Program

COVID-19 Federal Assistance e311

Topics

Timing of Funds

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]

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

 

Last Updated: July 19, 2021

 

[2] 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.

[3] 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.

[4] Id., at 5.

Program

COVID-19 Federal Assistance e311

Topics

Program Administration

Should the evaluation of disproportionate impact be measured within the boundaries of a municipality, or can it be in compared to other municipalities or parts of the state overall?

The U.S. Department of the Treasury’s (“Treasury”) current guidelines do not specify whether the measurement of disproportionate impact on a population, household, or geographic area can only be compared to other groups within the municipality's boundaries or can also be compared to other municipalities. It is not clear whether the boundaries of a particular municipality necessarily coincide with particular Qualified Census Tracts (“QCTs”). QCTs are defined as: “any census tract (or equivalent geographic area defined by the Census Bureau) in which at least 50% of households have an income less than 60% of the Area Median Gross Income.”[1] Relatedly, if those municipal/QCT boundaries do not coincide in a precise manner, and if different municipalities include portions of different QCTs, then it is possible that Treasury will agree that the pandemic’s disparate impact does not have to be measured exclusively within the boundaries of individual communities. However, a municipality should consider providing feedback to Treasury relating to this issue as well and to request clarification in future updates to Treasury’s Frequently Asked Questions.

 

Last Updated: July 20, 2021

 

[1] Department of Housing and Urban Development, Qualified Census Tracts (as of November 10, 2020), available at: https://catalog.data.gov/dataset/qualified-census-tracts.

Program

COVID-19 Federal Assistance e311

Topics

Program Administration

What are some good practices you would recommend when planning for COVID relief? Can municipalities access the plans of other cities?

Municipalities will need a comprehensive and strategic approach to make the most effective use of funds they receive via the American Rescue Plan Act’s (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”). As addressed in the U.S. Department of the Treasury’s (“Treasury”) CSLFRF Interim Final Rule (the “Rule”) to the ARP and the CSLFRF Frequently Asked Questions (“FAQs”), the broad and long-term uses of CSLFRF can include:

  • addressing the negative economic impacts of COVID-19;
  • responding to the ongoing COVID-19 pandemic;
  • providing premium pay to eligible workers;
  • supporting investments in water, sewer, and broadband infrastructure;
  • provision of government services to the extent of reduction in revenue;
  • supporting the costs of consultants; and
  • supporting public jobs programs.

Below are some considerations and good practices.

  1. Identify Funding Sources

As an initial step, municipalities should identify all available funding to create a strategy that defines when and how funds should be used. Municipalities should take into account: (i) which sources are more restrictive vs. least restrictive; and (ii) the short-term and long-term fiscal impact of fund uses.

More restrictive funding can be prioritized over more flexible funding where reasonable. For example, utilizing Federal Emergency Management Agency (“FEMA”) Public Assistance (“PA”) funding for all eligible activities before using Coronavirus Relief Funds (“CRF”) derived from the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES”) for expenditures that are ineligible for FEMA reimbursement may result in a more efficient and effective use of federal funding. Additionally, FEMA PA funding typically is not capped or competitive; thus, prioritizing FEMA PA funding may help maximize overall federal funding.

Some municipalities may experience more significant shortfalls than others. The Rule gives recipients the “broad latitude” to use funds for the provision of government services to the extent of reduction in revenue from pre-pandemic trends of economic growth.[1] Government services can include, but are not limited to: (i) maintenance of infrastructure or pay-go spending for building new infrastructure, including roads; (ii) modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; (iii) health services; (iv) environmental remediation; (v) school or educational services; and (vi) the provision of police, fire, and other public safety services.[2] Municipalities may also use CSLFRF to rebuild public sector capacity.[3]

  1. Strategize and Prioritize

Municipalities must as an initial step perform unmet needs assessments, gap analyses, and impact assessments to gauge the impact that COVID-19 has had on their cities. To do so requires evaluation of the pre-COVID-19 status of the community as well as the conditions resulting from COVID-19. The municipality can then provide a tailored menu of response options for allocating CSLFRF to maximize program effectiveness.

  1. Future Prosperity and Growth

When developing a strategy beyond providing services and replacing revenue, municipalities will need to strategically address and deploy funds to maximize future prosperity and growth. Some considerations may include:

  • immediacy of assistance to residents and small businesses, particularly those in disproportionately impacted and historically disadvantaged communities;
  • inclusivity of minority-owned businesses and people of color; and
  • complementing Federal and State funding and initiatives.

Capital improvements such as costs for water, sewer, and broadband infrastructure are allowable uses of CSLFRF.[4] Municipalities can consider identifying existing capital plans that could be expedited through ARP funding and would benefit the community’s recovery from the COVID-19 public health emergency.

  1. Collaborate

Because some CSLFRF funds will flow through state governments to local governments, communities should consider examining ways to collaborate on funding regional projects or regional recovery planning initiatives. Local officials should consider engaging the local business community, nonprofits, and community leaders to provide input on:

  • the recovery planning process;
  • setting goals;
  • recommending areas for investment; and
  • tracking the performance and distribution of funds.

Municipalities should consider working collaboratively with state agencies and other CSLFRF recipients, as recipients of CSLFRF are permitted to pool funds either by “expend[ing] funds directly on the [joint] project or by transfer[ring] funds to another government undertaking the project on behalf of multiple recipients.”[5] Through direct outreach to similarly-funded entities, municipalities may be able to identify parallel or complementary project ideas in the form of regional recovery initiatives or other planning projects. This could enable local governments to leverage additional opportunities with respect to the $1.9 trillion in the ARP.

Municipalities should consult the National Association of Counties (“NACo”) case studies on “How Counties are Investing Coronavirus Relief Funds.” Although these examples focus on CRF expenditures, the initiatives and projects compiled by NACo provide overall best practice examples for the use of CSLFRF. Case studies are organized by the following:

  • vaccine distribution;
  • housing and rental assistance;
  • nonprofit support;
  • small business support;
  • economic and workforce development;
  • social safety-net services;
  • food assistance;
  • hospitality and tourism development;
  • hazard pay; and
  • allocations to smaller municipalities.[6]
  1. Maintain Sufficient Oversight

Municipalities must regularly assess their internal controls to ensure sufficient measures are in place to prevent mistakes or misconduct that might result in the misuse of federal funds.[7] Internal controls and oversight, including oversight of sub-recipients, are addressed in these previously published responses:

  • How can cities increase the likelihood that funds will not be subject to clawbacks? What are some best practices to ensure proper documentation, tracking, and accountability along those lines?[8]
  • What are some of my city's obligations and responsibilities to prevent fraud related to ARP funds?[9]

Finally, it is possible for cities to share their programs with other cities. That would best be attempted by one-on-one reach out between cities and would not be facilitated by the e-311 program.

Last Updated: July 27, 2021

[1] 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.

[2] Id.

[3] Department of Treasury, Fact Sheet: “The Coronavirus State and Local Fiscal Recovery Funds Will Deliver $350 Billion for State, Local, Territorial, and Tribal Governments to Respond to the COVID-19 Emergency and Bring Back Jobs,” May 10, 2021, at 4, available at: https://home.treasury.gov/system/files/136/SLFRP-Fact-Sheet-FINAL1-508A.pdf.

[4] Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions (as of July 19, 2021) – FAQ Section 6, at 27-33, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[5] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.9, at 24, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[6] National Association of Counties, Resources and Information Related to the Coronavirus Relief Fund: How Counties are Investing Coronavirus Relief Funds, available at: https://www.naco.org/covid19/crf#examples.

[7] Code of Federal Regulations, 2 C.F.R. § 200.303, Internal Controls, available at: https://www.ecfr.gov/cgi-bin/text-idx?SID=fe9834d188d0ad51e6306e483baddf7e&mc=true&node=pt2.1.200&rgn=div5#se2.1.200_1303.

Program

COVID-19 Federal Assistance e311

Topics

Program Administration

What guidelines can a city apply to determine which populations, households, or geographic areas have been disproportionately impacted for the funding purposes of the American Rescue Plan Act (“ARP”)?

The U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”) discusses the economic disparities that amplified the impact of the pandemic among low-income and minority groups, who were “more likely to face housing, food, and financial insecurity; are overrepresented among low-wage workers; and (many) have seen their livelihoods deteriorate further during the pandemic and economic contraction.”[1] The guidance released by Treasury so far does not specifically describe how to properly document determinations of disproportionate public health or economic outcomes in specific populations, households, or geographic areas.

The Rule’s Supplementary Information includes a lengthy description of ways in which some communities around the country were disproportionately affected by the pandemic.[2] Regarding potential uses of Coronavirus State and Local Fiscal Relief Funds (“CSLFRF”):

[A]lthough the pandemic’s impacts have been widespread, both the public health and economic impacts of the pandemic have fallen most severely on communities and populations disadvantaged before it began. Low-income communities, people of color, and Tribal communities have faced higher rates of infection, hospitalization, and death, as well as higher rates of unemployment and lack of basic necessities like food and housing. Pre-existing social vulnerabilities magnified the pandemic in these communities, where a reduced ability to work from home and, frequently, denser housing amplified the risk of infection. Higher rates of pre-existing health conditions also may have contributed to more severe COVID-19 health outcomes. Similarly, communities or households facing economic insecurity before the pandemic were less able to weather business closures, job losses, or declines in earnings and were less able to participate in remote work or education due to the inequities in access to reliable and affordable broadband infrastructure. Finally, though schools in all areas faced challenges, those in high poverty areas had fewer resources to adapt to remote and hybrid learning models.[3]

However, municipalities should note that Treasury has indirectly addressed an issue around disproportionately impacted populations, households, or geographic areas.[4] The Rule lists several ways in which CSLFRF assistance can be used in Qualified Census Tracts (“QCTs”). QCTs are defined as: “any census tract (or equivalent geographic area defined by the Census Bureau) in which at least 50% of households have an income less than 60% of the Area Median Gross Income.”[5] 

Treasury will presume that a wide range of equity-focused services are eligible uses when provided within a QCT.[6] The Rule also specifies that recipients may provide these services outside of QCTs in other populations, households, or geographic areas disproportionately impacted by the pandemic, provided recipients can document their disproportionate impact determinations.[7]

When evaluating economic factors, municipalities should also consider utilizing: (i) unemployment figures; (ii) taxable sales data; (iii) business closure information; (iv) data relating to increases in food and housing insecurity; (v) the number and extent a household is in arrears with respect to its utility bills and property tax bills; and (vi) increases in childcare needs. Heat mapping of K-12 children receiving free and reduced lunch may serve as one economic indicator for identifying areas of low-income families.

Municipalities considering equity-focused services will find it useful to review the following types of data in their determinations: (i) the number of COVID-positive patients, (ii) the number of COVID-19 related deaths, and (iii) the number of hospitalizations due to COVID-19. Many states and local governments utilize heat mapping for COVID-19 transmission, where the highest transmission rates often fall into low-income areas. It would also be prudent for municipalities to provide feedback to Treasury encouraging further guidance.

 

Last Updated: July 20, 2021

 

[2] Id., at 15-30.

[3] Id., at 5-6.

[4] Id., at 141.

[5] Department of Housing and Urban Development, Qualified Census Tracts (as of November 10, 2020), available at: https://catalog.data.gov/dataset/qualified-census-tracts.

[7] Id.

Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation

Is street paving a permissible use of ARP funds?

Likely no. Neither the American Rescue Plan of 2021 (“ARP”)[1] nor the U.S. Department of the Treasury (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) May 10, 2021 Interim Final Rule (“Rule”)[2] definitively include street paving/road infrastructure work within the scope of CSLFRF eligible uses.[3] Under the Rule, general infrastructure spending is categorized[4] as an ineligible use of CSLFRF, except for specific pandemic response purposes: 

Under 602(c)(1)(A) or 603(c)(1)(A), a general infrastructure project typically would not be considered a response to the public health emergency and its negative economic impacts unless the project responds to a specific pandemic-related public health need (e.g., investments in facilities for the delivery of vaccines) or a specific negative economic impact of the pandemic (e.g., affordable housing in a Qualified Census Tract).[5]

While “general infrastructure” spending is not an eligible use of CSLFRF, “necessary investment in water, sewer, and broadband”,[6] or projects undertaken in response to a specific pandemic-related public health need are eligible uses of CSLRF funds.[7] Infrastructure projects intended to repave existing roads likely lack a direct nexus to a specific pandemic-related public health need relative to the example cited in the Rule (“facilities for the delivery of vaccines”). 

Treasury’s CLSFRF Frequently Asked Questions (“FAQ”), updated June 24, 2021, incorporates a specific inquiry regarding investments in “improving outdoor spaces,”[8] albeit with a clarification and focus on parks[9] rather than on projects related to streets and roads. This guidance may be useful for a municipality in evaluating priorities for CSLFRF activity selection. Notably, Treasury’s guidance also incorporates comments that this provision should be used to “build stronger neighborhoods and communities and address health disparities and the social determinants of health.”[10] 

While street paving generally is likely not a permitted use of CLSFRF funds, Sections 602(c)(1)(C) and 603(c)(1)(C) of the ARP provide recipients with broad latitude to use the Fiscal Recovery Funds for the provision of government services up to the amount of the reduction in revenue. A road infrastructure project may qualify under specific circumstances when supported by a lost revenue calculation.

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.[11]

Given the lack of specific guidance on the topic, the recent enactment of the underlying legislation, and the interim nature of available regulatory guidance, a municipality should likely await further Treasury guidance beforecommitting time and effort to any road or street related project, even one designed to address specific public health improvements. The Rule does allow pre-project development work to be included in the scope of work for funding for some uses of water, sewer, and broadband, or in response to a specific pandemic-related public health need. However, Treasury has not yet issued definitive guidance outlining the parameters of what street infrastructure work undertaken in response to the COVID-19 public health emergency may be eligible for CSLFRF funding.[12]   

Last Revised: July 8, 2021

[1] American Rescue Plan Act (H.R.1319, 117th Cong. § 9901 (amending 42 U.S.C § 801  

Et Seq., at § 603)), available at: https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319enr.pdf.

[3] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions issued June 23, 2021, at FAQ #3.8, at [15], available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[4] Treas. Reg. 31 CFR Part 35 at [86], available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf

[5] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions issued June 17, 2021, FAQ#4.2 at [13], available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf (emphasis added).

[8] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions issued June 23, 2021, FAQ#2.18, at [10], available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf

[9] Id.

[10] Id.

[11] Id at FAQ#3.8, at [15].

[12] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions issued June 24, 2021, FAQ#6.12, at [26], available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

We receive a franchise fee from various utility companies in place of their paying a business license fee. Are franchise fees excluded from the general revenue calculations?

Franchise fees as described above can be included in general revenue calculations because they likely fall outside the definition of “utility revenue” for the purposes of revenue classification. The U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Interim Final Rule (the “Rule”) defines “general revenue” as:

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. General revenue does not include revenues from utilities.[1]

As such, municipalities generally may not count revenue generated by utilities as “general revenue.”[2] As the Census Bureau Government Finance and Employment Classification Manual, cited as the primary source for the definition of general revenue for the purposes of Coronavirus Local Fiscal Recovery Funds (“CLFRF”)[3], states:

Utility revenue comprises receipts from sales and directly related services and by-products of the four types of state and local government utilities recognized by the Census Bureau: water supply, electric power, gas supply, and public mass transit systems. Utility revenue is reported on a gross amount without deducting its related expenditures.[4]

Utility franchise fees are designed to compensate local governments for the utility’s use of public property and resources,[5],[6],[7] whereas the utility revenue mentioned in the question above appears to relate primarily to municipalities that are operating their own utility systems. As the franchise fee probably lies outside the scope of “sales and directly related services and by-products,” it should not be considered “utility revenue,” and thus likely would fall under “general revenue” for the purposes of revenue replacement.

It is important for municipalities to be aware that neither the chart provided by Treasury in the appendix of its CLFRF Frequently Asked Questions (“FAQ”) nor the Census Bureau Government Finance and Employment Classification Manual explicitly describes the classification of franchise fees or other fees paid by utilities for land use. However, the Census Bureau Manual describes public utility sales taxes as:

Taxes imposed distinctively on public utilities, both privately- and publicly-owned, such as public passenger and freight transportation companies, telephone, telegraph, and light and power, and others; and measured by gross receipts, gross earnings, or units of service sold, either as a direct tax on consumers or as a percentage of gross receipts of utility.[8] 

 

Last Updated: July 20, 2021

 

[1] Treas. Reg. 35 CFR 31 at [133], 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 June 24, 2021) - FAQ #3.1, at 12-13, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[4] U.S. Bureau of the Census Government Finance and Employment Classification Manual (Updated 2006), Section 4.5, at 4-7, available at https://www2.census.gov/govs/pubs/classification/2006_classification_manual.pdf.

[5] Gerth, Jonathan, “Franchise Fees: An Important and Sometimes Untapped Source of Local Government Revenue”, available at https://icma.org/blog-posts/franchise-fees-important-and-sometimes-untapped-source-local-government-revenue.

[7] Institute for Local Self-Reliance, “Utility Franchise Fees”, available at https://ilsr.org/energy/utility-franchise-fees/.

[8] U.S. Bureau of the Census Government Finance and Employment Classification Manual (Updated 2006), at 4-12, available at https://www2.census.gov/govs/pubs/classification/2006_classification_manual.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Program Administration

Are municipalities permitted to use ARP funds to pay for death services? If yes, what restrictions are there?

Municipalities might be permitted to use funds received from the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to pay for death services incurred by households. The American Rescue Plan Act of 2021 (“ARP”) allows municipalities to use CSLFRF funds “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.”[1] Having said that, guidance from the U.S. Department of the Treasury (“Treasury”) does not yet provide specific restrictions regarding the issue of death services at this time. As always, municipalities must adhere to basic program considerations.

Treasury’s Interim Final Rule (the “Rule”) on CSLFRF contains a non-exclusive list of programs or services that provide assistance to households and may be funded as responding to COVID-19 or the negative economic impacts of the COVID-19 public health emergency. This list specifically mentions “emergency assistance for burials” as an eligible use of CSLFRF funds.[2] (A municipality could argue that this covers all death services but should consult with a professional in the field before doing so.) The list of programs that provide assistance is non-exclusive and simply provides examples of eligible uses. In discerning what may be eligible under “addressing negative economic impacts” use of funds, “a recipient must consider whether, and the extent to which, the household has experienced a negative economic impact from the pandemic.”[3] The need for burial services due to COVID-19 could perhaps fit in the category of being an unexpected negative economic impact to a household. However, Treasury could quite easily take a contrary position.

Treasury guidance does not lay out particular restrictions when it comes to paying for death services or other household assistance; however, as noted above, Treasury requires a recipient to consider whether, and the extent to which, the household has experienced a negative economic impact from the pandemic.[4] If, for example, a household has experienced a COVID-19 related death, and burial services are needed, this would arguably constitute a negative economic impact from the pandemic and as such, related costs could perhaps be covered.

 

Last Updated: July 20, 2021

 

[1] 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#H961DF10AD21C4DD88C956CA51623439E (emphasis added). See also Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 14, 2021) – FAQ #4.6, at 20, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[3] Id.

[4] Id.

Program

COVID-19 Federal Assistance e311

Topics

Program Administration

Can cities use ARP funds to hire vendors to respond to public health issues unrelated to COVID-19 (e.g., increased bulk trash)?

Neither the text of the American Rescue Plan Act of 2021 (“ARP”) nor the U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”) on the uses of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) explicitly addresses bulk trash disposal as a public health issue that is eligible for CSLFRF funding.[1] However, depending on the circumstances, it is conceivable that increased trash could be connected to increased teleworking or other demographic/workplace changes caused by COVID-19. Bulk trash pickup is often considered a health-related government service.[2] At a general level, Treasury’s Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Frequently Asked Questions document (“FAQ”) states:

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, 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.[3]

It is thus possible (though not entirely clear) that bulk trash pickup could fall within the “health services” or “other public safety services” set forth in Treasury’s FAQs. Given the interim nature of Treasury’s guidance to date, municipalities may wish to await the issuance of Treasury’s Final Rule on the CSLFRF before allocating CSLFRF funds for bulk trash pickup.

 

Last Updated July 20, 2021

 

[2] State of New Jersey Department of Environmental Protection, “Solid Waste Types,” available at NJDEP New Jersey Department of Environmental Protection.

[3] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 24, 2021), – FAQ #3.8, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf

Program

COVID-19 Federal Assistance e311

Topics

Compliance & Reporting, Program Administration

Are expenses related to building or enhancing a municipality’s data and innovation capacities an eligible use of ARP funds?

The U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”) gives municipalities “flexibility to determine how best to use payments from the Fiscal Recovery Funds (‘FRF’) to meet the needs of their communities and populations.”[1]

Accordingly, municipalities may use American Rescue Plan Act of 2021 (“ARP”) funds to upgrade data systems if the upgraded data systems: (i) help the municipality effectively meet the needs of their communities by alleviating the negative economic or negative physical health impacts of COVID-19; or (ii) improve the efficacy of programs addressing negative economic results from COVID-19. Some relevant concerns and factors are discussed below.

The Rule encourages municipalities to remedy disproportionate health and economic disparities widened by the pandemic. Specifically, Treasury authorizes municipalities to use ARP funds for economic and health improvements in disproportionately impacted communities and qualified census tracts (“QCTs”):

[C]ertain types of services […] are eligible uses when provided in a QCT, to families and individuals living in QCTs, or when these services are provided by Tribal governments. 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.[2]  

Treasury suggests that municipalities “assess the connection between the negative economic harm and the COVID-19 public health emergency, the nature and extent of that harm, and how the use of this funding would address such harm.”[3] 

Treasury’s Supplementary Information discussion relating to the Rule also notes that recipients should “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 the aid provided responds to these impacts.”[4] 

Upgrading data systems could thus arguably be eligible expenses if they:

  • Generally help eliminate health and economic disparities.
  • Enhance public health data systems.[5]

The Rule includes “[e]xpenses related to establishing or enhancing public health data systems” pursuant to 31 CFR 35.6(b)(1)(xvii).[6] Further, the Rule’s Supplemental Information section notes “improvements to data or technology infrastructure, impact evaluations, and data analysis” as eligible expenses to improve the design and execution of health and public health programs.[7]

  • Improve the efficacy of programs which address negative economic impacts or are directly related to public health data systems.
  • Upgrade government services, where data infrastructure improvements are a component of the government services a city provides.

The revenue recovery provisions of the ARP allow municipalities to use funds for “the provision of government services to the extent of the reduction in revenue […] due to the COVID-19 public health emergency.”[8] Further, Treasury’s Supplemental Information discussion to the Rule notes that: “State, local, and Tribal governments may use payments from the Fiscal Recovery Funds to improve efficacy of programs addressing negative economic impacts, including through use of data analysis, targeted consumer outreach, improvements to data or technology infrastructure, and impact evaluations.”[9]

Important compliance and reporting considerations

States and municipalities with populations over 250,000 are required by Treasury to submit a Recovery Plan, including a section on Use of Evidence.[10] In this section, recipients of FRF must identify whether their funds are being used for evidence-based interventions or other interventions with a set program evaluation in place. According to Treasury, evidence-based interventions are interventions categorized as having strong or moderate evidence:

Strong evidence means the evidence base that can support causal conclusions for the specific program proposed by the applicant with the highest level of confidence. This consists of one or more well-designed and well-implemented experimental studies conducted on the proposed program with positive findings on one or more intended outcomes. Moderate evidence means that there is a reasonably developed evidence base that can support causal conclusions. The evidence base consists of one or more quasi-experimental studies with positive findings on one or more intended outcomes OR two or more non-experimental studies with positive findings on one or more intended outcomes […] Preliminary evidence means that the evidence base can support conclusions about the program’s contribution to observed outcomes. The evidence base consists of at least one non-experimental study. A study that demonstrates improvement in program beneficiaries over time on one or more intended outcomes OR an implementation (process evaluation) study used to learn and improve program operations would constitute preliminary evidence.[11]

Recipients of FRF must possess the minimum level of data and innovation capacity in order to comply with Treasury’s guidance. States and municipalities should also be aware that Treasury authorized FRF for expenses related to “consultation for ensuring compliance with legal, regulatory, and other requirements.”[12]

In conclusion, municipalities have several different bases to assert that ARP funds are eligible for data infrastructure upgrades, including: (i) closing economic and health disparities in QCTs; (ii) enhancing public health data systems; (iii) improving the efficacy of programs addressing negative economic impacts; and (iv) providing government services. While awaiting further guidance from Treasury, recipients of FRF should refer to Results for America’s online resources. Before spending ARP funds as mentioned above, municipalities should consider consulting with a subject matter expert regarding their plans and be prepared to document the way they use ARP funds for these types of expenses.

Last Updated: July 28, 2021

[2] Id., at 38.

[3] Id., at 11.

[4] Id., at 38.

[5] Id., at 18.

[6] Id., at 140.

[7] Id., at 21.

[8] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., at Sections 602(c)(1) and 603(c)(1)(C), available at: https://www.congress.gov/bill/117th-congress/house-bill/1319/text#toc-H65C66E46488F4CB6ACD99E77DF090885.

[10] Department of Treasury Coronavirus State and Local Fiscal Recovery Funds Compliance and Reporting Guidance at 26, available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[11] Id., at Appendix 2 at 33.

[12] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #10.5 at 39, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf

Program

COVID-19 Federal Assistance e311

Topics

Compliance & Reporting, Program Administration

With respect to broadband infrastructure, do eligible uses of ARP funds include: (i) expenses related to making broadband affordable for residents; and (ii) providing residents with devices for accessing broadband internet (e.g., laptops)?

None of the guidance issued by the US Department of the Treasury (“Treasury”) specifically addresses the use of funds from the American Rescue Plan Act of 2021 (“ARP”) for the purchase of personal devices (tablets/laptops/other devices) needed to access the internet. In addition, Treasury guidance does not address the use of ARP funding as it may pertain to affordability subsidies or paying for accessing broadband internet. 

On the other hand, there is a great deal of guidance and information regarding broadband coverage.

--

Generally, the ARP authorizes several different forms of assistance to state, local, territorial, and Tribal governments, including broadband infrastructure.[1] Treasury’s Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Interim Final Rule (the “Rule”) identifies “broadband” as an eligible use of funds.[2] Excerpted herein are several relevant provisions regarding broadband.

The Rule discusses the use of ARP funds for investments in broadband infrastructure generally in its accompanying Supplementary Information discussion: 

The COVID-19 public health emergency has underscored the importance of universally available, high-speed, reliable, and affordable broadband coverage as millions of Americans rely on the internet to participate in, among critical activities, remote school, healthcare, and work. Recognizing the need for such connectivity, the ARPA provides funds to State, territorial, local, and Tribal governments to make necessary investments in broadband infrastructure.[3]

The Rule provides that eligible investments in broadband are those that are designed to provide services meeting adequate speeds and are provided to unserved and underserved households and businesses. Understanding that States, territories, localities, and Tribal governments have a wide range of varied broadband infrastructure needs, the Rule provides award recipients with flexibility to identify the specific locations within their communities to be served and to otherwise design the project.[4]

Treasury’s Supplementary Information discussion regarding affordability with respect to broadband notes:

Recipients are also encouraged to consider ways to integrate affordability options into their program design. To meet the immediate needs of unserved and underserved households and businesses, recipients are encouraged to focus on projects that deliver a physical broadband connection by prioritizing projects that achieve last mile-connections. Treasury also encourages recipients to prioritize support for broadband networks owned, operated by, or affiliated with local governments, non-profits, and co-operatives—providers with less pressure to turn profits and with a commitment to serving entire communities.[5]

Treasury’s FAQ #6.5 addresses the use of funds for broadband infrastructure needs:

The Interim Final Rule requires eligible projects to reliably deliver minimum speeds of 100 Mbps download and 100 Mbps upload. In cases where it is impracticable due to geography, topography, or financial cost to meet those standards, projects must reliably deliver at least 100 Mbps download speed, at least 20 Mbps upload speed, and be scalable to a minimum of 100 Mbps download speed and 100 Mbps upload speed. Projects must also be designed to serve unserved or underserved households and businesses, defined as those that are not currently served by a wireline connection that reliably delivers at least 25 Mbps download speed and 3 Mbps of upload speed.[6]

FAQ #6.6 states:

Recipients may use funds to provide assistance to households facing negative economic impacts due to Covid-19, including digital literacy training and other programs that promote access to the Internet. Recipients may also use funds for modernization of cybersecurity, including hardware, software, and protection of critical infrastructure, as part of provision of government services up to the amount of revenue lost due to the public health emergency.[7]

FAQ #6.7 states:

Recipients do not need approval from Treasury to determine whether an investment in a water, sewer, or broadband project is eligible under CSFRF/CLFRF. Each recipient should review the Interim Final Rule (IFR), along with the preamble to the Interim Final Rule, in order to make its own assessment of whether its intended project meets the eligibility criteria in the IFR. A recipient that makes its own determination that a project meets the eligibility criteria as outlined in the IFR may pursue the project as a CSFRF/CLFRF project without pre-approval from Treasury. Local government recipients similarly do not need state approval to determine that a project is eligible under CSFRF/CLFRF. However, recipients should be cognizant of other federal or state laws or regulations that may apply to construction projects independent of CSFRF/CLFRF funding conditions and that may require pre-approval.[8]

Again, none of the guidance issued by Treasury to date addresses the use of ARP funding as it may pertain to affordability subsidies, bill payments, or the purchase of tablets/laptops/other devices for accessing broadband internet.

Last Updated: July 21, 2021

[1] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq. See subsections 602(c)(1)(D) and 603(c)(1)(D) of the Social Security Act, which were added by § 9901 of P.L. 117-2, available at: https://www.congress.gov/bill/117th-congress/house-bill/1319/text#HAECAA3A95C4E4FFAB6AA46CE5F9CB2B5.   

[2] Treas. Reg. 31 CFR 35.6(e)(2) at 145, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[3] Id., at 69.

[4] Id., at 71.              

[5] Id., at 76-77.

[6] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021), – FAQ #6.5, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[7] Id., at FAQ #6.6.

[8] Id., at FAQ #6.7.

Program

COVID-19 Federal Assistance e311

Topics

Infrastructure & Maintenance Investments, Lost Revenue & Revenue Replacement

If a municipality transfers revenue from a utility fund to a general fund, can that be included in the calculation for general 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”) clarifies that certain utility revenue falls within 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]

Further, the Manual defines utility revenue as coming only from the types of government-owned utilities recognized by the Census Bureau: publicly owned and controlled water supply systems, electric power systems, gas supply systems, and public mass transit systems.[5]

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.”[6]

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.[7]

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).[8]

As such, municipalities should determine what revenues are defined as ‘utility revenue’ according to Treasury guidance and the related Census Bureau definitions. Any utility revenue is to be excluded from the revenue loss calculation.

Municipalities may at times find it difficult to determine precisely which revenue streams are “utility revenue” and which are excluded. For combined water-sewer systems, include segregable amounts for sewage collection and disposal as ‘general revenue: current charges”, and segregable amounts for water as ‘utility revenue’.[9]

If a municipality cannot determine the revenue stream of the given utility, it is advisable to exclude that lost revenue from the municipality’s loss calculations for CSLFRF, as the Treasury guidance is the principal means of determining revenue stream eligibility.

Importantly, when 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[10] and Portal for Recipient Reporting for CSLFRF[11] documents. Municipalities should always contemporaneously document all guidance utilized in calculating the decrease in budget and deciding to transfer from utilities to the general fund as lost revenue. Municipalities must be prepared to provide “[a]n explanation of how revenue replacement funds were allocated to government services.”[12] 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.[13]

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

Last Revised: August 13, 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.

[5] Id., at 4-45 and 4-46.

[7] 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.

[8] Id.

[9] Id., at 4-36 (for sewerage) and 4-45 (for water).

[10] 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.

[11] Department of Treasury, Treasury’s Portal for Recipient Reporting: State and Local Fiscal Recovery Funds, (as of August 9, 2021), available at: SLFRF_Treasury-Portal-Recipient-Reporting-User-Guide.pdf.

[12] Department of Treasury, Compliance and Reporting Guidance: State and Local Fiscal Recovery Funds, (as of June 24, 2021), at [13], available at: SLFRF-Compliance-and-Reporting-Guidance.pdf (treasury.gov).

[13] 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

Lost Revenue & Revenue Replacement

Should a municipality that derives revenue from marijuana include that source in its revenue calculation?

The American Rescue Plan Act of 2021 (ARP) and its associated regulatory guidance do not directly address the issue of marijuana revenue. However, the Internal Revenue Code’s treatment of similar revenue streams for taxation purposes is an indication, though neither definitive nor certain, that marijuana revenue may be included in revenue calculations for the purposes of revenue replacement calculations.

The U.S. Department of Treasury (“Treasury”) has not explicitly addressed revenue derived from marijuana or other federally controlled substances. According to the chart in the appendix to the CSLFRF Frequently Asked Questions (“FAQs”), sales taxes and license taxes are all included in the definition of Tax Revenue and a component of “General Revenue.” Also, the chart contains no stated exclusion for revenues from products that may be illegal at the federal level.[1]

Receipts from the sale of illegal substances have long been considered revenue by the Internal Revenue Service. Notably, the Internal Revenue Code addresses the issue of deductions for the cost of conducting illegal drug sales: “[n]o deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances…which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”[2] The IRS also uses more explicit language: “Income from illegal activities, such as money from dealing illegal drugs, must be included in your income on Schedule 1 (Form 1040), line 8, or on Schedule C (Form 1040) if from your self-employment activity.”[3]

While this standard relates to Income Taxes rather than municipal revenue, it indicates that the Federal Government considers revenue from the marijuana industry to be reportable revenue for purposes of taxation. It is possible although not clear that a municipality could argue that the same reasoning should apply to marijuana revenue under the ARP’s revenue replacement rubric.

Given the lack of regulatory guidance directly addressing marijuana revenue, whether a specific municipality may include marijuana revenue in its calculation of “General Revenue” for purposes of revenue loss calculation is not clear.

Last Updated: July 2, 2021

[1] U.S. Department of the Treasury, Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 24, 2021), at 35, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[3] IRS Publication 17 (2020), Your Federal Income Tax For Individuals - Other Income, at 74, available at  https://www.irs.gov/pub/irs-pdf/p17.pdf.