or county prior to the emergency.[3]

It is important to note that the "provision of government services" language refers to delivering an actual program or activity. The language in Section 603(c)(1) discusses incurred costs but does not explicitly address whether municipalities can use the assistance to replenish fund balances.[4] However, the Final Rule states that replenishing fund balances such as a rainy day or other reserve fund is not an allowable use of CSLFRF. [5] The Final Rule explicitly states that:

the interim final rule provided that the following uses of funds are not eligible under this eligible use category: contributions to rainy day funds, financial reserves, or similar funds; payment of interest or principal on outstanding debt instruments; fees or issuance costs associated with the issuance of new debt; and satisfaction of any obligation arising under or pursuant to a settlement agreement, judgment, consent decree, or judicially confirmed debt restructuring plan in a judicial, administrative, or regulatory proceeding, except to the extent the judgment or settlement requires the provision of services that would respond to the COVID-19 public health emergency. These uses of funds remain ineligible under the final rule.[6]

Furthermore, Treasury's Overview of the Final Rule provides the most current definition of "general revenue" for calculating revenue loss and provides a methodology for calculating revenue lost due to COVID-19.[7] The Final Rule indicates that municipalities should use revenue replacement funds to "provide government services" and establishes specific guidance for calculating revenue loss.[8] Furthermore, it clarifies that recipients facing budget shortfalls may use CSLFRF "to avoid cuts to government services."[9] An overview of this calculation process is provided below.

General Revenue

The term "general revenue" is defined as:

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.[10]

When calculating revenue, "the final rule maintains the requirement that revenue loss is to be calculated on an aggregate basis."[11] In addition, the Final Rule explains that "[i]ntergovernmental transfers means money received from other governments, including grants and shared taxes."[12]

In terms of whether an entity is part of a government for the purpose of calculating general revenue, Treasury explicitly states that "[t]he Department also released guidance clarifying how a recipient may determine whether a particular entity is ‘part of the recipient's government.’" [13]

Treasury has explicitly stated in its Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule: Frequently Asked Questions ("FAQs") that:

In determining whether a particular entity is part of a recipient's government for purposes of measuring a recipient's government revenue, recipients should identify all the entities included in their government and the general revenue attributable to these entities on a best-efforts basis. Recipients are encouraged to consider how their administrative structure is organized under state and local statutes. In cases in which the autonomy of certain authorities, commissions, boards, districts, or other entities is not readily distinguishable from the recipient's government, recipients may adopt the Census Bureau's criteria for judging whether an entity is independent from, or a constituent of, a given government.[14]

Treasury provides four conditions that must be met for an entity to be considered independent. If they do not meet all four conditions, a recipient "may classify the entity as part of [its] government and assign the portion of General Revenue that corresponds to the entity."[15]

Finally, Treasury notes that:

To further assist recipients in applying the forgoing criteria, recipients may refer to the Census Bureau's Individual State Descriptions: 2017 Census of Governments[16] publication, which lists specific entities and classes of entities classified as either independent (defined by Census as "special purpose governments") or constituent (defined by Census as "dependent agencies") on a state-by-state basis.[17]

With respect to the validity of the cited passages provided in the FAQs with the release of the Final Rule, Treasury has explicitly stated that it "is adopting as final the interim final rule published on May 17, 2021, with amendments. This rule implements the Coronavirus State Fiscal Recovery Fund and the Coronavirus Local Fiscal Recovery Fund established under the American Rescue Plan Act."[18] Furthermore, Treasury provides that "[t]he provisions in this final rule are effective April 1, 2022."[19] This effectively means that all FAQs are still valid until the date the Final Rule goes into effect, and municipalities "can choose to take advantage of the final rule's flexibilities and simplifications now, even ahead of the effective date."[20]

Option to Elect a Standard Allowance

The Final Rule provides recipients with a second way to access revenue replacement funds, creating:

an option for recipients to use a standard allowance for revenue loss. Specifically, in the final rule, recipients will be permitted to elect a fixed amount of loss that can then be used to fund government services. This fixed amount, referred to as the “standard allowance,” is set at $10 million total for the entire period of performance. Although Treasury anticipates that this standard allowance will be most helpful to smaller local governments and Tribal governments, any recipient can use this standard allowance instead of calculating revenue loss pursuant to the formula above, so long as recipients employ a consistent methodology across the period of performance (i.e., choose either the standard allowance or the regular formula). Treasury intends to amend its reporting forms to provide a mechanism for recipients to make a one-time, irrevocable election to utilize either the revenue loss formula or the standard allowance.[21]

It is crucial to note that Treasury also states that recipients "must choose one of the two options and cannot switch between these approaches after an election is made."[22]

Eligible Government Services

The Final Rule specifies that "generally speaking, services provided by the recipient governments are 'government services' under the interim final rule and final rule, unless Treasury has stated otherwise."[23] Treasury has provided several examples of government services, including, but not limited to:

• construction of schools and hospitals;
• road building and maintenance, and other infrastructure;
• provision of 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).[24]

However, the Final Rule warns that:

recipients should be mindful that other restrictions may apply, including those articulated in the section Restrictions on Use. In the final rule, Treasury is maintaining the limitations on government services included in the interim final rule and has addressed and responded to public commenters on these issues in the section Restrictions on Use.[25]

Finally, the Final Rule provides several examples that are not considered to be government services, including, but not limited to:

• offsetting a reduction in net tax revenue resulting from a change in law, regulation, or administrative interpretation beginning on March 3, 2021, through the last day of the fiscal year in which the funds provided have been spent;
• fees or issuance costs associated with the issuance of new debt;
• the 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 judgment or settlement required the provision of government services; and
• replenishing financial reserves (e.g., rainy day or other reserve funds) would not be considered a provision of government service since such expenses do not directly relate to the provision of government services.[26]

Last Revised: January 31, 2022

May municipalities use funds from the CARES Act CRF or the ARP CLFRF to support administrative hiring costs (including immigration paperwork and filing fees) related to personnel who were hired for and are funded by COVID-19 grants?

Neither the American Rescue Plan Act of 2021 (“ARP”) legislative text nor the U.S. Department of the Treasury’s (“Treasury”) Final Rule on the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) specifically defines administrative cost allowances for CSLFRF. While administrative costs and technical assistance are listed as eligible uses in the Final Rule,[1]  it does not specifically reference administrative hiring costs, such as immigration paperwork and filing fees, and whether they might be considered under such administrative costs is not entirely certain. 

The Final Rule includes the costs related to rehiring of local government staff as an eligible use, including payroll, covered benefits, and other costs associated with rehiring public sector staff, up to the pre-pandemic staffing level of the government,[2] and allows funds used to be spent on ancillary administrative costs related to administering CSLFRF-funded hiring programs.[3] Ancillary administrative costs can include “costs to publish job postings, review applications, and onboard and train new hires.”[4]

Last Revised: March 7, 2022

Is additional pay, including hazard pay and bonuses, a permitted use of ARP funds?

A municipal government may use Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) payments to provide premium pay to eligible workers performing essential functions during the COVID-19 public health emergency or to provide grants to third-party employers of eligible workers performing essential functions.[1]

The U.S. Department of the Treasury (“Treasury”) Final Rule states, “[a] recipient may use funds to provide premium pay to eligible workers of the recipient who perform essential work, or to provide grants to eligible employers that have eligible workers who perform essential work.”[2]

In addition, Treasury states in the Supplementary Information discussion of the Final Rule that, “[p]remium pay is designed to compensate workers that, by virtue of their employment, were forced to take on additional burdens and make great personal sacrifices as a result of the COVID-19 pandemic. Premium pay can be thought of as hazard pay by another name.”[3]

Based on these statements in the Final Rule, recipients can use CSLFRF assistance to provide premium pay for essential employees who have performed what is considered “essential work.” It is important to note that premium pay is targeted at workers who faced or face heightened risks due to the character of their work. The Final Rule defines essential work as work involving regular in-person interactions or regular physical handling of items that were also handled by others.[4] A worker performing telework from a residence, for example, would not be engaged in essential work and may not receive premium pay.[5]

Therefore, municipal governments may use CSLFRF funding to provide premium pay directly, or through grants to private employers, to a broad range of eligible workers performing essential work,[6] including:

• Staff at nursing homes, hospitals, and home care settings;
• Workers at farms, food production facilities, grocery stores, and restaurants;
• Janitors and sanitation workers;
• Truck drivers, transit staff, and warehouse workers;
• Public health and safety staff;
• Childcare workers, educators, and other school staff; and
• Social service and human services staff.[7]

The term “premium pay” is identified as an additional amount up to $13 per hour paid to an eligible worker for work during the COVID-19 pandemic. The Final Rule imposes a cap of $25,000 for any single eligible worker.[8]

Treasury’s Final Rule emphasizes the need for recipients to prioritize premium pay for lower-income workers. Premium pay that would increase a worker’s total pay above 150% of the greater of the residing state or county’s average annual wage requires specific justification for how it responds to the needs of these workers.[9] A written justification is not required, however, if the eligible worker is not exempt from the FLSA overtime provisions.[10]

In addition, the Final Rule allows employers to use CSLFRF funding to offer retroactive premium pay, recognizing that many essential workers have not yet received additional compensation for work performed.[11]

Last Revised: March 15, 2022