Program

COVID-19 Federal Assistance e311

Topics

Program Administration, Vaccine Distribution

Can a municipality use American Rescue Plan Act of 2021 (ARP) funds to provide cash payment incentives to municipality employees who have already been vaccinated?

Current guidance from the U.S. Department of the Treasury (“Treasury”) indicates that vaccine incentive programs are intended for prospective recipients of the vaccine; as such, municipalities should not use ARP funds to support retroactive incentive programs. 

Specifically, Treasury’s Frequently Asked Questions document (“FAQ”) for the ARP Coronavirus Local Fiscal Recovery Funds (“CLFRF”) states:

Under the Interim Final Rule, recipients may use Coronavirus State and Local Fiscal Recovery Funds to respond to the COVID-19 public health emergency, including expenses related to COVID-19 vaccination programs. See 31 CFR 35.6(b)(1)(i). Programs that provide incentives reasonably expected to increase the number of people who choose to get vaccinated, or that motivate people to get vaccinated sooner than they otherwise would have, are an allowable use of funds so long as such costs are reasonably proportional to the expected public health benefit.[1]

Though Treasury could potentially provide more clarity on retroactive vaccine payments in the future, current Treasury guidance indicates that municipalities should not use ARP funds to provide cash incentives to municipality employees who have already been vaccinated. If this is a significant concern for a municipality, it may want to consider submitting a comment about the issue to Treasury and request that the subject be addressed in future updates to Treasury’s FAQs or in the Final Rule that Treasury will publish.

Last Revised: August 6, 2021

[1] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #2.12, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Compliance & Reporting, Workforce & Economic Development

Under the American Rescue Plan Act (“ARP”), how close of a nexus must be demonstrated to show that services provided are directly tied to a person impacted by the pandemic or a person within a vulnerable population?

Though the U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”) does not specify the exact nexus that must be demonstrated between the pandemic and a proposed project or service. The guidance indicates that municipalities must make a threshold determination as to whether the COVID-19 public health emergency: (i) caused an existing economic harm; and (ii) identify how the services funded by the ARP proportionally address that economic harm. Municipalities using ARP funds to assist small business owners must demonstrate a direct nexus to the pandemic.

The Rule encourages municipalities to support to both (Black Identifying Person of Color) BIPOC communities and small businesses. According to the Rule, “Treasury encourages recipients to provide assistance to those households, businesses, and non-profits in communities most disproportionately impacted by the pandemic” which includes “households and small businesses, including in particular low-income workers and communities and people of color[.]”[1]

The ARP permits municipalities to use Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to respond to the negative economic consequences related to the COVID-19 pandemic. As stated by the Rule:

[e]ligible uses that respond to the negative economic impacts of the public health emergency must be designed to address an economic harm resulting from or exacerbated by the public health emergency…assistance or aid to individuals or businesses that did not experience a negative economic impact from the public health emergency would not be an eligible use under this category.[2]

If a municipality wishes to provide direct relief to individual persons or business owners, its use of CSLFRF must abide by Treasury guidance:

In considering whether a program or service would be eligible under this category, the recipient should assess whether, and the extent to which, there has been an economic harm, such as loss of earnings or revenue, that resulted from the COVID-19 public health emergency and whether, and the extent to which, the use would respond or address this harm. A recipient should first consider whether an economic harm exists and whether this harm was caused or made worse by the COVID-19 public health emergency.[3]

The Rule states, “a recipient may presume that a household or population that experienced unemployment or increased food or housing insecurity or is low- or moderate-income experienced negative economic impacts resulting from the pandemic.”[4]  

Low-income and minority groups also have eligibility for CSLFRF funds under sections 602(c)(1)(A) and 603(c)(1)(A). Treasury notes that “[i]n recognition of the disproportionate negative economic impacts on certain communities and populations, the Rule identifies services and programs that will be presumed to be responding to the negative economic impacts of the COVID-19 public health emergency when provided in these [low-income and minority groups] communities.”[5]

Treasury identifies “businesses in need” as:

businesses facing financial insecurity, substantial declines in gross receipts… or other economic harm due to the pandemic, as well as businesses with less capacity to weather financial hardship, such as the smallest businesses, those with less access to credit, or those serving disadvantaged communities.[6] 

For such businesses, Treasury provides “broad latitude to choose whether and how to use the Fiscal Recovery Funds to respond to and address the negative economic impact.”[7] However, “[r]esponses must be related and reasonably proportional to the extent and type of harm experienced; uses that bear no relation or are grossly disproportionate to the type or extent of harm experienced would not be eligible uses.”[8]

Also, when provided in a Qualified Census Tract (“QCT”), Treasury considers some services and economic assistance automatically eligible for CSLFRF funding. These services include:

  • Building stronger communities through investments in housing and neighborhoods;
  • Addressing educational disparities; and
  • Promoting healthy childhood environments.[9]

Treasury further indicates:

Recipients may also provide these services to other populations, households, or                 geographic areas disproportionately impacted by the pandemic. In identifying these      disproportionately impacted communities, recipients should be able to support their         determination that the pandemic resulted in disproportionate public health or economic          outcomes to the specific populations, households, or geographic areas to be served.[10]

Thus, when providing economic assistance to persons or businesses using CLFRF funds, municipalities must determine at the outset “whether an economic harm exists and whether this harm was caused or made worse by the COVID-19 public health emergency” in addition to identifying how the services or assistance provided proportionally responds to said harm.[11]

In the Compliance and Reporting Guidance issued by Treasury, one of the key principles to effective compliance regimes is that “CSLFRF-funded projects should advance shared interests and promote equitable delivery of government benefits and opportunities to underserved communities, as outlined in Executive Order 13985, On Advancing Racial Equity and Support for Underserved Communities Through the Federal Government.”[12] The Federal government’s push to promoting “equitable delivery of government benefits and opportunities to underserved communities” is further support for delivering assistance to individuals that are a part of larger, underserved communities.

To assist small business owners using CSLFRF, municipalities may utilize the funds to assist small business owners who have experienced a “negative economic impact from the public health emergency,”[13] or small business owners who operate their business in a QCT or otherwise-defined disproportionately impacted community.[14]

Last Revised: August 13, 2021

[1] Treas. Reg. 31 CFR 35 at 11-12, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[2] Treas. Reg. 31 CFR 35 at 30-31, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[3] Id. at 30-31.

[5] Id. at 38.

[6] Id. at 35.

[7] Id. at 31.

[8] Id.

[9] Id. at 38-40.

[10] Id. at 38.

[11]Id. at 31.

[12] U.S. Department of the Treasury, “Compliance and Reporting Guidelines”, at 3, available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[13] Id. at 30.

[14] Id. at 38-40.

Program

COVID-19 Federal Assistance e311

Topics

Compliance & Reporting, Workforce & Economic Development

How should a municipality document and support expenditures of American Rescue Plan Act (ARP) funds outside of Qualified Census Tracts (QCTs)?

The U.S. Department of Treasury (“Treasury”) Treasury has not yet released specific guidance regarding requirements for documentation and reporting of ARP funds outside of Qualified Census Tracts (“QCT”s). Treasury has stated it will presume that a wide range of equity-focused services are eligible uses of CSLFRF when provided within a QCT (as defined by the Department of Housing and Urban Development (“HUD”).[1] Treasury’s Interim Final Rule (“the Rule”) indicates that recipients may also provide equity-focused services outside of QCTs in other populations, households, or geographic areas disproportionately impacted by the pandemic, provided recipients can demonstrate their decision-making processes and rationale for their conclusions..[2]

Municipalities must maintain documentation demonstrating that its expenditures meet eligibility requirements. The Rule provides four eligible CSLFRF funding uses:

  • strengthening the response to the COVID-19 public health emergency and its economic impacts;
  • easing fiscal pressure on State, local, and Tribal governments that might otherwise lead to harmful cutbacks in employment or government services;
  • providing premium pay to essential workers; and
  • making necessary investments in certain types of infrastructure.[3]

A municipality should gather at least the following information regarding any equity-focused services or projects:

  • the number of COVID-positive patients;
  • the number of COVID-19 related deaths; and
  • the number of hospitalizations due to COVID-19.

In each case, this data should be compared to the corresponding data for other populations, households or geographies to demonstrate if there is disproportionate impact from community to community.

In making its determinations, municipalities should consider utilizing, among other factors: (i) unemployment figures; (ii) taxable sales; (iii) business closures; (iv) increases in food insecurity; (v) increases in housing insecurity; (vi), the number and extent of arrears in utility bills and property tax bills; and (vii) increases in childcare needs. These data points might demonstrate that the pandemic resulted in disproportionate public health or economic outcomes to specific populations, households, or geographic areas.

Notably, the Rule permits funds to be used to cover costs incurred beginning on March 3, 2021.[4] Recipients may use CSLFRF to provide assistance to households, businesses, and individuals within the eligible use categories described in the Rule for economic harm experienced by those households, businesses, and individuals prior to March 3, 2021.[5]

Demonstration of compliance and validation that the municipality met the rules and requirements of the different programs:

Failure to meet documentation requirements, or documentation that does not adequately support a municipality’s claim under any given funding source, could result in recoupment of funds. Municipalities should be prepared to demonstrate a nexus to COVID in accordance with the eligible uses listed in the text of the ARP and the Rule. As such, municipalities should record and save all relevant documentation, including but not limited to: (i) the decision to make the expenditure; (ii) invoices; (iii) proofs of payments; and (iv) procurement methodologies.  Documentation should be detailed, stored centrally and electronically, and organized logically.

On April 6, 2021, the Federal Emergency Management Agency (“FEMA”) released a Fact Sheet titled “Audit Related Guidance for Entities Receiving FEMA Public Assistance Funds.” The Fact sheet provides the below recommendations on documenting and accounting disaster costs:[6]

  • Designate a person to coordinate the accumulation of records (i.e., receipts, invoices, etc.);
  • Establish a separate and distinct account for recording revenue and expenditures and a separate identifier for each distinct FEMA project. (This same thought process can be used for separating CARES and ARP funds and the individual projects within each.);
  • Ensure that the final expenditures for each project are supported by the dollar amounts recorded within your accounting system of record;
  • Ensure that each expenditure is recorded and linked to supporting documentation (i.e., checks, invoices, etc.) that can be easily retrieved; and
  • Ensure that expenditures claimed are necessary to respond to the COVID-19 pandemic, reasonable pursuant to federal regulations and federal cost principles, and conform to standard program eligibility and other federal requirements.[7]

Last Revised: August 10, 2021

[2]  Id.

[3] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.7 available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[4] Id.

[5] Id.

[6] FEMA Fact Sheet:  Federal Emergency Management Agency, Fact Sheet, “Audit-Related Guidance for Entities Receiving FEMA Public Assistance Funds,” April 6, 2021, available at: https://www.fema.gov/sites/default/files/documents/fema_audit-related-guidance-entities-receiving_public-assistance_4-6-2021.pdf

[7] Id.

Program

COVID-19 Federal Assistance e311

Topics

Compliance & Reporting

Are there any sample templates for contracting with subrecipients of ARP funds to help ensure that subrecipients are compliant with all program requirements?

The U.S. Department of the Treasury (“Treasury”) has not issued templates for contracting vendors or subrecipients under the American Rescue Plan Act of 2021 (“ARP”). However, there are available resources that provide some insight as to how to ensure that subrecipients comply with program requirements. These resources include, but are not limited to:

  • Code of Federal Regulations Part 200: Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (“2 CFR 200”), which provides guidance on requirements inclusive of the Post Federal Award Requirements[1] that may be helpful, particularly regarding contract provisions for non-federal entity contracts under federal awards.[2]
  • Other parts of the Code of Federal Regulations which are relevant to a municipality’s use of ARP funds to support the issuance of loans.[3]
  • The Federal Emergency Management Agency (“FEMA”) Office of Chief Counsel issued a procurement template, which focuses on contract provisions that may be useful to municipalities for Treasury funding.[4]
  • Reference material provided by states on procurement, which may include federal and state requirements. These types of documents may provide good practices for local governments and are helpful guides. Frequently, these publications are issued by a state level organization such as disaster response agencies. For example, Louisiana published a comparative regulation guide which has information regarding all 50 states and U.S. Territories.[5]
  • Treasury ARP reporting guidance, which includes activities required during and after expenditures, provides a list of requirements for contractors or vendors.[6] 

Last Revised: August 11, 2021

[1] 2 CFR §200 et seq., available at: https://ecfr.io/Title-2/Part-200.

[4] Federal Emergency Management Agency, Office of Chief Counsel, Procurement Disaster Assistance Team, Contract Provisions Template, available at: https://www.fema.gov/sites/default/files/2020-07/fema_procurement_contract-provisions-template.pdf.

[5] State of Louisiana, Governor’s Office of Homeland Security and Emergency Preparedness. Procurement Guide: Getting and Keeping your FEMA Grant Dollars, available at: http://lsuccc.dps.louisiana.gov/pdf/GOHSEP_Procurement_Brochure.pdf.

[6] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance as of June 24, 2021, Version: 1.1., available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation, Infrastructure & Maintenance Investments, Program Administration

May a municipality use funds obtained through the ARP to close funding gaps for the construction of income-restricted housing?

The Coronavirus State and Local Fiscal Recovery Fund (“CSLFRF”) established by the American Rescue Plan Act of 2021(“ARP”) does not permit the use of its funds for “general infrastructure” programs. However, the ARP does authorize specific investments in infrastructure that address the negative economic impact resulting from the COVID-19 pandemic, such as affordable housing, at least where the housing project exists within a Qualified Census Tract (“QCT”).[1]

Congress designed the CSLFRF to provide flexibility for governments to meet local needs, including the provision of individual rental assistance, addressing the housing and health needs of persons experiencing homelessness, and building and preserving affordable housing in impacted communities. The CSLFRF provides opportunities for local governments to alleviate the immediate economic impacts of the COVID-19 pandemic on housing insecurity while addressing conditions that contributed to poor public health and economic outcomes during the pandemic; namely, concentrated areas with limited economic opportunity and inadequate or poor quality housing.[2] The U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (“the Rule”) lists several eligible services, including:

  • Services to address homelessness such as supportive housing, and to improve access to stable, affordable housing among unhoused individuals,
  • Affordable housing development to increase the supply of affordable and high-quality living units, and
  • Housing vouchers, residential counseling, or housing navigation assistance to facilitate household moves to neighborhoods with high levels of economic opportunity and mobility for low-income residents, to help residents increase their economic opportunity and reduce concentrated areas of low economic opportunity.[3]

Notably, the Rule restricts the presumption of eligibility for these projects to those occurring within QCTs, as designated by the United States Department of Housing and Urban Development (“HUD”). The Rule and Treasury’s Frequently Asked Questions (“FAQs”) do not further elaborate on whether the construction of affordable housing outside of a QCT would be considered an eligible use category for CSLFRF. Treasury’s Final Rule may provide additional guidance or considerations.

Last Revised: August 12, 2021

[1] U.S. Department of Housing and Urban Development, “Qualified Census Tracts and Difficult

Development Areas,” available at: https://www.huduser.gov/portal/datasets/qct.html.

[2] U.S. Department of the Treasury, Reg. 35 CFR 31, at 39, https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[3] Id (emphasis added).

Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation

Regarding the principal of loans/revolving loans with maturities longer than December 31, 2026: Can Fiscal Recovery Funds (FRF) be used to fund the principal?

For loans with maturities longer than December 31, 2026, recipients may only use Fiscal Recovery Funds for the projected costs incurred, which can include costs calculated based on the loan’s expected future cash flows discounted by the recipient’s cost of funding. Loan principal qualifies in most cases as a projected cost.

The U.S. Department of the Treasury’s (“Treasury”) Frequently Asked Questions (“FAQs”) on the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) state that CSLFRF funds must be spent to cover a municipality’s “costs incurred” for eligible uses between March 3, 2021, and December 31, 2024, and must be expended by December 31, 2026. This guidance applies to the use of American Rescue Plan Act (“ARP”) funds to issue loans or other extensions of credit as well as interest earned on such credit programs.

Municipalities wishing to use CSLFRF money to fund loans or other extensions of credit “must be able to determine the amount of [CSLFRF] used to make a loan.”[1] FAQ #4.11 distinguishes between loans that mature or are forgiven on or before December 31, 2026, and those with maturities longer than December 31, 2026. For the latter, a municipality “may use [CSLFRF] for only the projected cost of the loan.”

Treasury identifies two different approaches for measuring the cost of the loan. Under the first approach, the cost of the loan “equals the expected cash flows associated with the loan discounted at the recipient’s cost of funding.”[2] Expected cash flows may include principal. Under the second approach, municipalities would utilize the Current Expected Credit Loss (“CECL”) accounting standard. Under the CECL accounting standard, municipalities may “treat the cost of the loan as equal to the CECL-based expected credit losses over the life of the loan.”[3]

FAQ #4.11 discusses recipients that are not subject to restrictions under 2 CFR 200.307(e)(1) and are not required to track repayment of principal or interest for loans that mature after December 31, 2026.[4]

Pursuant to Treasury FAQ #4.11, principal and interest may only be expended for uses that would be eligible for direct CSLFRF funding.[5] Municipalities may not use CSLFRF funds to provide a loan where the interest or principal will be used for an ineligible purpose.

Municipalities may find Treasury’s Appendix to the FAQs helpful in identifying eligible uses, as it provides a chart of government expenses that may qualify for reimbursement of lost revenue using ARP funds.[6] Notably, Treasury’s Interim Final Rule (the “Rule”) specifically excludespaying interest or principal on outstanding debt, replenishing rainy day or other reserve funds, or paying settlements or judgments”[7] and “paying interest or principal on any outstanding debt instrument.”[8] Accordingly, principal or interest from a CSLFRF-funded loan cannot be used for those purposes.

Last Revised: August 2, 2021

[1] Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions (as of July 19, 2021) — FAQ #4.11, at 26, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[2] Id., at 25.

[3] Id., at 26.

[4] Id.

[5] Id., at 25.

[6] Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions (as of July 19, 2021) — Appendix, at 42, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[7] Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions (as of July 19, 2021) — FAQ #3.8, at 15, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[8] Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions (as of July 19, 2021) — FAQ #4.3, at 19, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation

Is the receipt of the second tranche of ARP funding contingent on the municipality spending the entire first tranche?

Based on current guidance, local governments that qualify as “metropolitan cities” are not obligated to spend the first tranche as a condition precedent for receiving the second tranche of funding through the American Rescue Plan Act of 2021’s (“ARP”) Coronavirus Local Fiscal Recovery Funds (“CLFRF”). Specifically, section 603(b)(7) of the ARP provides that the United States Department of the Treasury (“Treasury”) will make payments to local governments in two tranches, with the second tranche being paid twelve months after the first payment.[1]

Allocations to Non-Entitlement Units of Local Government (“NEUs”) will be made through their state governments. Treasury has indicated that guidance regarding the second tranche of funding will be released closer to May 2022.[2] The text of the ARP indicates that the measure of state unemployment[3] and the NEU operating budget limitation are the only limitations to receiving the second tranche of CLFRF funds. In the specific case of NEUs, the municipality will not be eligible to receive more than 75 percent of its respective operating budget.[4]

Last Revised: August 2, 2021

[1]American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., available at: https://www.congress.gov/bill/117th-congress/house-bill/1319/text#HAECAA3A95C4E4FFAB6AA46CE5F9CB2B5.

[2] U.S. Department of the Treasury, Coronavirus Local Fiscal Recovery Fund: Guidance On Distribution of Funds to Non-Entitlement Units of Local Government, available at: https://home.treasury.gov/system/files/136/NEU_Guidance.pdf.

[3] U.S. Department of the Treasury, Coronavirus State and Local Fiscal Recovery Fund, available at: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-funds.

[4] Id., at 5.

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement, Program Administration

Our state transfers funds from utilities to the muicipality’s general fund. May a municipality calculate the decrease in a budget transfer from utilities to the general fund as “lost revenue”?

Under the U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”), the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) provided through the American Rescue Plan Act (“ARP”) may permit municipalities to calculate the decrease in budget transfer from utilities to the general fund as lost revenue, if the lost revenue in question is not the type of utility revenue that is excluded in the Rule’s definition of “general revenue.”

        

Treasury states that “revenue generated by utilities”[1] is excluded from the Rule’s definition of “general revenue.”[2] However, the U.S. Census Bureau’s (the “Census Bureau”) Government Finance and Employment Classification Manual (the “Manual”) indicates that not all revenue from utilities is outside the definition of “general revenue,” stating:

Utility revenue relates only to the revenue from sales of goods or services and by-products to consumers outside the government. Revenue arising from outside other aspects of utility operations is classified as general revenue (e.g., interest earnings).[3]

Treasury recently expanded on the Census Bureau’s definition, stating:  

According to the Census Bureau’s Government Finance and Employment Classification manual, utility revenue is defined as “[g]ross receipts from sale of utility commodities or services to the public or other governments by publicly-owned and controlled utilities.[4]

This includes revenue from operations of publicly owned and controlled water supply systems, electric power systems, gas supply systems, and public mass transit systems (see pages 4-45 and 4-46 of the Manual for more detail).

Except for these four types of utilities, revenues from all commercial-type activities of a recipient government (e.g., airports, educational institutions, lotteries, public hospitals, public housing, parking facilities, port facilities, sewer or solid waste systems, and toll roads and bridges) are covered by the Rule’s definition of “general revenue.”[5]

The Census Bureau also provides a list of revenue defined as “utility revenue,” which includes:

[R]eceipts from direct sales of commodities and services; rentals from operating property; customers’ forfeitures and penalties; and charges for installing and servicing connections and meters.[6]

The Census Bureau states that the definition of “utility revenue” excludes:

[I]dentifiable amounts for commodities or services furnished to the parent government, its agencies, or other utilities of the same government (intragovernmental transfers); revenue from investments or other capital transactions (report Interest Earnings, at code U20 and recorded profits on their sale at Miscellaneous General Revenue, NEC, code U99); and lease rentals or other earnings from nonoperating utility property (use Rents, code U40).

Also excludes special assessments for utility improvements, including water impact fees (report at Special Assessments, code U01); contributions from parent government (another intragovernmental transfer); financial aid from other governments not representing sale of utility good or services (report at appropriate Intergovernmental Revenue code); taxes imposed on sale of utility commodities and services (report at Public Utilities Tax, code T15); and contributions from utility employees for retirement system administered by same government (report at Employee Contributions, code X01 or X02).[7]

According to the Treasury guidance and related Census Bureau definitions, municipalities should examine the source of utility revenue and determine whether that revenue stems from any source that is not defined as general revenue and thus not likely to qualify as revenue loss. If the utility revenue was not sourced from an exclusion as defined by Treasury and the Census Bureau above, it could be permissible to calculate it as lost revenue.

Municipalities may find it difficult to determine in all cases precisely which revenue streams are “utility revenue” and which are excluded. If the municipality cannot determine the revenue stream of the given utility, it is recommended that this lost revenue be excluded from a municipality’s loss calculation for CSLFRF, as the revenue stream based on Treasury guidance is the principal means of determining revenue stream eligibility.

Importantly, in any instance where a municipality uses CSLFRF for a project or service, the municipality must adhere to all compliance and reporting guidance outlined by Treasury’s Compliance and Reporting Guidance for CSLFRF.[8] Municipalities should also contemporaneously document all guidance utilized in making the decision to calculate the decrease in budget, transfer from utilities to the general fund as lost revenue and provide “[a]n explanation of how revenue replacement funds were allocated to government services.”[9] Treasury indicates:

Financial records and supporting documents related to the award must be retained for a period of five years after all funds have been expended or returned to Treasury, whichever is later. This includes those which demonstrate the award funds were used for eligible purposes in accordance with the ARPA, Treasury’s regulations implementing those sections, and Treasury’s guidance on eligible uses of funds.[10]

Treasury guidance may change in the future; municipalities should always maintain documentation to demonstrate its decision making process in all decisions related to CSLFRF and other government programs.

Last Revised: June 30, 2021

[1] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 24, 2021) – FAQ #3.1 (emphasis added), available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[2] Id. (emphasis added).

[3] U.S. Bureau of the Census, Government Finance and Employment Classification Manual, October 2006, at 3-4, available at: https://www2.census.gov/govs/pubs/classification/2006_classification_manual.pdf.

[4] U.S. Department of the Treasury, Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.15., available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[6] U.S. Bureau of the Census, Government Finance and Employment Classification Manual, October 2006, 4-45, available at: https://www2.census.gov/govs/pubs/classification/2006_classification_manual.pdf.

[7] Id.

[8] Department of Treasury, Compliance and Reporting Guidance, State and Local Fiscal Recovery Funds (as of June 24, 2021), available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[9] Id., at 13.

[10] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #9.1, at 35, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation

Can municipalities earn interest on ARP funds? If so, are there restrictions on how this interest is spent?

Municipalities may earn interest on funds obtained through the American Rescue Plan Act of 2021 (“ARP”).

Under the U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”) to the ARP’s Coronavirus State and Local Fiscal Recovery Funds (“CSFRF” and “CLFRF”), municipalities are not subject to requirements to remit interest to Treasury as set forth in the Cash Management Improvement Act and Treasury’s implementing regulations at 31 CFR Part 35.[1] Further, the Rule’s associated Frequently Asked Questions (“FAQs”) state, “CSFRF/CLFRF payments made by Treasury to local governments and Tribes are not subject to the requirement of 2 CFR 200.305(b)(8)-(9) to maintain balances in an interest-bearing account and remit payments to the Treasury.”[2] Therefore, should municipalities choose to maintain CSFRF and CLFRF payments in a separate, interest-bearing account, even though it is not required under current guidance, they do not need to return earned interest to Treasury.

States may also retain interest on payments for distribution to Non-entitlement Units of Local Government (“NEUs”) prior to the actual distribution of the funds to NEUs, “provided that the State adheres to the statutory requirements and Treasury’s guidance regarding the distribution of funds to NEUs.”[3] The statutory requirements and guidance relating to the distribution of funds to NEUs can be found in the Treasury publication “Coronavirus Local Fiscal Recovery Funds: Guidance on Distribution of Funds to Non-Entitlement Units of Local Government.”[4] Such interest is also “not subject to program restrictions.”[5]

Any interest earned on CSFRF and CLFRF is “not subject to program restrictions.”[6] As such, there are no restrictions from CLFRF on how this interest can be spent.

Last Revised: July 29, 2021

[1] Treas. Reg. 31 CFR 35 at 102, n. 176, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[2] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #10.3, at 38, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[3] Id.

[4] Coronavirus Local Fiscal Recovery Funds: Guidance on Distribution of Funds to Non-Entitlement Units of Local Government, available at: https://home.treasury.gov/system/files/136/NEU_Guidance.pdf.

[5] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #10.3, at 38, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[6] Id.

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

Should refunds of the prior year’s expenses be included in revenue loss calculations?

Refunds of a prior year’s expenses should not be included in the Coronavirus Local Fiscal Recovery Funds (“CLFRF”) revenue loss calculation.

While refunds of a prior year’s expenses are considered Miscellaneous General Revenue by the Census Bureau Government Finance and Employment Classification Manual,[1] for purposes of revenue loss calculation, the definitions sections of the CLFRF Interim Final Rule states:

General revenue means money that is received from tax revenue, current charges, and
miscellaneous general revenue,
excluding refunds and other correcting transactions, 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.[2]

Last Revised: August 4, 2021

[1] U.S. Bureau of the Census Government Finance and Employment Classification Manual (Updated 2006), at 3.10.4, available at: https://www2.census.gov/govs/pubs/classification/2006_classification_manual.pdf.

[2] Treas. Reg. 35 CFR 31 at page 133, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf (emphasis added).

Program

COVID-19 Federal Assistance e311

Topics

Program Administration

Can American Rescue Plan Act (“ARP”) funds be used to provide public information regarding a parks levy to improve the outdoor spaces in our community?

While guidance from the U.S. Department of Treasury (“Treasury”) lays out many eligible uses of Coronavirus State & Local Fiscal Recovery Funds (“CSLFRF”), Treasury guidance does not indicate that CSLFRF can be used to provide public information for new taxes or levies within a municipality. However, a public information campaign for a parks levy may be eligible to the extent of lost revenue if it constitutes a government service. Additionally, there are other ways to use CSLFRF to improve outdoor spaces in a community directly.

It is essential to understand when outreach and the dissemination of information are allowable under the Interim Final Rule (the “Rule”) and why this situation does not appear to meet those criteria. The Rule describes the need for governments to provide public communications to prevent and address the spread of COVID-19.[1] More specifically, under the “responding to the public health emergency or its negative economic impacts” use of funds, Treasury allows for “expenses for communication related to COVID-19 vaccination programs and communication or enforcement by recipients of public health orders related to COVID-19.”[2] As a parks levy does not appear to relate directly to the prevention of COVID-19 or related public health orders, expenses related to corresponding communications would not be a permissible use of CSLFRF.

However, a public information campaign for a parks levy might be considered eligible if it constitutes a government service to citizens. Treasury generally provides states and local governments wide latitude to use funds to provide government services. While CSLFRF guidance does not explicitly permit funding communications relating to a parks levy, the Rule does not explicitly preclude it either. Funds can generally be used for provision of government services up to the amount of revenue lost due to the public health emergency.[3] A municipality should first perform its revenue loss calculation per the guidance to determine the amount available for this use.[4] Next, a municipality should consider what constitutes a government service and the restrictions described in FAQ #3.8 that include paying down debt or other liabilities:

The Interim Final Rule gives recipients broad latitude to use funds for the provision of government services to the extent of reduction in revenue. Government services can include, but are not limited to, maintenance of infrastructure or pay-go spending for building new infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services.

…paying interest or principal on outstanding debt, replenishing rainy day or other reserve funds, or paying settlements or judgments would not be considered provision of a government service, since these uses of funds do not entail direct provision of services to citizens. This restriction on paying interest or principal on any outstanding debt instrument, includes, for example, short-term revenue or tax anticipation notes, or paying fees or issuance costs associated with the issuance of new debt. In addition, the overarching restrictions on all program funds (e.g., restriction on pension deposits, restriction on using funds for non-federal match where barred by regulation or statute) would apply.[5]

Under this approach, a municipality should determine whether the government services funded by the amount of loss revenue entail “direct provisions of services to citizens.” If it is decided that communications regarding a park levy fall under that definition, using CSLFRF funds for that purpose may be permissible. If, when reviewing the details surrounding such costs, a municipality is uncertain that the criteria for government services are met, it would be advisable to request feedback from Treasury and await further guidance.

Lastly, even if a municipality decides that costs relating to the dissemination of public information to improve outdoor spaces may not be covered by any category of CSLFRF, the improvements to the parks themselves may still be covered. Investments in improving outdoor spaces, such as parks, would be an eligible use of funds to respond to the public health emergency and/or its negative economic consequences.[6] Treasury encourages recipients to consider the disproportionate negative economic impacts on specific communities and populations. Certain types of services are eligible uses when provided in a Qualified Census Tract (“QCT”), to families and individuals living in QCTs, or when Tribal governments provide these services.[7]

Recipients may also provide these services to other populations, households, or geographic areas disproportionately impacted by the pandemic. Such programs and services include services designed to build stronger communities and to address health disparities and the social determinants of health.[8] For example, Treasury cites investments in parks, public plazas, and other public outdoor recreation spaces that may respond to the needs of disproportionately impacted communities by promoting healthier living environments and outdoor recreation and socialization to mitigate the spread of COVID-19.[9]

Outside of QCTs, many governments saw significantly increased use of parks during the pandemic that resulted in damage or increased maintenance needs and associated costs. As such, Treasury recognizes that “decrease[s to] a state or local government’s ability to effectively administer services” can constitute a negative economic impact of the pandemic.[10]

While municipalities may be limited in the extent CSLFRF can be used for public information efforts related to taxes and levies, a municipality can use CSLFRF to improve outdoor spaces that may have experienced damage or increased maintenance needs due to the pandemic.[11] Small businesses may also be assisted with funds to enhance outdoor spaces or to “improve the built environment of the neighborhood.”[12]

Last revised: August 4, 2021

[2] Id. at 139.

[3] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.8, at 15, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[4] Id.

[5] Id. (emphasis added).

[6] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #2.18, at 11, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[7] Id.

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement, Tourism

Regarding tourism non-profit revenue loss funds, what documentation must be maintained and submitted regarding the fund? What reporting to the federal government is required?

There are specific reporting requirements for aid to impacted industries, including:

  • a brief narrative description of how the assistance provided responds to negative economic impacts of the COVID-19 pandemic; and
  • for each subaward: 
    • sector of employer (note: additional detail, including list of sectors to be provided in a users’ guide); and
    • purpose of funds (e.g., payroll support, safety measure implementation).[1]

The American Rescue Plan Act of 2021 (“ARP”) allows the use of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) “to respond to the public health emergency with respect to COVID-19 or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality.”[2] The U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”) provides guidance indicating that tourism, in many cases, will meet eligibility requirements for the use of CSLFRF funds.[3]

General Reporting Requirements

The Rule describes the CSLFRF reporting requirements.[4] To facilitate transparency and accountability, the Rule requires that state, local, and tribal governments publicly report assistance provided to private-sector businesses, including tourism, travel, hospitality, and other impacted industries. Recipients should also maintain records to support their assessment of how businesses or business districts receiving assistance were affected by the negative economic impacts of the pandemic and how CSLFRF funds remediated any negative downstream effects.[5], [6] Each subaward provided as part of aid to the tourism industry must also list the purpose of the funds provided (such as payroll support or safety measure implementation). This information will begin to be collected by Treasury in April 2022.[7]

CSLFRF recipients must comply with Treasury’s Compliance and Reporting Guidance (“Reporting Guidance”) which lays out the requirements and deadlines for reports. Part 2 of the Reporting Guidance describes, in detail, Treasury’s reporting requirements relating to the use of the CSLFRF funds.[8] The Reporting Guidance explains in detail the three main reports ARP fund recipients must provide:

  • Interim Report (to be submitted by August 31, 2021, or 60 days after receiving funding if funding was received by October 15, with expenditures by category).
  • Project and Expenditure Report, to be submitted by:
    • January 31, 2022, for States, U.S. territories, metropolitan cities and counties with a population that exceeds 250,000 residents or populations below 250,000 residents that received more than $10 million in funding, and Tribal Governments that received more than $30 million in funding for the period between award date and December 31, 2021.
    • April 30, 2022, for non-entitlement units of government (“NEUs”), metropolitan cities and counties with a population below 250,000 that received less than $10 million in funding, and Tribal Governments that received less than $30 million in funding for the period between award date and March 31, 2022.[9]
  • Recovery Plan Performance Report (if applicable, to be submitted by August 31, 2021, or 60 days after receiving funding).[10] If a Recipient receives approval on proposed projects after August 31, 2021, the Recipient should submit an updated Recovery Plan within 60 days after approval by the legislature or other governance entities.[11]

In addition, CSLFRF recipients must comply with the Uniform Administrative Requirements Cost Principles for Federal Awards at 2 Code of Federal Regulations (“CFR”) Part 200.[12]

Additionally, on August 9, 2021, Treasury released the Portal for Recipient Reporting State and Local Fiscal Recovery Funds User Guide to assist recipients with submitting required reports through the Treasury portal.[13] Treasury has also provided a Recovery Plan Template to assist with completing the reporting requirements.[14] 

U.S. Economic Development Administration ("EDA") Grants

In addition to assistance authorized by the ARP CSLFRF provisions, the ARP also appropriated $3 billion to the U.S. Economic Development Administration (“EDA”), including $750 million specifically allocated to the Travel, Tourism, & Outdoor Recreation Program.[15] This funding will support the following EDA efforts:

  • State Tourism Grants: $510 million in non-competitive awards to help states quickly invest in marketing, infrastructure, workforce, and other projects to rejuvenate safe leisure, business, and international travel; and
  • Competitive Tourism Grants: $240 million to help communities that have been hardest hit by challenges facing the travel, tourism, and outdoor recreation sectors to invest in infrastructure, workforce, or other projects to support the recovery of the industry and economic resilience of the community in the future.[16]

EDA's notice relating to these grants indicates that a “public or private non-profit organization or association acting in cooperation with officials of a political subdivision of a State” can be an eligible applicant for the purposes of this EDA program.[17]

The relevant reporting requirements for recipients of EDA’s Competitive Tourism Grant are outlined in the Fiscal Year 2021 ARP Travel, Tourism, and Outdoor Recreation Notice of Funding Opportunity – Executive Summary (“the Notice”).[18]

Further, the Notice includes a table that outlines the requirements for completing an application.[19] There are no application submission deadlines; however, because applications are reviewed on a rolling basis, there are multiple suggested application submission dates in different documents; the one-pager released by EDA lists March 15, 2022,[20] while the Notice advises submitting applications by January 31, 2022.[21]

EDA Competitive Tourism Grants: Reporting Requirements

Some reporting requirements for recipients of tourism grants through the EDA are:

  • Submit financial, progress, and impact reports with the terms and conditions of the grant award, generally less than semi-annually. All project progress and financial reports must be submitted to the applicable EDA program officer in an electronic format to be determined at the time of award.[22]
  • Report information about subrecipients. All awardees of applicable grants and cooperative agreements are required to report to the Federal Subaward Reporting System (“FSRS”) available at www.FSRS.gov on all subawards over $30,000. Please see the OMB guidance published at 2 C.F.R. part 170.[23]
  • Provide additional data on activities, outputs, and actual impact of the funded investment, in part to fulfill the requirements of the Government Performance and Results Act (“GPRA”). EDA anticipates that recipients will be expected to track their engagement activities within the scope of work, with project beneficiaries, and other project stakeholders. EDA further anticipates recipients will be expected to collect data, using surveys of beneficiaries or clients, if necessary, on the outputs and outcomes of their activities, such as the number of strategic plans or economic development tools developed, the number of new business partnerships formed, or the range of new capabilities acquired. EDA plans to collect this information using Forms ED-915 (Public Works, Economic Adjustment Infrastructure and Revolving Loan Fund Investments), ED-916 (Semi-annual Program Outputs Questionnaire for EDA grantees), ED-917 (Annual Capacity Outcomes Questionnaire for EDA Grantees serving clients), and ED-918 (Annual Capacity Outcomes Questionnaire for EDA Grantees).[24]

Last Revised: November 15, 2021

[1] U.S. Department of the Treasury, “Compliance and Reporting Guidelines,” at 19, available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[2] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. §801 et seq., at Section 603(c)(1)(A), available at: https://www.congress.gov/bill/117th-congress/house-bill/1319/text#HC028912924A04512A1F80BFA0F1C1051 (emphasis added).

[3] Treas. Reg. 31 CFR 35 at 36-37, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf

[4] Treas. Reg. 31 CFR 35 at 110-112, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf

[5] Id. at 36-38. 

[6] Treasury has also issued a series of Frequently Asked Questions (“FAQs”) relating to the use of CSLFRF assistance.  FAQ #9.1 and 9.2 generally discuss Treasury’s reporting requirements for uses of CLFRF funds. See Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #9.1, #9.2, at 35, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[7] Department of Treasury, Coronavirus State and Local Fiscal Recovery Funds: “Guidance on Recipient Compliance and Reporting Responsibilities,” at page no. 19, available at https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf 

[8] U.S. Department of the Treasury, “Compliance and Reporting Guidelines,” at 12-30, available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[9] Id. at 13.

[10] Id.

[11] U.S. Department of Treasury, “Treasury’s Portal for Recipient Reporting,” at 27, available at: SLFRF_Treasury-Portal-Recipient-Reporting-User-Guide.pdf.

[12]  U.S. Department of the Treasury, “Compliance and Reporting Guidelines,” at 6, available at https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[13] U.S. Department of the Treasury, “Treasury’s Portal for Recipient Reporting State and Local Fiscal Recovery Funds,” available at: https://home.treasury.gov/system/files/136/SLFRF_Treasury-Portal-Recipient-Reporting-User-Guide.pdf.

[15] EDA, American Rescue Plan Programs, “See Notice of Funding Opportunity,” available at: https://eda.gov/arpa/travel-tourism/ (emphasis added).

[16] EDA, “FY 2021 American Rescue Plan Act Travel, Tourism, and Outdoor Recreation Notice of Funding Opportunity,” available at: https://www.grants.gov/web/grants/view-opportunity.html?oppId=334748.

[17] Id.

[18] Id., at Section Additional Information, “See Related Documents”, “ARPA Tourism NOFO.pdf” at 1. 

[19] Id. at 15-20.

[21] EDA, American Rescue Plan Programs, “See Notice of Funding Opportunity”, at Section Synopsis, available at: https://eda.gov/arpa/travel-tourism/.

[22] Id. at 29.

[23] Id. at 29-30. See also 2 CFR 170, available at: https://www.ecfr.gov/cgi-bin/text-idx?node=pt2.1.170&rgn=div5.

[24] Id. at 30.