How can cities use ARP funds to expand workforce infrastructure and programs?

The U.S. Department of the Treasury’s (“Treasury”) Final Rule on Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) states that “general” economic development or workforce development activities are typically not an eligible use of CSLFRF, because these activities do not respond to a negative economic impact of the COVID-19 public health emergency but rather seek to enhance the jurisdiction’s business climate.[1]  

However, Treasury clarifies in the Final Rule that any new or expanded workforce development program that specifically and directly addresses the negative economic impact of COVID-19 is considered eligible.[2] Treasury recognizes that the pandemic has generated broad workforce disruption. In the Final Rule, Treasury clarifies that recipients may provide job training or other enumerated types of assistance to individuals who are currently employed, but are seeking to move to a job that provides better opportunities for economic advancement, such as higher wages or more opportunities for career advancement.[3] Recipients must be able to justify and demonstrate a new or expanded workforce development program directly addressing the negative economic impact of COVID-19 for the program to be considered an eligible use of funds.

For example, Treasury enumerates a non-exhaustive list of eligible workforce development programs as follows:

• assistance to individuals who want and are available for work (e.g., job training, public jobs programs and fairs, support for childcare and transportation to and from a jobsite or interview, or incentives for newly employed workers);
• subsidized employment;
• grants to hire underserved workers;
• assistance to unemployed individuals to start small businesses; and
• development of job and workforce training centers.[4]

In determining whether a program or service would be eligible, the recipient should assess whether and to what extent there has been an economic harm, such as loss of earnings or revenue, that resulted from the COVID–19 public health emergency.[5] The recipient should then assess whether and to what extent the program or service would respond to or address this harm.[6]

Under the revenue loss provision, recipients may also fund any service that is traditionally provided by the government, which can include general economic development and business assistance. As a reminder, recipients are required to select between calculating lost revenue based on the Treasury’s formula, or by electing the standard allowance of up to $10 million, not to exceed the recipient’s award amount. Recipients may then apply these funds to the provision of traditional government services, as defined by the recipient.[7] Treasury’s list of eligible government services is non-exhaustive, and it is each recipient’s responsibility to determine what services it considers eligible.

Additionally, the Final Rule allows for an expanded set of eligible uses to restore and support public sector employment, including the use of funds for costs associated with rehiring government staff to bolster the government’s ability to administer services effectively. Eligible uses further include hiring up to a pre-pandemic baseline that is adjusted for historic underinvestment in the public sector, providing additional funds for employees who experienced pay cuts or were furloughed, avoiding layoffs, providing worker retention incentives, and paying for ancillary administrative costs related to hiring.[8]

Treasury may provide additional information when it issues new Frequently Asked Questions (“FAQs”) associated with the Final Rule.

Last Revised: March 31, 2022

May a city use ARP funds for public-private partnerships for infrastructure or economic recovery programs, such as community benefit agreements?

Municipalities can use American Rescue Plan Act of 2021 (“ARP”) funding to combat the “negative economic impacts [of COVID-19], including assistance to … small businesses … and nonprofits.”[1] More specifically, the Final Rule grants recipients broad latitude to identify investments in water and sewer infrastructure that are of the highest priority for their own communities.[2] The Final Rule also allows Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) recipients to “transfer funds to other constituent units of government or private entities beyond those specified in the statute.”[3] This, combined with the Final Rule’s favorable reference to community benefit agreements, indicates that the use of CSLFRF for public-private partnerships is likely permissible, although there is no explicit authorization.[4] In such situations, municipalities should look to legal and accounting professionals to determine the appropriate uses for the particular project.  

Further, municipalities may consider geographic location as a factor when implementing infrastructure and economic recovery programs. The Final Rule acknowledges that municipalities may use funds to promote the economic and social advancement of disproportionately impacted populations.[5] The Final Rule authorizes the use of funds where infrastructure and economic recovery programs respond to the public health and negative economic impacts experienced by impacted and disproportionately impacted communities. For example, municipalities may use funds if the services provide disproportionately impacted residents “assistance relocating to neighborhoods with higher levels of economic opportunity.”[6]

Treasury provided additional clarity and compliance guidance on transferring funds to nonprofits and private organizations in its Compliance and Reporting Guidance document. Recipients may transfer funds to private nonprofit organizations as a subrecipient to “carry out an eligible use of [CSLFRF] funds” on behalf of a recipient government (e.g., a recipient government that would like to provide food assistance to impacted households may grant funds to a nonprofit organization to carry out that eligible use).[7] A transferee receiving a transfer from a recipient is considered a subrecipient and must comply with the audit requirements of the Single Audit Act and 2 CFR part 200, subpart F.[8] Treasury encourages municipalities to work with nonprofits and private organizations through partnerships and subgrants.[9]

Last Updated: March 31, 2022

May cities use ARP funds to finance a previous infrastructure project?

The covered period for the American Rescue Plan Act of 2021 (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) is March 3, 2021 through December 31, 2024, meaning that any CSLFRF funds must be obligated for a program within that time.[1], [2] While the text of the ARP does not specify whether CSLFRF can be used to pay for previous infrastructure investments, the U.S. Department of the Treasury’s (“Treasury”) CSLFRF Final Rule addresses infrastructure investments and the use of funds for government services.

The Final Rule states that “[g]overnment services [which are eligible for funding through CSLFRF’s revenue replacement use category] include, but are not limited to, maintenance or pay-go funded building of infrastructure, including roads.”[3] The Final Rule further clarifies that “government services would not include interest or principal on any outstanding debt instrument, including, for example, short-term revenue or tax anticipation notes, or fees or issuance costs associated with the issuance of new debt.”[4] Additionally, “payments from the [CSLFRF] are intended to be used prospectively” and “may be used to cover costs incurred beginning on March 3, 2021.”[5]

Notably, municipalities may not use CSLFRF funds to pay off a previous infrastructure investment.

However, Treasury’s CSLFRF Frequently Asked Questions (“FAQs”) document clarifies that recipients can apply CSLFRF funds to water, sewer, and broadband infrastructure projects that were initiated prior to March 3, 2021, but only for specific costs incurred after March 3, 2021.[6]

Can a municipality use ARP funds for sewer infrastructure and maintenance investments that predate the COVID-19 crisis?

According to the American Rescue Plan Act of 2021 (“ARP”), the covered period for the Coronavirus Local Fiscal Recovery Fund (“CLFRF”) began on March 3, 2021.[1] On January 6, 2022, the U.S. Department of the Treasury (“Treasury”) issued specific guidance on the CLFRF and infrastructure investments in the Final Rule, which has made clear that regular investments in infrastructure are not eligible uses of CLFRF if they predate the beginning of the covered period.[2],[3]

Treasury has explicitly stated that:

Under the [CSLFRF] program, funds must be used for costs incurred on or after March 3, 2021. Further, funds must be obligated by December 31, 2024, and expended by December 31, 2026. This time period, during which recipients can expend [CSLFRF] funds, is the “period of performance.”[4]

Additionally, Treasury has explicitly stated that:

payments from the [CSLFRF] are intended to be used prospectively… Use of funds for debt service on indebtedness issued prior to March 3, 2021 necessarily entails using funds for costs incurred during prior time periods, rather than the present response to the public health emergency and its negative economic impacts or to provide government services.[5]

Treasury has also clarified that the revenue replacement eligible use for the provision of government services may permit a municipality to pay for infrastructure and maintenance investments.

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.[6]

However, while the revenue replacement eligible use offers some opportunity for catching up on deferred maintenance, it does not allow for the payment of previously incurred costs.

Last Revised: February 16, 2022

What due diligence should a municipality conduct on federal funding grantees?

With the passing of numerous Coronavirus relief packages, local governments have received and will receive tens of millions of dollars from multiple funding sources that are then often passed on to subrecipients. A 2009 report issued by the U.S. Department of Justice (“DOJ”) Office of the Inspector General, entitled “Improving the Grant Management Process,” stated that the initial stage of any grant program is the most important. The plan to manage, monitor, and oversee a funding program should be well developed from the outset, to avoid difficulties adequately implementing or monitoring the program.^[1] Below are examples of some suggested steps to consider in order to strengthen the management of grant programs, including disbursements of funds to subrecipients. These steps may help prevent the misuse of funds and minimize the chances of claw backs.

1. Leadership: Hiring or contracting a grant administrator with relevant experience and the requisite familiarity with the Code of Federal Regulation.
2. Transparency: Improve transparency with a data management system which serves as a central repository of information that: (i) accounts for the receipt and distribution of all grant funds; (ii) tracks the source and beneficiary of the funds; and (iii) justifies the proposed use of the funds. A central repository can also help identify and prevent duplication of benefits.
3. Risk Assessment: Analyze the terms and conditions of the subaward and conduct risk assessments of subrecipients to evaluate noncompliance risk. The assessments can also be employed to help determine the appropriate levels of oversight.^[2] The following are examples of due diligence measures to be considered for inclusion in risk assessment:
   • Require subrecipients to complete a pre-award risk assessment questionnaire that will help determine the level of risk. The DOJ has provided a sample risk assessment questionnaire to help formulate and tailor specific assessment questionnaires – DOJ Sample Risk Assessment Questionnaire.
   • Perform basic due diligence checks such as a SAM database search to determine if a person or entity is on the Federal government excluded parties list, as well as searches for recent liens, judgments, bankruptcy filings, etc.^[3] Cities can consider leveraging locally based resources for due diligence expertise including banking and financial institutions, law enforcement, and regulatory agencies.
   • As part of the self-certification process, require the disclosure of all grant funds previously received as well as pending grant applications. Cities can consider accessing Federal and Local agency data sources and databases to randomly test the accuracy of these disclosures.
4. Subrecipient Agreement: Execute a subrecipient agreement or contract with the awarded entity. The following information can be considered for inclusion in the subrecipient agreement:
   • Right-to-audit clause to provide future access to books and records maintained by subrecipients.
   • Cooperation clause that obligates the subrecipient to cooperate with any future government review, audit, or investigation.
   • Acknowledgement by subrecipients of having read and understood the Federal grant requirements laid out in 2 CFR 200.^[4]
   • Language detailing the mechanism for the recovery of misspent grant money.
   • Language describing the service to be provided and how it fits into the permissible uses of the grant program.
   • Language requiring subrecipients to perform their own due diligence of employees, subcontractors, and vendors.
   • A certification that the information contained in the grant application and the subrecipient agreement is true and accurate; any false statements made as part of the certification or application process will be prosecutable under the law.
5. Oversight and Monitoring: It was noted in a DOJ National Procurement Fraud Task Force (“NPFTF”) report entitled “Best Practices for Combatting Grant Fraud” that grant awarding agencies are often focused on awarding the grant money and do not dedicate sufficient resources to the oversight of how those funds are spent.^[5] The report noted that awarding agencies often fail to: (i) sufficiently audit and review supporting documentation for grant expenditures; (ii) establish performance goals for programs; (iii) ensure that grantees submit performance data to demonstrate that grant monies are being used effectively and as intended; and (iv) properly closing grants in a timely manner. In order to detect and address program vulnerabilities before they potentially become systemic, cities can consider proactively performing oversight, auditing, and monitoring of their grant programs, including funds expended by subrecipients.
6. Information Sharing within and among Agencies: The NPFTF report also noted that coordination and communication will help: (i) identify issues which cut across management sectors; (ii) spot problem-grantees that accept awards from more than one agency; (iii) identify common fraud schemes; and (iv) provide opportunities for coordination and cooperation in outreach and training. Cities may consider finding opportunities to maintain regular contact with Local, State, and Federal agencies to exchange lessons learned and to share best practices.

What due diligence should a municipality perform before allocating ARP funds to third parties?

The ARP has not yet provided specific guidance regarding due diligence related requirements. However, it may be helpful for cities to study due diligence protocols and expectations based on lessons learned from other funding sources, including the Coronavirus Relief Fund (“CRF”). This could prove useful when a city is preparing to distribute COVID relief funds to vendors, community groups, and other entities or individuals.

Generally, with respect to all federal funding, recipients are expected to demonstrate that costs covered by federal awards are: (1) compliant with the terms and conditions of the award, (2) necessary and reasonable for the completion of the activity of the award, (3) clearly allocable to the award, and (4) clearly documented.^[1] Due diligence in the selection, management, and oversight of vendors, community groups, or other entities and individuals fall under the general expectation of an entity’s role as a recipient of federal funding.

The due diligence efforts suggested below are based on prior experiences with the CRF, HUD funding, and other federal relief programs.

Cities might consider the value of the following programmatic and fiscal due diligence measures based on their individual circumstances and needs:  

• Review lessons learned from any previous COVID and/or other federal award, including the review of audits applicable to Federal funding.
• Establish internal controls, identify potential areas of risk, and perform duplication of benefits analysis prior to award and/or distribution of funds.
• Ensure vendors and/or sub-recipients are eligible to receive federal funding by utilizing SAM.gov Exclusionary Search prior to award and/or distribution of funding.
• Include a self-certification form for vendors and/or sub-recipients which certifies that, among other things, the vendor or sub-recipient is not barred from receiving funds and are eligible, capable, and responsible in the management of federal funds.
• Perform a risk analysis, duplication of benefits analysis, and award justification (i.e., why a vendor or sub-recipient was selected and approved for distribution of COVID Relief funds).^[2]
• If awards to vendors or sub-recipients – including community groups, individuals, or other entities – are made in a competitive manner or establish requirements for vendors or sub-recipients as a condition to receive funding, establish specific policies or procedures to document that those condition(s) are met prior to award or distribution of funding.
• For example, if an entity’s use of COVID Relief funds is designed to provide support to small businesses to mitigate the economic impact of COVID and a program identifies that economic hardship is a condition of award, be sure to establish a process to document that the requirement is met and is consistently applied to all awardees of that program.
• Develop and adhere to policies and procedures and other programmatic documentation.
• Work with partners and ensure processes and controls are in place, including invoicing, procurement, and any technology systems that will be used to carry out your program.
• The recipient of COVID Relief funds is responsible for communicating the terms and conditions of funding to the relevant vendors and/or sub-recipients.^[3] Roles, responsibilities, and expectations – including those pertaining to documentation, reporting, and compliance – should be clearly identified in the sub-recipient agreement, contract, and the organization’s policies and procedures.   Be sure to communicate any changes, clarifications, or additions to requirements for vendors and/or sub-recipients in writing.
• Ensure costs and/or proposed budgets for vendors or sub-recipients are necessary and reasonable for the activity provided. (Cities can use previously approved contracts or general market standards to ensure that costs and/or budgets are reasonable. The general principle is that the cost, price, or budget is consistent with what a prudent person would pay for that item. This is a generally applicable standard for demonstrating due diligence before funds are awarded or distributed, or in the review of reported costs.)
• Monitor programs, contractors, sub-recipients, etc. at an early stage, while preparing for an eventual monitoring or audit.
• This includes but is not limited to desk reviews using the following guidance from the Department of the Treasury Office of the Inspector General, titled: Coronavirus Relief Fund Prime Recipient Desk Review Procedures OIG-CA-21-004R dated March 22, 2021.^[4]

Last Revised: April 14, 2021

How can a municipality partner with local agencies that have received ARP funding?

It may be advisable for municipalities to partner with local agencies and Community-Based Organizations to maximize funding streams. If such a partnership is formed, each recipient of funds must do its own diligence to ensure compliance with all federal and applicable guidance. It is important to ensure that proper controls are in place to avoid duplication of benefits (DOB); proper documentation of compliance with procurement policies; and delineate between primary recipients, subrecipients, and contractors.

Grantees are required to avoid DOB.^[1] Municipalities should consider conducting a DOB analysis before receiving or providing any federally funded assistance. This analysis can be completed by developing an overall budget that demonstrates the funding need for the activity and the funding reasonably anticipated from all sources. The budget should include all federal and non-federal funding, partnership arrangements, and in-kind donations. Municipalities must of course comply with the specific requirements and restrictions of each funding source. If the budget shows that the need is greater than the funding sources available to the municipality for that purpose, there is no DOB.

Additional steps to avoid DOB include but are not limited to requiring beneficiaries to: (i) provide a self-certification indicating that they have not received a duplicative benefit; and (ii) fill out a questionnaire listing potentially duplicative assistance that they have already received or reasonably anticipate receiving. Among others, all parties must comply with 2 CFR §200.318, which details general procurement standards to which recipients must adhere when utilizing federal funds:^[2]

a) The non-Federal entity must have and use documented procurement procedures, consistent with State, local, and tribal laws and regulations and the standards of this section, for the acquisition of property or services required under a Federal award or subaward…

b) Non-Federal entities must maintain oversight to ensure that contractors perform in accordance with the terms, conditions, and specifications of their contracts or purchase orders.

It is essential that all parties follow relevant procurement policies and have all documentation in writing, appropriately filed for future access.

Municipalities that partner with local agencies must also determine if such an agency will operate as a contractor or a subrecipient. The regulatory process for determining which designation is appropriate is outlined in 2 CFR §200.331,^[3] which states:

a) Subrecipients. A subaward is for the purpose of carrying out a portion of a Federal award and creates a Federal assistance relationship with the subrecipient. See definition for Subaward in § 200.1 of this part. Characteristics which support the classification of the non-Federal entity as a subrecipient include when the non-Federal entity:

1. Determines who is eligible to receive what Federal assistance;
2. Has its performance measured in relation to whether objectives of a Federal program were met;
3. Has responsibility for programmatic decision-making;
4. Is responsible for adherence to applicable Federal program requirements specified in the Federal award; and
5. In accordance with its agreement, uses the Federal funds to carry out a program for a public purpose specified in authorizing statute, as opposed to providing goods or services for the benefit of the pass-through entity.

b) Contractors. A contract is for the purpose of obtaining goods and services for the non-Federal entity's own use and creates a procurement relationship with the contractor. See the definition of contract in § 200.1 of this part. Characteristics indicative of a procurement relationship between the non-Federal entity and a contractor are when the contractor:

1. Provides the goods and services within normal business operations;
2. Provides similar goods or services to many different purchasers;
3. Normally operates in a competitive environment
4. Provides goods or services that are ancillary to the operation of the Federal program; and
5. Is not subject to compliance requirements of the Federal program as a result of the agreement, though similar requirements may apply for other reasons.

There are many potential funding streams within the American Rescue Plan (ARP) Act through which agencies could receive funding, and recipients should use funding for its intended purposes. For example, when utilizing funding from the Coronavirus Local Fiscal Recovery Fund (CLFRF) and entering into partnerships with local agencies, it is necessary for metropolitan cities to ensure that any programmatic activities are compliant with the allocated use of funds outlined in Section 603 (c)(1)(a-d) of the ARP, which states that acceptable uses of funds are:^[4]

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.

Ultimately, it is the responsibility of the prime recipient of federal funds to determine if a partnership will be formed between the prime recipient and a local or community based agency, what the partnership will look like, and what contingencies are associated with the agreement. The prime recipient is ultimately responsible for monitoring subrecipients and contractors to ensure they are maintaining compliance with requirements for use of federal funds^.[5]

Last Revised: May 4, 2021

Are legal fees or the cost of an in-house lawyer utilized by a municipality to ensure the proper administration of ARP programs reimbursable?

The eligibility of legal fees under the American Rescue Plan Act of 2021 (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) depends on several factors. This response addresses the allowability of “legal fees” incurred for the purpose of properly administering programs funded by CSLFRF.  

A. Treasury Guidance

The Final Rule suggests that legal fees incurred to ensure compliance of CSLFRF administration are eligible costs. Legal work may, under some circumstances, be connected to “administrative” expenses, as described below, which are eligible uses of CSLFRF funds:

• Administrative costs to improve the efficacy of public health or economic relief programs through tools like program evaluation, data analysis, and targeted consumer outreach.[1]
• Administrative costs associated with programs to respond to the public health emergency and its negative economic impacts, including programs that are not funded by CSLFRF or not federally funded.[2]
• Direct and indirect administrative costs for administering a CSLFRF program and projects funded by a CSLFRF program.[3]

The Final Rule also states:

Treasury is clarifying that direct and indirect administrative expenses are permissible uses of [CSLFRF] funds and are a separate eligible use category from “[e]xpenses to improve efficacy of public health or economic relief programs,” which refers to efforts to improve the effectiveness of public health and economic programs through use of data, evidence, and targeted consumer outreach.[4]

In addition, Treasury clarified in the Compliance and Reporting Guidance that “recipients may use funds for administering the [CSLFRF] program, including costs of consultants to support effective management and oversight, including consultation for ensuring compliance with legal, regulatory, and other requirements.”[5]

B Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR § 200 et seq.)

The Final Rule states that “[r]ecipients should also note that the Office of Management and Budget's (OMB) Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (commonly called the ‘Uniform Guidance’) generally applies to [CSLFRF],” which would include the cost principles and restrictions on general provisions for selected items of cost.[6] Municipalities should note that Treasury intends to release new Frequently Asked Questions (“FAQs”) to reflect guidance issued in the Final Rule. Although all 2 CFR 200 provisions should be carefully reviewed in their entirety, 2 CFR  §200.403 (Factors affecting allowability of costs)[7] and 2 CFR § 200.404 (Reasonable costs)[8] provide some insight into requirements for allowable administrative costs such as being reasonable and necessary, adequately documented, and in conformance with other limitations and exclusions spelled out in the Uniform Guidance.

C. Conclusion

The question of whether legal fees are eligible uses of CSLFRF funds is multi-faceted and not directly addressed by current Treasury guidance. Accordingly, the answer may depend on several factors, including but not limited to: (i) the exact nature of the fees in question; (ii) how the fees align with the Uniform Guidance provisions; and (iii) whether the fees appropriately fit within a CSLFRF eligible use category. Because legal fees are not expressly identified by Treasury, a municipality cannot be certain regarding eligibility for every instance. A municipality should consider conducting a thorough case-by-case analysis when considering whether certain legal fees could be funded with CSLFRF funds as administrative costs.

Last Updated: April 1, 2022

Is there a cap on program administration, whether for the recipient city, or for subrecipients if the City contracts the funds out for services? And are there limitations on what is considered admin (i.e. regular labor, leave, benefits, etc)?

The United States Department of the Treasury (“Treasury”) has not explicitly identified a set cap on the use of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) for administrative expenses. However, Treasury has stated that administrative costs, inclusive of direct and indirect costs, must be “reasonable and allocable” as defined in Treasury’s Final Rule.[1] Considerations for municipalities seeking to apply CSLFRF funds to administrative costs are listed below.

A.  Administrative Expenses/Costs and the Final Rule and FAQ Guidance

The Final Rule explains that funds may be used for administrative expenses which “improve the efficacy of public health or economic relief programs through tools like program evaluation, data analysis, and targeted consumer outreach.”[2] This includes “[a]dministrative costs associated with the recipient’s COVID-19 public health emergency assistance programs, including services responding to the COVID-19 public health emergency or its negative economic impacts, that are not federally funded.”[3]

Treasury’s Frequently Asked Questions (“FAQs”) relating to CSLFRF FAQ #10.2 states:

[r]ecipients may use funds to cover the portion of payroll and benefits of employees corresponding to time spent on administrative work necessary due to the COVID–19 public health emergency and its negative economic impacts. This includes, but is not limited to, costs related to disbursing payments of Fiscal Recovery Funds and managing new grant programs established using Fiscal Recovery Funds.[4]

B.  Administrative Costs and Mitigating Factors

The Final Rule acknowledges that the American Rescue Plan Act of 2021 (“ARP”) “will generate administrative costs relative to a pre-statutory baseline. This includes, chiefly, costs required to administer [CSLFRF] funds, oversee subrecipients and beneficiaries, and file periodic reports with Treasury.”[5]

Treasury expects that the administrative burden associated with this program will:

• “[B]e moderate for a grant program of its size. Treasury expects that many recipients receive direct or indirect funding from federal government programs and that many have familiarity with how to administer and report on federal funds or grant funding provided by other entities;” and
• “[S]tates, territories, and large localities will rely heavily on established processes developed through that program [the 2020 CRF] or other prior grant funding, mitigating burden on these governments.” [6]

The above suggests that Treasury expects the administrative burden from running these programs to be reasonable and not excessive.

In addition, Treasury has implemented measures further mitigating administrative burden, including “‘tiering’ reporting requirements so that recipients that receive relatively lesser amounts of CSLFRF funds are required to submit less frequent reports than recipients receiving greater amounts of funds” and allowing for “‘categorical eligibility’ when delivering assistance to particular groups, such as impacted or disproportionately impacted households.”[7] The Final Rule states:

[i]n making implementation choices, Treasury has hosted numerous consultations with a diverse range of direct recipients— states, cities, counties, and Tribal governments—along with various communities across the United States, including those that are underserved. Furthermore, Treasury has made clear in guidance that [CSLFRF] funds may be used to cover certain expenses related to administering programs established using [CSLFRF] funds.[8]

As of now, however, neither the ARP itself nor the guidance released from the Treasury specifies a “cap” on program administration costs.

C.  Conclusion

As stated in the Final Rule and the Compliance and Reporting Guidance,

Recipients may use funds for administering the [CSLFRF] program, including costs of consultants to support effective management and oversight, including consultation for ensuring compliance with legal, regulatory, and other requirements.2 Further, costs must be reasonable and allocable as outlined in 2 CFR 200.404 and 2 CFR 200.405. Pursuant to the [CSLFRF] Award Terms and Conditions, recipients are permitted to charge both direct and indirect costs to their SLFRF award as administrative costs as long as they are accorded consistent treatment per 2 CFR 200.403. Direct costs are those that are identified specifically as costs of implementing the [CSLFRF] program objectives, such as contract support, materials, and supplies for a project. Indirect costs are general overhead costs of an organization where a portion of such costs are allocable to the [CSLFRF] award such as the cost of facilities or administrative functions like a director’s office. 34 Each category of cost should be treated consistently in like circumstances as direct or indirect, and recipients may not charge the same administrative costs to both direct and indirect cost categories, or to other programs. If a recipient has a current Negotiated Indirect Costs Rate Agreement (“NICRA”) established with a Federal cognizant agency responsible for reviewing, negotiating, and approving cost allocation plans or indirect cost proposals, then the recipient may use its current NICRA. Alternatively, if the recipient does not have a NICRA, the recipient may elect to use the de minimis rate of 10 percent of the modified total direct costs pursuant to 2 CFR 200.414(f).[9]

Treasury’s guidance has not stated whether there is a cap on administrative expenses, only that administrative costs, inclusive of direct and indirect costs, are “reasonable and allocable” as defined in the Final Rule.[10] Treasury’s Compliance and Reporting Guidance provides further guidance on allowable direct and indirect costs.[11]  

 Last Revised: March 4, 2022

Can a municipality use ARP funds to support “friends of” organizations for specific parks, venues, or other tourism-related activities?

A recipient may provide responsive services after determining that certain nonprofits were impacted by the pandemic or were disproportionately impacted by the pandemic.[1] Nonprofits have faced significant challenges due to the pandemic’s increased demand for services, changing operational needs, and declines in revenue sources such as donations and fees. Nonprofits eligible for assistance are those that experienced negative economic impacts or disproportionate impacts of the pandemic and meet the definition of “nonprofit,” specifically those that are 501(c)(3) or 501(c)(19) tax-exempt organizations. Specifically, Treasury defines a nonprofit as an organization that is exempt from federal income taxation and that is described in section 501(c)(3) or 501(c)(19) of the Internal Revenue Code.[2] 

The Final Rule also includes a non-exhaustive list of enumerated eligible uses that are recognized as responsive to the impacts and disproportionate impacts of COVID-19.[3] When reporting to Treasury, it is important to clarify that recipients providing enumerated uses to populations presumed eligible operated within the guidelines established by the Final Rule and accompanying Reporting and Compliance Guidance.

Recipients can identify nonprofits impacted by the pandemic and select the appropriate measures to respond, according to the level of impact. For example, recipients could consider the following categories of impacted nonprofits:

• Decreased revenue (e.g., from donations and fees);    
• Financial insecurity;
• Increased costs (e.g., uncompensated increases in service need);    
• Capacity to weather financial hardship; and    
• Challenges covering payroll, rent or mortgage, and other operating costs.[4]    

Assistance to nonprofits that experienced negative economic impacts includes the following enumerated uses:

• Loans or grants to mitigate financial hardship such as declines in donations or impacts of periods of closure;
• Loans, grants, or in-kind assistance to implement COVID-19 prevention or mitigation tactics; and
• Technical or in-kind assistance, counseling, or other services that mitigate negative economic impacts of the pandemic.[5]

Regarding disproportionately impacted nonprofits, Treasury presumes that the following nonprofits are disproportionately impacted by the pandemic:

• Nonprofits operating in Qualified Census Tracts (“QCTs”);
• Nonprofits operated by Tribal governments or on Tribal lands; and    
• Nonprofits operating in the U.S. territories.[6]     

Accordingly, it seems that a municipality may in some circumstances use Fiscal Recovery Funds (“FRF”) to support “friends of” organizations for specific parks, venues, or other tourism-related activities, so long as these organizations use the funds in a manner that responds to a demonstrable and negative impact (i.e., the examples listed above) resulting from COVID-19 and the organization is an eligible nonprofit entity. A municipality may also consider directly funding a “friends of” organization as a subrecipient to perform eligible activities under the FRF. In those instances, municipalities should refer to the Final Rule section titled “Distinguishing Subrecipients versus Beneficiaries” for additional monitoring and reporting requirements.[7]                             

Last Updated: March 7, 2022

When determining what constitutes the “negative economic impacts” of COVID-19, should municipalities look to FY2020 or prior fiscal years for comparison?

When assessing whether a program or service is an eligible use to respond to the negative economic impacts of the COVID–19 public health emergency, the U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule indicates several eligibility requirements:

1. First, there must be a negative economic impact, or an economic harm, experienced by an individual or a class; and
2. Second, the response must be designed to address the identified economic harm or impact resulting from or exacerbated by the public health emergency.[1]

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.[2]

[T]he recipient must assess whether, and the extent to which, the use would respond to or address this harm or impact.[3]

Responses must also 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.[4]

Although Treasury does not explicitly identify a specific fiscal year that municipalities should use as a comparison benchmark for negative economic impacts, regarding the use of CSLFRF for the provision of government services, the Final Rule states:

Sections 602(c)(1)(C) and 603(c)(1)(C) of the Social Security Act provide that [CSLFRF] funds may be used “for the provision of government services to the extent of the reduction in revenue of such . . . government due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the . . . government prior to the [COVID-19 public health] emergency.”[5]

Finally, recipients must follow key compliance principles to substantiate the use of funds and maintain a robust documentation and compliance system.[6]

Recipients should also ensure the use of strong internal controls, including documented processes and procedures for all decision-making and final determinations, such as which fiscal year comparisons are used. Some strong internal controls include:

• written policies and procedures;
• written standards of conduct;
• risk-based due diligence;
• risk-based compliance monitoring; and,
• record maintenance and retention.[7]

Last Revised: February 20, 2022

How can a city use ARP funds to address school safety?

The U.S. Department of Education announced that the American Rescue Plan (ARP) includes $122 billion for Elementary and Secondary School Emergency Relief (ESSER) funding for each state to support efforts to reopen K-12 schools safely.^[1] 

According to the U.S. Department of Education, the following are some uses of ESSER funds that are consistent with the permissible uses of ESSER funds under the CARES Act:^[2]

• Investing in resources to implement CDC’s K-12 operations strategy for in-person learning to keep educators, staff, and students safe; improving ventilation; purchasing personal protective equipment (PPE); and obtaining additional space to ensure social distancing in classrooms;
• Hiring additional school personnel, such as nurses and custodial staff, to keep schools safe and healthy;
• Providing for social distancing and safety protocols on school buses; and
• Additional uses as allowed in the statute.

With regards to the last bullet above, ARP, Section 2001, d, (e), (2) (Q) authorizes the use of the funds for “developing strategies and implementing public health protocols including, to the greatest extent practicable, policies in line with guidance from the Center for Disease Control and Prevention for the reopening and operation of school facilities to effectively maintain the health and safety of students, educators, and other staff.”^[3]

The Department of Health and Human Services (HHS) also announced that the Centers for Disease Control and Prevention (CDC) will provide $10 billion to states to support COVID-19 screening testing for K-12 teachers, staff, and students in schools.^[4]  According to the Department of Health and Human Services (HHS), the “CDC’s Operational Strategy for K-12 Schools through Phased Mitigation, released in February 2021,^[5] makes clear that screening testing is a tool schools can utilize to help reopen safely as part of a comprehensive COVID-19 mitigation approach. Using existing funding mechanisms, this funding will be able to be deployed quickly as part of a strategy to help get schools open in the remaining months of this school year. In addition to ensuring diagnostic testing of symptomatic and exposed individuals, serial screening testing will help schools identify infected individuals without symptoms who may be contagious so that prompt action can be taken to prevent further transmission. With this ARP funding, states can support the critical testing and testing supports schools need to implement screening testing programs.  Recognizing that establishing a testing program is new for many schools, CDC and state and local health departments will support technical assistance to assist states and schools in standing up and implementing these programs.”

The CDC’s Operational Strategy includes a section titled Prevention Strategies to Reduce Transmission of SARS-CoV-2 in Schools that references the following five key prevention strategies that are essential to safe delivery of in-person instruction and help to prevent COVID-19 transmission in schools:^[6]

1. Universal and correct use of masks
2. Physical distancing
3. Handwashing and respiratory etiquette
4. Cleaning and maintaining healthy facilities
5. Contact tracing in combination with isolation and quarantine

The CDC’s Operational Strategy also notes that schools providing in-person instruction should prioritize two prevention strategies:

1. Universal and correct use of masks should be required
2. Physical distancing should be maximized to the greatest extent possible.

There is also the CDC’s K-12 Schools COVID-19 Prevention Toolkit that includes resources, tools, and checklists to help school administrators and school officials prepare schools to open for in-person instruction and to manage ongoing operations. These tools and resources include considerations for addressing health equity, such as class sizes, internet connectivity, access to public transportation, etc.^[7]

It is suggested that cities consult with their local school district representatives, as sub-recipients of these funds, to ensure that the ESSER funding received is adequate to support ongoing response and recovery efforts that ensure the safety of students, teachers, and other staff inside of schools.

Last Revised: April 14, 2021