Can a reserve of operating funds for affordable housing be used past December 31, 2026?

Currently, there is no consideration in the American Rescue Plan Act (“ARPA”) to extend the use of funds passed the stated deadline of December 31, 2026 to cover eligible affordable housing operating costs. The U.S. Department of the Treasury (“Treasury”) states in its Final Rule on Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) that “[CSLFRF] funds must be obligated by December 31, 2024, and expended by December 31, 2026.”[1] Award recipients may expend funds after 2024 so long as the payment for the eligible cost occurs before December 31, 2026. Regardless of the intended use of funds, Treasury states that recipients “must return any funds not obligated by December 31, 2024. A recipient must also return funds obligated by December 31, 2024, but not expended by December 31, 2026.”[2]

While Treasury has explicitly stated that the deadline to expend all CSLFRF awards is December 31, 2026, it has also included language confirming the eligibility of using funds to cover operating costs of affordable housing developments. Treasury utilized the public comment process to develop the Final Rule to improve eligible uses of CSLFRF funds in line with recipients’ needs. With respect to operating costs for affordable housing, Treasury responded to public comments on the Final Rule, stating that:

Public Comment: Operating Expenses: Commenters specifically asked that Treasury allow the use of [C]SLFRF funds for operating expenses of affordable housing units, as operating subsidies are typically required to reach extremely low-income households, whose affordable rents may be lower than the ongoing cost of operating their unit.

Treasury Response: Operating expenses for eligible affordable housing were an eligible use of funds under the interim final rule and the final rule maintains this treatment. This may include capitalized operating reserves. Rehabilitation and repair of public housing will also be considered an eligible use of [C]SLFRF funds.[3]

Municipalities concerned with the long-term financial sustainability of proposed or in-progress affordable housing developments may consider leveraging alternative sources of funds, including Low-Income Housing Tax Credits (“LIHTC”),[4] Community Development Block Grants (“CDBG”),[5] Home Investment Partnerships Program (“HOME”),[6] or other eligible Housing and Urban Development (“HUD”) monies.

If a municipality decides to utilize multiple sources of funding to carry out an affordable housing project, federal requirements for “braided” funding would apply to the entirety of that project. Treasury explicitly states, “[C]SLFRF funds may not be used to fund an activity that is not, in its entirety, an eligible use under the [C]SLFRF program.”[7] Similarly, if a project is partially funded by CDBG funds and includes other sources of federal funding, the project must comply with all related federal regulatory requirements and policies.[8]

Although operating costs for affordable housing are an explicitly contemplated eligible use under CSLFRF, such use of funds must still adhere to the obligation deadline of December 31, 2024, and expenditure deadline of December 31, 2026.

Last Updated: February 14, 2023

If a project has multiple funding sources, which funding source governs protocol controls?

Although the Uniform Grant Guidance, 2 CFR 200, generally governs all federal grants, there is no universal governing protocol for projects with multiple federal funding sources. Every federal funding source has its unique award terms and conditions that govern the use of funds for recipients, which municipalities should analyze carefully in concert. Where funding overlap (known as “braiding” or “braided funding”) occurs, municipalities must abide by all the federal funding sources’ statutory and regulatory requirements and governing protocols. Municipalities should maintain documentation demonstrating that no duplication of benefits has occurred.

For example, responses to frequently asked questions regarding the combination of American Rescue Plan Act (“ARPA”) funds and Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”), note that:

Funds may be used in conjunction with other funding sources, provided that the costs are eligible costs under each source program and are compliant with all other related statutory and regulatory requirements and policies. The recipient must comply with applicable reporting requirements for all sources of funds.[1]

Likewise, Community Development and Block Grants (“CDBG”) guidance makes clear that such grants can be leveraged with other Federal, state, local or private funds,[2] but municipalities must review the specific CDBG requirements to ensure compliance.[3]

Federal requirements for “braided funding” generally apply to the entirety of municipal projects. For municipalities considering funding sections of a project with different types of federal funding, the applicable federal requirements in each section apply to the entire project. For example, the U.S. Department of the Treasury (“Treasury”) requires that “[C]SLFRF funds may not be used to fund an activity that is not, in its entirety, an eligible use under the [C]SLFRF program.”[4]

As municipalities plan projects that may involve “braiding” funding sources, a critical step is to assess each federal statutory and regulatory requirement applicable to each funding source for the projects and to document compliance with the same. Municipalities should give considerable effort to understanding these requirements to ensure compliance with federal regulations, and to memorialize their efforts to do the same.

Last Updated: February 7, 2023

What measures should municipalities implement to ensure that vendor invoices comply with federal requirements?

Good Practices to Ensure Vendor Invoicing Compliance

Municipalities are “responsible for the efficient and effective administration of the federal award through the application of sound management practices,”[1] such as those embodied in Federal Uniform Guidance (“Uniform Guidance”) standards.[2]  Municipalities should provide adequate documentation to support (i) the costs charged to the federal award, (ii) financial management, and (iii) internal controls.

Key compliance measures for vendor invoicing include the following:

• Enumerate invoicing requirements and procedures in all procurement solicitations.
• Include invoicing procedures and policies in all contractual documents.
• Provide invoicing requirements in pre-bid, pre- and post-award communications, and meetings.
• Implement mandatory award training for award stakeholders, covering, at a minimum, invoicing systems, procedures, oversight, and regulatory requirements.
• Address deficiencies during the period of performance rather than at the monitoring or auditing stage.
• Document all invoicing exceptions or deficiencies, including corrective actions.
• Perform field audits in real time to confirm goods “provided” made it to the intended recipient and are accounted for.
• Document communications with the stated beneficiaries of the “provided services” to make sure they were delivered.
• Ensure separation of duties such that individuals ordering the goods and services are not approving those items.
• Perform due diligence on vendors and suppliers to ensure the goods and services being requested are items that the vendor/supplier has a history of providing.[3]

Municipalities should also consider the following when establishing invoicing requirements and procedures:

• Frequency, timing, and/or milestones for contractor and subcontractor invoices.
• Level of detail and logical organization of invoices for contractor and subcontractor invoices.
• Supporting documentation requirements for contractor and subcontractor invoices.[4]

Cost Principles and Financial Management

Uniform Guidance § 220.401 establishes how cost principles are applied to non-federal entities who receive federal awards.[5] These principles apply generally to federal awards with the exception of federal awards to hospitals or fixed amount awards.

Regarding financial management, Uniform Guidance § 200.302 establishes that non-federal entities must have systems in place “to establish that such funds have been used according to the Federal statutes, regulations, and the terms and conditions of the Federal award.”[6] § 200.302 also details guidance related to financial reporting (§ 200.328), monitoring and reporting program performance (§200.329), and requirements of the non-federal entity’s financial management system, which include: record retention, access to records, storage of information, and transfer of records (refer to §§ 200.334-200.337 for details).[7]

Internal Controls

Uniform Guidance § 200.303 details the responsibilities of the non-federal entity related to internal controls, including the need to “[e]stablish and maintain effective internal control over the Federal award that provides reasonable assurance that the non-Federal entity is managing the Federal award in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award.”[8]

Last Updated: February 7, 2023

What is an Integrity Monitor? Are there good practices for demonstrating the cost-savings function of Integrity Monitors? Are there good practices for determining what percentage of a project’s budget should be dedicated to hiring an Integrity Monitor?

What is an Integrity Monitor?

Integrity Monitors are individuals or entities that provide integrated oversight services using professionals such as auditors, investigators, engineers, lawyers, compliance specialists, and other subject-matter experts. The oversight Integrity Monitors provide has helped prevent fraud, waste, and abuse on large infrastructure projects.

Below are key attributes of Integrity Monitors, who:

• Are integrated into infrastructure project teams and conduct proactive field and desk audits;
• Function independently from the project team contractors, vendors, and suppliers, and typically report directly to a municipality’s oversight agency.
• Often report to other appropriate agencies, such as a city’s Chief Financial Officer or General Counsel’s Office.

Integrity Monitors’ high visibility  creates a culture of integrity on municipal project teams and their contractors, vendors, and suppliers, resulting in cost-savings through the prevention of waste or criminal conduct. For example, the commissioner of the New York City Department of Investigation (“DOI”), who utilized Integrity Monitors to oversee the cleanup of the World Trade Center after the 9/11 attacks, stated that::

“[A]n intercepted conversation between two organized crime associates [revealed] that the on-site presence and close scrutiny of the [integrity] monitors at the World Trade Center [made] it impossible for anyone to overbill New York City using the usual scams.”[1]

Integrity Monitors have uncovered Criminal and wasteful practices that have resulted in tangible cost-savings. For example, the New York DOI noted that Integrity Monitors oversight resulted in cost-savings of approximately $30 million in potential waste and mismanagement from the federally funded repairs and cleanup efforts from Hurricane Sandy .[2]

What are good practices to demonstrate the cost-savings function of Integrity Monitors?

To demonstrate how Integrity Monitors can save costs, they should document their activities, including monitoring, audits, investigations, forensic reviews, and policy recommendations. The Integrity Monitor should highlight actions that resulted in cost-savings or where they uncovered improper practices that would have resulted in lost funds, including the amount of savings.

Any identified improper practices should be documented, supported by photographs, and summarized in monthly Integrity Monitor activity reports that are submitted to the overseeing municipal agency. The frequency of these reports can vary depending on the size and scope of the Integrity Monitor assignment.

What are good practices to determine what percentage of a project budget should be used to pay for Integrity Monitors?

An important factor in properly scoping an Integrity Monitor budget is the creation of a project risk assessment, which can be used to focus the efforts of the Integrity Monitors. Consideration should also be given to the amount of federally funded administrative and managements costs, if any, to ensure that the total costs for Integrity Monitoring services are reasonable in relation to the total amount of program funds being administered.[3]

Some government agencies in New York and New Jersey have used 0.5% to 1% of a project’s budget to estimate a baseline Integrity Monitor budget. This percentage range has only been used as a guideline in the past, as numerous other factors, including issues identified during a risk assessment and other issues uncovered during the Integrity Monitor’s monitorship, may also affect budget amounts.

Last Updated: February 7, 2023

Like direct award recipients, are sub-recipients under ARPA (SLFRF) required to obligate their funds, by contract or other means, by the end of 2024?

No. While direct recipients of a State and Local Fiscal Recovery Fund (“SLFRF”) award are required to obligate funds by the end of 2024, subrecipients of SLFRF funds are not subject to the same requirement.

In November 2023, The U.S. Department of Treasury (“Treasury”) issued an Obligation Interim Final Rule that provides definitions and guidance related to SLFRF obligations. The following excerpt from the Obligation Interim Final Rule relays that subrecipients are not subject to the December 31, 2024, obligation deadline:

Treasury is clarifying that subrecipients are not subject to this deadline. As stated in the SLFRF rule and as referenced above, Treasury defined obligation to include entry into a subaward. A cost is considered to have been incurred once a recipient enters into a subaward that obligates the recipient to cover that cost. Once a recipient has obligated funds, the requirement in the statute and Treasury’s rule to obligate funds by December 31, 2024, has been satisfied, such that subrecipients need not themselves also obligate funds received under a subaward by December 31, 2024. (Contractors also do not need to obligate funds received under a contract by December 31, 2024.) It remains the case that all SLFRF award funds must be expended by the recipient and any subrecipients by 2026, given the termination of the period of performance on December 31, 2026.[1]

While the obligation deadline does not apply to subrecipients, it is important to note that the expenditure deadline of December 31, 2026, applies to both direct recipients and subrecipients. Direct recipients of SLFRF awards must ensure that their subrecipients are on-track to expend all funding by the expenditure deadline.

What requirements must be met by subrecipients who improve real property with ARPA funds under 2 CFR 200.311? What is the federal interest in the property?

Property acquired using revenue loss funds likely is not subject to the applicable provisions of the Uniform Guidance regarding property standards.[1] Property acquired or improved under any of the other eligible use categories are subject to the Uniform Guidance provisions— particularly 2 CFR 200.311—as described below.

Treasury’s FAQ 13.16 indicates: 

After the period of performance, the property, supplies, or equipment must be used consistent with the purpose for which it was purchased or improved or for any other eligible purpose in the same category as the purpose reported to Treasury as of the final reporting period...[2]

Treasury makes clear that during the period of performance, the purpose of the property may be changed to another purpose as long as it continues to meet the eligible use requirements.

After the period of performance, the property may switch eligible purposes, but only if the new use of funds is in the same category as the original category reported to Treasury, as seen in the chart below. For example,

converting a hospital to a behavioral health facility would qualify as being used for the eligible purpose because both expenditures respond to the public health impacts of the public health emergency.[3]

Specifications of 2 CFR 200.311 and Federal Interest

When applicable to ARPA funded projects as indicated above, 2 CFR 200.311 outlines the title, use and disposition of real property. Specifically:

(a)Title. Subject to the requirements and conditions set forth in this section, title to real property acquired or improved under a Federal award will vest upon acquisition in the non-Federal entity.

(b) Use. Except as otherwise provided by Federal statutes or by the Federal awarding agency, real property will be used for the originally authorized purpose as long as needed for that purpose, during which time the non-Federal entity must not dispose of or encumber its title or other interests.

(c) Disposition. When real property is no longer needed for the originally authorized purpose, the non-Federal entity must obtain disposition instructions from the Federal awarding agency or pass-through entity.[4]

The Uniform Guidance provides three distinct, mandatory disposition options pursuant to 2 CFR 200.311(c1-3) relative to real property. This sets the parameters for the federal interest in and disposition of real property occurring if:

• the use of an asset (i.e., property) changes to an ineligible use;
• the asst is sold prior to the end of the period of performance; or
• the asset shifts outside the parameters of the eligible purpose after the period of performance according to the table above.[5]

Does the American Rescue Plan Act change any pre-existing requirements associated with providing IRS 1099 forms to grantees of funds? (e.g., a municipality that reimburses homeowners and business for the purchase of security cameras)

No, the American Rescue Plan Act (“ARPA”) likely does not change any pre-existing requirements associated with providing IRS 1099 forms to grantees of funds. While some uses of Coronavirus State and Local Fiscal Recovery Funds (SLFRF) may trigger tax consequences for grantees of funds requiring the issuance of a 1099, the use of SLFRF grants for the purchase of security cameras unrelated to the performance of a business service would likely not require a 1099 to be issued.[1]

In general, individuals must include in gross income any payment or accession to wealth from any source unless an exclusion applies. One exclusion is for qualified disaster relief payments under section 139 of the Internal Revenue Code (hereafter “Code”). Under section 139 of the Code, certain payments made by a state or local government to individuals in connection with the COVID-19 pandemic may be qualified disaster relief payments that are excluded from the recipient's gross income.[2]

“A payment by a state or local government generally will be treated as a qualified disaster relief payment under section 139 if the payment is made to or "for the benefit of" an individual to (1) reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster, or (2) promote the general welfare in connection with a qualified disaster.”[3]

“As a federally declared disaster, the COVID-19 pandemic is considered a qualified disaster for purposes of section 139.”[4]

“However, payments are not treated as qualified disaster relief payments if the payments are in the nature of compensation for services performed by the individual. Additionally, payments made to or for the benefit of an individual are not treated as qualified disaster relief payments to the extent the expense of the individual compensated by such payment is otherwise compensated for by insurance or otherwise.”[5]

Under the circumstances, if the individuals and/or businesses contemplated did not perform services but rather installed security equipment which contributed to their general welfare in an effort to mitigate impacts by the pandemic (i.e., increased crime), and these individuals also were not also likely not compensated for by insurance or otherwise, then reimbursements to such individuals and/or businesses would likely not be considered income. Therefore, 1099s would likely not need to be issued. Municipalities should seek the advice of their tax professionals to address the specific facts and circumstances regarding their tax obligations.

What are good practices for cities in establishing data analytic oversight systems similar to the Pandemic Analytics Center of Excellence (PACE)?

To support its mission and that of its Office of Inspectors General (“OIG”) members, the Pandemic Response Accountability Committee (“PRAC”) established the Pandemic Analytics Center for Excellence (“PACE”) to provide a data analytics platform to oversee more than $5 trillion in pandemic-related emergency spending. PACE helps federal agencies take a proactive stance in preventing fraud schemes by finding the highest risk areas using data analytics tools.[1]

When distributing aid, grants, and loans, municipalities should also consider utilizing data analytics tools to support efforts to mitigate fraud, waste, and abuse. Municipalities can use the information published about PACE on PRAC’s website to gather good practices for the establishment and use of data analytics.

Know-Your-Customer (“KYC”) and Information Retention

Municipalities should regularly conduct KYC screenings for applicants and recipients of pandemic relief funds. This information should be stored in searchable databases so that data analysis can be performed to identify potential signs of fraud or misappropriation of funds. Information collected should include the following applicant and recipient information:

• Name
• Date of birth
• Address
• Social security number
• EIN number
• Phone number, and
• The dollar amount of the award or request for aid.

Data scientists can then cross-refence this information when screening applicants to confirm if multiple applications provided duplicate information or invalid information, such as fraudulent social security numbers.[2] Maintaining close coordination with local and federal law enforcement and oversight agencies will allow these red flags to be further scrutinized for fraud.

In addition to requiring self-disclosure of information, municipalities should regularly review publicly available databases that contain relevant information. For example, most states have public databases that indicate the date a business was incorporated, company address, and registered agent. As an example, New York State’s Department of State makes this information available at Public Inquiry (ny.gov). PRAC also provides access to public information through its  “Interactive Dashboards” that contain information about past awards of pandemic relief funds to individuals and companies that can assist in a municipality’s data analytics. For example, PRAC provides information on past Paycheck Protection Program (“PPP”) recipients, healthcare providers that have received funds, and restaurants and bars that have received pandemic relief money.[3]

Municipalities should consider monitoring public social media accounts of applicants. At PACE, data scientists have been able to identify suspicious activity through social network analysis^.[4] Information on a loan application can sometimes contradict content on social media profiles, raising red flags and facilitating the investigative process.

Fraud Identification Methods and Good Practices

For PACE, rules-based models have been essential in identifying fraud. These are computer programs that flag an application as suspicious if it exhibits a certain number of pre-set criteria.[5] For instance, if an address, social security number, email, or phone number is used more than a certain number of times on an application, the system would automatically flag it, allowing for additional analysis. Rules can be set based on the parameters of a specific grant program.

A main pillar of PACE’s operations includes data and information sharing among federal Office Inspector Generals (OIGs).[6] This has allowed them to combat “multi-dipping,” which is when recipients receive aid from multiple sources and use it for the same purpose. Additionally, it allows wider access to good practices. For example, in June 2021, PACE hosted a Data and Analytics Expo to highlight current OIG analytic tools, standards, and good practices.[7]

Municipalities can replicate this collaboration by setting up working groups that involve their city agencies receiving and disbursing pandemic relief funds, as well as meeting with neighbouring cities, counties, and states that have received aid. These meetings facilitate the sharing of key data including emerging fraud patterns, problematic individuals and/or companies, and good practices to detect and prevent fraudulent activity.

Like PACE, municipalities should assess their in-house data analytics capacity and seek the assistance of third parties where possible. For example, in August 2021, PACE announced it engaged the services of seven companies specializing in information technology and data management, analytics and visualization, and investigative support services with a focus on preventing waste and abuse.[8] These companies can assist building out  PACE’s data environment and technology infrastructure. While this action requires an appropriate budget, the infrastructure developed can be leveraged to ensure that sophisticated resources and talent are available in the long-term. Municipalities can likewise explore using pandemic relief funds to cover the costs of creating and/or enhancing their data analytics capacity.

PRAC, through PACE, also hosts a data science fellowship.[9] This opportunity offered to undergraduate students and recent graduates ensures more consolidation of talent and work opportunities for young people interested in data science. Cities can consider adopting similar programs individually or through a collaborative body that will create professional opportunities in communities, while at the same time attracting high-quality individuals to be part of the municipalities’ data analytics team.

Last Updated: January 31, 2023

Are there red flags that a risk assessment of a nonprofit serving as a subrecipient to a city should uncover, that if addressed might prevent fraud or at a minimum trigger greater scrutiny to prevent fraud or misappropriation of COVID relief funds?

Performing a risk assessment of a potential nonprofit subrecipient (“subrecipient”) for a municipality may provide an opportunity to identify red flags that could lead to fraud or misappropriation of grant funds, if left unaddressed.

When a municipality awards funds to a subrecipient, it is required to evaluate the subrecipient’s risk of noncompliance with federal statutes, regulations, and the terms and conditions of the subaward for purposes of determining appropriate subrecipient monitoring.[1] Municipalities should consider performing a SAM.gov debarment check as a part of this risk assessment to ensure that a nonprofit being considered for an award is eligible to receive federal funds.[2]

If the risk assessment identifies red flags or performance concerns and a municipality still awards grant funds to the subrecipient, the municipality should put a monitoring plan in place imposing specific subaward conditions to ensure the subrecipient addresses any concerns.[3]

Below are common red flags that might surface during a risk assessment, including some specific to nonprofits, that could lead to fraud and/or misappropriation of COVID relief funds, if left unaddressed:

1. The nonprofit lacks prior experience with receiving subawards.
2. The nonprofit lacks an understanding of the federal rules surrounding the subaward.
3. The nonprofit lacks experienced staff or does not have enough staff to ensure compliance and oversight of federal awards and mitigate the risk of fraud, waste and abuse.
4. Previous state, local, and/or federal audits noted significant deficiencies.
5. The nonprofit uses new personnel or new or updated systems for the municipality’s program.
6. A separate federal awarding agency has identified concerns with the nonprofit (e.g., if the nonprofit also receives federal awards from a federal awarding agency, who put monitoring in place because of identified vulnerabilities).
7. The nonprofit has a history of past civil, criminal, and/or administrative investigations.
8. The nonprofit has failed to timely file its Form 990 tax documentation.[4]
9. The nonprofit has previous revocation or suspension of nonprofit status.
10.  The nonprofit has a lack of internal controls to monitor distribution of funds and/or services.
11. No documented policy for conducting due diligence on contractors, suppliers, and vendors exists for the nonprofit.
12. There is no central repository for documenting the subaward activities, such as invoicing, procurement, and inventory control.
13. The nonprofit lacks an employee code of conduct or conflict of interest policy.

Identification of the above red flags may indicate vulnerabilities that could lead to fraud and misappropriation of grant funds.  A risk assessment is critical to identify red flags so that they can be addressed prior to the distribution of funds and/or services.

The municipality should apply the following monitoring tools to ensure proper accountability and compliance with program requirements and achievement of performance goals:[5]

1. Providing subrecipients with training and technical assistance on program-related matters
2. Performing on-site reviews of the subrecipient's program operations.
3. Requiring the subrecipient to submit work-in-progress reports at regular intervals.
4. Establishing a point of contact with the subrecipient for questions or concerns.

Monitoring SAM.gov’s exclusion record throughout the course of the subaward to ensure that the subrecipient is eligible for federal funds.

Last Updated: February 2, 2023

Are all grants to businesses coming from SLFRF grants considered gross income and therefore taxable? (This presumably would require cities to send 1099-Gs to businesses that received grants.)

Businesses should anticipate that the Internal Revenue Service (IRS) may treat Coronavirus State and Local Fiscal Recovery Funds (SLFRF) grants as taxable gross income. The IRS released guidance on the taxability of SLFRF, indicating that “[s]ome SLFRF recipients may have to report certain payments as income and may owe tax depending on the purpose of the payment.”[1] Specifically, payments that are not taxable are those made to:

• reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster, or
• promote the general welfare in connection with a qualified disaster. See Internal Revenue Code (the “Code”) section 139(b)(1) and (4).

While there is an exemption for grants made to promote the general welfare in response to a qualified disaster, like the COVID-19 pandemic, this is typically only applicable to individuals and families (i.e., not businesses). Additionally, this exemption does not apply to grants that are made to compensate individuals or businesses for services rendered.[2]

The IRS notes that:

“Payments are not treated as qualified disaster relief payments if the payments are in the nature of compensation for services performed by the individual. Additionally, payments made to or for the benefit of an individual are not treated as qualified disaster relief payments to the extent the expense of the individual compensated by such payment is otherwise compensated for by insurance or otherwise. See section 139(b)”[3]

In general, individuals must include in gross income any payment or accession to wealth from any source unless an exclusion applies.[4]

While the question of whether grants to businesses is considered gross taxable income is not explicitly answered for SLFRF grants, the IRS did state that Coronavirus Aid, Relief, and Economic Security Act (CARES Act) grants issued in cases of a government starting a grant program to support business generally are not excluded from the business’s taxable gross income:

“Yes, receipt of a government grant by a business generally is not excluded from the business's gross income under the Code and therefore is taxable. However, a grant made by the government of a federally recognized Indian tribe to a member to expand an Indian-owned business on or near reservations is excluded from the member's gross income under the general welfare exclusion.”[5]

As such, municipalities should consider issuing 1099s to businesses that receive SLFRF and CARES Act grants that are taxable pursuant to IRS guidance issued to date. Municipalities should seek the advice of their tax professionals to address the specific facts and circumstances regarding their tax obligations.

Last Updated: January 23, 2023

What resources or strategies exist to help municipalities develop robust program outcome measures to incorporate into their grant applications?

Municipalities should ensure program outcomes are specific, measurable, attainable, results-oriented, and time-bound. To facilitate meaningful program outcomes, municipalities should first examine a grant’s Notice of Funding Opportunity (“NOFO”). Municipalities should consider contacting the funding agency for project guidance and direction regarding acceptable and anticipated outcomes and potential strategies to obtain those goals. When applying for funding, municipalities should aim to understand the grantor’s priorities and comply with points emphasized by the relevant NOFOs to put their grant applications in a more advantageous position.

Grant applications often include a scoring rubric or scoring considerations to help applicants develop program outcome measures. For example, the U.S. Department of Transportation’s Rebuilding American Infrastructure with Sustainability and Equity (“RAISE”) Grant Program NOFO scoring category for “Innovation” includes in the description of a “High” ranking project, the following:

“Innovation is an explicit project purpose AND the project has clear, direct, data-driven, and significant benefits beyond common practice for planning, designing, or building infrastructure for [d]eploying technologies and other practices that drive safety, equity, climate and resilience, or economic outcomes for underserved, overburdened, or disadvantaged communities or augment workers.”[1]

A scoring rubric is a useful tool in determining how likely a proposed project or program is to be funded. Self-scoring also allows applicants to reflect and adjust programs, outcomes, or other project-related components. Municipalities may also use the resulting score as guidance for future grant cycles.

Further, municipalities may refer to the funders’ websites to access specific award requirements and archives of past awards, applications, and project abstracts. Municipalities can also connect with past award recipients to improve the municipality’s understanding of program outcome measures and lessons learned. Municipalities may also consider requesting copies of successful application packets and any supporting materials from past award recipients to use as a reference.

Municipalities should also carefully review the funders’ compliance and reporting requirements to ensure the necessary criteria are measured. In addition, municipalities may benefit from conducting research on comparable grant-funded programs and reviewing the applicable outcomes and other data measurement tools related to those programs. 

Partner and stakeholder alliances can also help develop funded projects and foster ongoing coordination and collaboration between stakeholders, including sharing data and letters of support.

Finally, the COVID-19 pandemic has shifted the way many funders and applicants communicate. Many federal, state, and local funders have transitioned to online grant applicant briefings, and recorded information sessions can now be found on agency websites. Municipalities may also attend online, or in-person funding availability listening sessions and ask agency representatives questions. Funders are often willing and helpful collaborators in the grant application development process, as are agency representatives.

Last Updated: February 2, 2023

Are applicants required to competitively bid ARPA award funding? What are the pass-through responsibilities for subrecipients under Treasury’s Uniform Guidance for competitive procurement?

Treasury does not require that an applicant competitively bid ARPA funding that the applicant intends to provide to a subrecipient.

When applying for APRA funding, an applicant fills out an application form and indicates the applicant’s program goals and objectives in response to a Notice of Funding Opportunity (NOFO) published by the federal awarding agency. If the applicant intends to provide ARPA funding to subrecipients, the applicant can create an application form for subrecipients to submit proposals. This subrecipient application form generally includes program requirements and information set forth in the awarding agency’s guidance.

Pass-through entities are non-federal entities that provide a subaward to a subrecipient to carry out part of a federal program.[1]  Subrecipients are the non-federal entities that receive a subaward from a pass-through entity to carry out part of a federal program; but do not include individuals that are beneficiaries of such a program.[2] A subrecipient may also be a recipient of other federal awards directly from a federal awarding agency.[3] Contractors are entities that receive a contract as set forth under 2 CFR 200.22.[4]

Treasury’s Uniform Guidance does not require that a subrecipient award be subject to a competitive bidding process. Conversely, Treasury’s Uniform Guidance does require that contractor awards be subject to competitive procurement. Uniform Guidance provides definitions for both subrecipient and contractor relationships.[5]

If a pass-through entity is providing ARPA funding to a subrecipient, the pass-through entity must ensure compliance with 2 CFR 200.332, including but not limited to the following:[6]

• Ensuring every subaward is clearly identified to the subrecipient as a subaward and including the provisional requirements laid out in 2 CFR 200.332 (1)(i)-(xiv) (i.e., federal award identification number, federal award date, federal project description, indirect cost rate, among others).
• Pass-through imposed subrecipient requirements must ensure the federal award is used according to the federal statutes, regulations, and terms and conditions of the federal award.
• Identifying any additional requirements imposed on the subrecipient to ensure the pass-through entity meets its responsibility to the federal awarding agency.
• Identifying any cost rate approved between the subrecipient and the federal government; if none exists, collaborating with the subrecipient to establish an appropriate rate, or use of the de minimis cost rate.
• Conducting a risk assessment of the subrecipient to evaluate the subrecipient’s risk of non-compliance (i.e., evaluating prior audits, prior grant experience etc.).
• Requiring the subrecipient to permit the pass-through entities and auditors’ access to the subrecipients records and financial statements.
• Monitoring the subrecipients’ activities to ensure the subaward is used for authorized purposes and complies with Uniform Guidance, and all other relevant guidance issued by the federal awarding agency (i.e., reviewing financial and performance reports, verifying subrecipient single audit compliance, taking enforcement action for non-compliance etc.).
• Ensuring closeout procedures are in place.[7]