Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

Does a municipality need to direct revenue replacement funds to the sources of lost revenue?

The ARP, which created the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”), does not expressly require recipients to direct CSLFRF funds to address revenue losses from one or more particular sources.  Nor does the associated regulatory guidance indicate that specific amounts of CSLFRF funding must be directed to specific sources of revenue loss.

Rather, CSLFRF assistance can be used to address a broad range of issues.  As noted in the US Department of Treasury’s (“Treasury”) Interim Final Rule (the “Rule”), which was published on May 17, 2021, this assistance may be used:

a)  to respond to the public health emergency or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality;

b)  to respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers;

c)  for the provision of government services to the extent of the reduction in revenue due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency; and

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

In addition, the Supplementary Information Discussion which accompanies the Rule states: “Within the eligible use categories outlined in the Fiscal Recovery Funds provisions of ARPA, State, local, and Tribal governments have flexibility to determine how best to use payments from the Fiscal Recovery Funds to meet the needs of their communities and populations (emphasis added).”[2]

Treasury’s June 24, 2021, Frequently Asked Questions provide additional relevant information.  Specifically, FAQ number 3.2 addresses revenue calculation and whether it should be calculated on an entity-wide basis or on a source-by-source basis (e.g. property tax, income tax, sales tax, etc.):

Recipients should calculate revenue on an entity-wide basis. This approach minimizes the administrative burden for recipients, provides for greater consistency across recipients, and presents a more accurate representation of the net impact of the COVID- 19 public health emergency on a recipient’s revenue, rather than relying on financial reporting prepared by each recipient, which vary in methodology used and which generally aggregates revenue by purpose rather than by source.[3]

In summary, given Treasury’s emphasis on recipient flexibility and its entity-wide revenue loss calculation, a municipality should be able to use CSLFRF funding in its discretion for eligible purposes. Revenue replacement funds after the loss due to COVID-19 has been calculated should be used for the provision of government services.

Last Updated: June 29, 2021

[2] Id. at 8.

[3] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 24, 2021) – FAQ #3.2, at 13, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation, Program Administration

Are costs to build facilities and establish programs for job training eligible for ARP funding?

The U.S. Department of the Treasury’s (“Treasury”) guidance to date for the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) of the American Rescue Plan Act of 2021 (“ARP”) suggests that it may be permissible to build or renovate infrastructure to provide training space for job training and educational programs and services if they are directly related to reducing the negative economic impacts caused by the COVID-19 pandemic.[1]

Treasury’s Interim Final Rule (the “Rule”) provides a non-exclusive list of programs and services through which the CSLFRF of the ARP can be used to support communities working to reduce and respond to the negative repercussions caused by the COVID-19 pandemic:

The Interim Final Rule implements these provisions by identifying a non-exclusive list of programs or services that may be funded as responding to COVID-19 or the negative economic impacts of the COVID-19 public health emergency, along with considerations for evaluating other potential uses of the Fiscal Recovery Funds not explicitly listed. The Interim Final Rule also provides flexibility for recipients to use payments from the Fiscal Recovery Funds for programs or services that are not identified on these non-exclusive lists but that fall under the terms of section 602(c)(1)(A) or 603(c)(1)(A) by responding to the COVID-19 public health emergency or its negative economic impacts.[2]

Treasury’s Frequently Asked Questions (“FAQs”)[3] underscore that the list of programs and services is non-exclusive[4] and contains several questions and answers relevant to the question of training and educational spaces.

Treasury’s FAQs indicate that although fund recipients generally may not use funds for general economic development or workforce development, CSLFRF funds are likely eligible to use for job training activities:

Recipients must demonstrate that funding uses directly address a negative economic impact of the COVID-19 public health emergency, including funds used for economic or workforce development. For example, job training for unemployed workers may be used to address negative economic impacts of the public health emergency and be eligible.[5]

FAQ #2.16 addresses whether recipients may use funds to establish a public jobs program.

The Interim Final Rule permits a broad range of services to unemployed or underemployed workers and other individuals that suffered negative economic impacts from the pandemic. That can include public jobs programs, subsidized employment, combined education and on-the-job training programs, or job training to accelerate rehiring or address negative economic or public health impacts experienced due to a worker’s occupation or level of training.[6]

 FAQ #3.8 in Treasury’s FAQs discusses the use of CSLFRF funds for construction activities to address the needs of low-income students and to facilitate on-the-job training services.

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.[7]

Although this statement does not explicitly address whether CSLFRF funds can be used to build a job training center or similar facility, it suggests that CSLFRF funds could likely be used on education-related construction activities as a component of providing education and training space for low-income students and addressing educational disparities in the community.

Municipalities may also consider building such infrastructure and supporting the described programs and services in areas recognized for disparate negative impacts caused by the COVID-19 pandemic, such as Qualified Census Tracts (“QCT”). Treasury specifically refers to QCTs as recipients of services funded by the CSLFRF:

Treasury will presume that certain types of services are eligible uses when provided in a Qualified Census Tract (QCT), to families 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 for how the pandemic disproportionately impacted the populations, households, or geographic areas to be served.[8]

Notably, the QCT list of eligible programs and services includes: (i) “early learning services”; (ii) increasing resources for high-poverty school districts; (iii) educational services like tutoring or afterschool programs; and (iv) support for students’ social, emotional, and mental health needs.”[9]

If a municipality decides to utilize CSLFRF funds for any given project or service, it 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] Moreover, municipalities should document all guidance utilized in determining their decisions and ongoing facilitation of CSLFRF. Treasury guidance in the future may change to supersede the current guidance, and municipalities may be required to demonstrate their rationale on the guidance they utilized at the time.

Additionally, municipalities should ensure that they comply with Treasury’s records retention requirements, including that:

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.[12]

Last Updated: August 12, 2021

[2] Id., at 11 (emphasis added).

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

[4] For example, Question No. 2.3 in Treasury’s FAQs asks, “If a use of funds is not explicitly permitted in the Interim Final Rule as a response to the public health emergency and its negative economic impacts, does that mean it is prohibited?” Treasury replies: “The Interim Final Rule contains a non-exclusive list of programs or services that may be funded as responding to COVID-19 or the negative economic impacts of the COVID-19 public health emergency, along with considerations for evaluating other potential uses of Fiscal Recovery Funds not explicitly listed. The Interim Final Rule also provides flexibility for recipients to use Fiscal Recovery Funds for programs or services that are not identified on these non-exclusive lists but which … respond … to the COVID-19 public health emergency with respect to COVID-19 or its negative economic impacts.” Id., at #2.3. at 4.

[5] Id., at #2.8, at 6 (emphasis added).

[6] Id., at #2.16, at 9 (emphasis added).

[7] Id., at #3.8, at 15 (emphasis added).

[8] Id., at #2.11, at 7 (emphasis added).

[9] Id.

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

[11] U.S. Department of the 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] 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

Can a municipality include an increase in the property tax rate when calculating the average revenue for the past three years?

Based on current guidance, municipal revenues used for the purposes of revenue loss calculations should be based on actual revenues collected. If the municipality is considering implementing a new property tax rate, such an increase will likely impact lost revenue calculations for the purposes of the American Rescue Plan (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) program, because they will cause total revenues to rise and not impact actual revenue baselines.

The U.S. Department of the Treasury (“Treasury”) CSLFRF Frequently Asked Questions (“FAQ”)[1] provides the following guidance with respect to utilizing property tax and other revenue sources for calculating revenue and loss[2]:

Eligible Uses – Revenue Loss 3.1. How is revenue defined for the purpose of this provision? [Appendix added 6/23] The Interim Final Rule adopts a definition of “General Revenue” that is based on, but not identical, to the Census Bureau’s concept of “General Revenue from Own Sources” in the Annual Survey of State and Local Government Finances. General Revenue includes revenue from taxes [emphasis added], current charges, and miscellaneous general revenue.

3.2.[3] Will revenue be calculated on an entity-wide basis or on a source-by-source basis (e.g. property tax, income tax, sales tax, etc.)? Recipients should calculate revenue on an entity-wide basis. This approach minimizes the administrative burden for recipients, provides for greater consistency across recipients, and presents a more accurate representation of the net impact of the COVID- 19 public health emergency on a recipient’s revenue, rather than relying on financial reporting prepared by each recipient, which vary in methodology used and which generally aggregates revenue by purpose rather than by source.

Because property tax revenue loss is an approved use of ARP CSLFRF, municipalities should follow the calculation process below to determine (1) the amount of loss and (2) the time frames to use for accounting purposes.

The overall methodology for calculating the reduction in revenue is illustrated in the figure below:[4]

Bar chart showing the overall methodology for calculating the reduction in revenue

 

Revenue Loss

Recipients will compute the extent of reduction in revenue by comparing actual revenue to a counterfactual trend representing what could have plausibly been expected to occur in the absence of the pandemic. The counterfactual trend begins with the last full fiscal year prior to the public health emergency (as required by statute) and projects forward with an annualized growth adjustment. Treasury’s decision to incorporate a growth adjustment into the calculation of revenue loss ensures that the formula more fully captures revenue shortfalls relative to recipients’ pre-pandemic expectations. Moreover, recipients will have the opportunity to re-calculate revenue loss at several points throughout the program, recognizing that some recipients may experience revenue effects with a lag.[5]

Recipients should calculate the extent of the reduction in revenue as of four points in time: December 31, 2020; December 31, 2021; December 31, 2022; and December 31, 2023. To calculate the extent of the reduction in revenue at each of these dates, recipients should follow a four-step process.[6]

  • Step 1: Identify revenues collected in the most recent full fiscal year prior to the public health emergency (i.e., last full fiscal year before January 27, 2020), called the base year revenue.
  • Step 2: Estimate counterfactual revenue, which is equal to base year revenue * [(1 + growth adjustment) ^( n/12)], where n is the number of months elapsed since the end of the base year to the calculation date, and growth adjustment is the greater of 4.1 percent and the recipient’s average annual revenue growth in the three full fiscal years prior to the COVID-19 public health emergency.
  • Step 3: Identify actual revenue, which equals revenues collected over the past twelve months as of the calculation date.
  • Step 4: The extent of the reduction in revenue is equal to counterfactual revenue less actual revenue. If actual revenue exceeds counterfactual revenue, the extent of the reduction in revenue is set to zero for that calculation date.

The Interim Final Rule states that both positive and negative changes to tax rates must be incorporated into calculations surrounding the prohibition on using CSLFRF funds to offset tax cuts. [7] However, there is no indication that this applies in the context of calculating revenue loss for the purposes of revenue replacement as an eligible use. Notably, municipalities that have increased property taxes after the most recent full fiscal year prior to the public health emergency will reduce their relative actual financial losses. Moreover, there is no indication that revenues should be smoothed over the three-year time period. Any property tax increases not reflected in the revenues from the most recent full fiscal year prior to the public health emergency should only be incorporated in revenues moving forward when calculating revenue adjustments per the guidelines in the CSLFRF.[8]

Last Revised: July 7, 2021

[1] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds Fact Sheet as of May 10, 2021. available at: https://home.treasury.gov/system/files/136/SLFRP-Fact-Sheet-FINAL1-508A.pdf.

[3] Id. at FAQ#3.2, at [13].

[4] Treas. Reg. 31 CFR Part 35 at [59], available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[5]Id at [118].

[6] Id  at [58].

[7] Treas. Reg. 35 CFR 31 at [88], available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[8] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds Frequently Asked Questions as of June 24, 2021, at FAQ#3.2 and #3.3, at [13-14], available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Lost Revenue & Revenue Replacement

How should a city calculate its revenue if its fiscal calendar changed in 2020?

According to U.S. Department of the Treasury Guidance (“Treasury”), municipalities must base revenue replacement calculations on actual revenue, not budgeted revenue.

The American Rescue Plan Act (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Interim Rule (the “Rule”) includes four-step process municipalities should use to calculate reduction in revenue reduction, as follows:

  • Step 1: Identify revenues collected in the most recent full fiscal year prior to the public health emergency (i.e., last full fiscal year before January 27, 2020). This is the base year revenue.
  • Step 2: Estimate counterfactual revenue, which is equal to base year revenue * [(1 + growth adjustment) ^ (n/12)], where n is the number of months elapsed since the end of the base year to the calculation date, and growth adjustment is the greater of 4.1 percent and the recipient’s average annual revenue growth in the three full fiscal years prior to the COVID-19 public health emergency.
  • Step 3: Identify actual revenue, which equals revenues collected over the past twelve months as of the calculation date.
  • Step 4: The extent of the reduction in revenue is equal to counterfactual revenue less actual revenue. If actual revenue exceeds counterfactual revenue, the extent of the reduction in revenue is set to zero for that calculation date.[1]

Note that all steps are based upon actual collections. The CLFRF Frequently Asked Questions (“FAQs”) released by Treasury reiterate that revenue replacement calculations are calculated using actual revenue collected.[2] The FAQs further note that Treasury is disallowing the use of projections to ensure consistency and comparability across recipients and to streamline verification.[3] For these reasons it is unlikely that Treasury would accept a baseline of less than 12 months, however if this proved impossible a municipality could request clarification directly from Treasury.

Last Revised: July 5, 2021

[1] Treas. Reg. 35 CFR 31 at [58-59], 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 #3.5, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf

[3] Id., #3.7.

Program

COVID-19 Federal Assistance e311

Topics

Compliance & Reporting, Timing of Funds

How are reporting requirements impacted by a city’s fiscal calendar?

Reports due to the U.S. Department of the Treasury (“Treasury”) for Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) use a calendar-year system, as well as calendar quarters.[1] The Project and Expenditure Reports require key financial grant reporting information and are due quarterly based on calendar quarter ends – March 31, June 30, September 30 and December 31.

Other federal programs related to COVID-19 recovery efforts, such as the CARES Act Provider Relief Fund, operate on a calendar-year reporting system, despite the fact that many recipients operate on a fiscal year basis that does not coincide with the calendar year.

Given these precedents, Treasury is not likely to consider accommodating reporting periods that do not align with current policy.[2]  Treasury’s Interim Final Rule, which was published in the Federal Register on May 17, 2021, solicits comments on the Rule before it is finalized.[3]  If a municipality believes that Treasury should consider amending the Interim Final Rule to address a concern about the timing of reports, the municipality has the option to submit comments to Treasury by the July 16, 2021 deadline.

Regardless of whether Treasury permits different fiscal year starts and ends, a recipient of CSLFRF may choose to track its expenditures and obligations on a monthly basis. Monthly captures of financial and programmatic data allow recipients to generate reports for both their fiscal year and annual reports for Treasury more easily. This information can be used to produce financial statements that follow a calendar year or any other fiscal year end and may prove helpful in completing CSLFRF reports for Treasury.

Last Updated: July 2, 2021

[1] Department of Treasury, “Coronavirus State and Local Fiscal Recovery Funds—Compliance and Reporting Guidance,” Version, 1.0, June 17, 2021, available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[2]Department of Health and Human Services, Provide Relief Funds Reporting Requirements, available at: https://www.hhs.gov/sites/default/files/provider-post-payment-notice-of-reporting-requirements-june-2021.pdf.

[3] Treas. Reg. 35 CFR 31 at page 113, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Housing & Rental Assistance

How can a city use federal funds to help residents with overdue utility payments?

Generally, cities can utilize multiple programs established or expanded by the American Rescue Plan Act of 2021 (“ARP”) to pay for residents’ overdue utility bills during the period of the COVID-19 public health emergency.

The U.S. Department of the Treasury’s Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Interim Final Rule (the “Rule”) lists overdue utility bills during the COVID-19 pandemic as a form of household assistance.[1] Additionally, these utility bills may predate March 3, 2021, so long as the overdue bills are due to the economic impact of the COVID-19 pandemic and the cost of providing assistance to the household was not incurred by the municipality prior to March 3, 2021.[2] Treasury guidance does not indicate whether these payments for utility bills may be made directly to the service provider or if it must be paid to the resident. Rather, the Rule states in considering whether a potential use is eligible under this category, a recipient (i.e., the municipality) must consider whether, and the extent to which, the household has experienced a negative economic impact from the pandemic.[3]  

The Emergency Rental Assistance Program (“ERAP”), expanded through the ARP, also includes utility assistance for households that pay rent (but not for homeowners) and meet other income and financial hardship criteria[4] as an eligible use.[5] Both ERAP1 and ERAP2 funds can be used for this purpose if conditions are met. ERAP encourages (and in the case of ERAP1 funds, requires) recipients to work directly with utility providers to pay for batches of utility bills for large numbers of renters who have overdue utility bills.[6] All payments through this program must be associated with an invoice, bill, or evidence of payment for overdue payments, as well as documentation of the eligibility of the recipient.[7] Treasury has not published further guidance for municipalities that control utilities, but as noted above, does encourage direct payment to utility providers.

The Homeowner Assistance Fund (“HAF”), likewise established by the ARP, also includes utilities as an eligible use, but encourages municipalities “to consider program designs that leverage utility assistance from other federal programs that have been created expressly for that purpose before using HAF funds for utility assistance.”[8] Additionally, any household that receives funding from this program must submit attestations and documentation of their financial hardship and other eligibility requirements.[9]

The ARP also provided supplemental funding to the Low Income Home Energy Assistance Program (“LIHEAP”). Utility bills are also an eligible use of LIHEAP funds.[10] This program is administered through states, tribes, and territories.[11]

For example, if determined to be a necessary expenditure, a government may be able to provide grants to individuals facing economic hardship to allow them to pay their utility fees and thereby continue to receive essential services.

In addition, under the Coronavirus Aid, Relief, Economic Security Act’s (“CARES Act”) Coronavirus Relief Fund (“CRF”) program, fund payments could be used to provide direct subsidies to utility account holders—but not as government revenue replacement. In response to the question “May Fund payments be used to replace foregone utility fees? If not, can Fund payments be used as a direct subsidy payment to all utility account holders?”, Treasury stated the following in its Coronavirus Relief Fund FAQ:

Fund payments may not be used for government revenue replacement, including the replacement of unpaid utility fees. Fund payments may be used for subsidy payments to electricity account holders to the extent that the subsidy payments are deemed by the recipient to be necessary expenditures incurred due to the COVID–19 public health emergency and meet the other criteria of section 601(d) of the Social Security Act outlined in the Guidance. For example, if determined to be a necessary expenditure, a government could provide grants to individuals facing economic hardship to allow them to pay their utility fees and thereby continue to receive essential services.[12]

Last Updated: June 29, 2021

[1] Treas. Reg. 35 CFR 31, at page 33, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf; see also Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 24, 2021), at FAQ #2.21, at page 12, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[2] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 29, 2021), at FAQ #4.7, at page 18, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[3] Treas. Reg. 35 CFR 31 at page 33, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[4] These criteria vary slightly between ERAP1 and ERAP2. See Department of Treasury Emergency Rental Assistance Frequently Asked Questions (as of June 29, 2021), at FAQ #1, at page 1, available at: https://home.treasury.gov/system/files/136/ERA_FAQs_6-24-21.pdf.

[5] U.S. Department of the Treasury Emergency Rental Assistance Frequently Asked Questions (as of June 29, 2021), at FAQ #6, at page 6, available at: https://home.treasury.gov/system/files/136/ERA_FAQs_6-24-21.pdf.

[6] Id. at FAQ #12, at page 7.

[7] Id.

[8] U.S. Department of the Treasury ‘Homeowner Assistance Fund Guidance (as of April 14th, 2021), at page 6, available at: https://home.treasury.gov/system/files/136/HAF-Guidance.pdf.

[9] Id. at 4.

[10] U.S. Department of Health and Human Services ‘LIHEAP FAQs for Consumers’, at FAQ #2, available at https://www.acf.hhs.gov/ocs/faq/liheap-faqs-consumers#Q2.

[11] U.S. Department of Health and Human Services ‘Low Income Home Energy Assistance Program (LIHEAP)’ Home Page, available at: https://www.acf.hhs.gov/ocs/low-income-home-energy-assistance-program-liheap.

[12] Coronavirus Relief Fund, Frequently Asked Questions – FAQ #27 (FRN Vol. 86 No. 10, page no. 4189), at 8, available at https://home.treasury.gov/system/files/136/CRF-Guidance-Federal-Register_2021-00827.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Housing & Rental Assistance

Are the costs of a universal basic income program an eligible use of ARP funding?

Assuming that “universal basic income” (UBI) is defined as a government program in which every adult citizen receives a set amount of money on a regular basis, a municipality’s implementation of such a program will most likely not be considered an eligible use of funds obtained from the American Rescue Plan Act of 2021 (“ARP”). Neither the statute nor the U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Plan (“CSLFRF”) Interim Final Rule (the “Rule”) includes UBI as an eligible use.

There are four authorized use categories of CSLFRF funds:

  • To respond to the COVID-19 public health emergency or its negative economic impacts;  
  • To ease fiscal pressure on State, local, and Tribal governments that might otherwise lead to harmful cutbacks in employment or government services; 
  • To provide premium pay to essential workers; and
  • To make necessary investments in water, sewer, or broadband infrastructure.[1]

The Rule generally promotes and streamlines the provision of assistance to individuals and communities in greatest need, particularly communities that have been historically disadvantaged and experienced disproportionate impacts of the COVID-19 crisis. Providing relief to disadvantaged populations aligns with E.O. 13985 Executive Order On Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, which laid out an Administration-wide priority to support “equity for all, including people of color and others who have been historically underserved, marginalized, and adversely affected by persistent poverty and inequality.” There are a variety of different programs and services a municipality may utilize to assist workers and households who have been negatively impacted economically by the COVID-19 pandemic, such as assistance to households[2] and premium pay to eligible workers. [3]

The Rule highlights specific eligible services to support low-income areas that have been unduly impacted by the pandemic by:

  • establishing definitions of essential workers eligible for premium pay;
  • encouraging Fiscal Recovery Funds recipients to serve workers based on financial need;
  • providing that recipients may use Fiscal Recovery Funds to restore (to pre-pandemic levels) state and local workforces where women and people of color are disproportionately represented; and
  • targeting investments in broadband infrastructure to unserved and underserved areas.[4] 

Ultimately, neither the statute nor the associated regulatory guidance discuss the provision of a universal basic income program, and such a program is unlikely to meet eligibility criteria published to date.

Last updated: July 1, 2021

[1] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., available at [117]: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.  

[2] U.S. Department of the Treasury, Coronavirus State and Local Fiscal Recovery Funds: Frequently Asked

Questions (updated June 24, 2021), Q2.4. at [4-5], available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf

[3] Id., at [19] 4.7.

Program

COVID-19 Federal Assistance e311

Topics

Housing & Rental Assistance, Infrastructure & Maintenance Investments

May a municipality use CRF funds for repairs to buildings used to address the public health impact of COVID-19, e.g., decompression shelters?

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act-authorized Coronavirus Relief Funds ("CRF”) can be used for costs that were necessary to address the impact of the COVID-19 public health emergency[1], including repairs needed for a building to function as a shelter due to COVID-19 safety measures. The overarching eligibility rules for CRF allow for the coverage of expenses that:

  1. are necessary expenditures incurred due to the public health emergency with respect to the Coronavirus Disease 2019 (“COVID–19”);
  2. were not accounted for in the budget most recently approved as of March 27, 2020 (the date of enactment of the CARES Act) for the State or government; and
  3. were incurred during the period that began on March 1, 2020 and ends on December 31, 2021.[2]

Accordingly, if the upgrades to the shelter were unbudgeted, incurred during the COVID-19 public health emergency, and necessary to respond to the pandemic, such upgrades should be eligible under CRF.

The requirement that expenditures be incurred ‘‘due to’’ the public health emergency means that expenditures must be used for actions taken to respond to the public health emergency.[3] Further, the statute also specifies that expenditures using CRF payments be ‘‘necessary.’’ The Department of the Treasury (“Treasury”) understands this term broadly to mean that the expenditure is reasonably necessary for its intended use in the reasonable judgment of the government officials responsible for spending CRF payments.[4] Support for necessary upgrades to the shelter can be bolstered by a narrative which includes the assessment by the relevant government official(s) that these changes were needed as a result of the pandemic.

Based on Treasury guidance, repairs to the shelter’s elevators could qualify as an eligible expense under the Coronavirus State and Local Fiscal Recovery Funds (“FRF”) as well. As outlined in Treasury’s Interim Final Rule (“the Rule”), eligible uses of FRF include supporting the COVID-19 public health response.[5] Moreover, Treasury addresses this specific scenario in its Frequently Asked Questions. Treasury authorizes use of FRF for the following activities:

A broad range of services are needed to contain COVID-19 and are eligible uses, including vaccination programs; medical care; testing; contact tracing; support for isolation or quarantine; supports for vulnerable populations to access medical or public health services … support for prevention, mitigation, or other services in congregate living facilities (e.g., nursing homes, incarceration settings, homeless shelters, group living facilities) and other key settings like schools … Capital investments in public facilities to meet pandemic operational needs are also eligible, such as physical plant improvements to public hospitals and health clinics or adaptations to public buildings to implement COVID-19 mitigation tactics.[6]

In the example above, the re-opened building had been closed prior to the pandemic; its re-opening and capital investments such as repairs can be argued to be eligible expenses in certain circumstances. Here, the likely eligibility stems from the municipality’s use of the building as a decompression shelter in direct response to the COVID-19 pandemic. [7] It is worth noting that the Rule permits funds to be used to cover costs incurred beginning on March 3, 2021.[8] Treasury’s Frequently Asked Questions (“FAQ”) document further clarifies that this limitation applies to costs incurred by the recipient (i.e., the state, local territorial, or Tribal government receiving funds). However, recipients may use Coronavirus State and Local Fiscal Recovery Funds to provide assistance to households, businesses, and individuals within the eligible use categories described in the Rule for economic harms experienced by those households, businesses, and individuals prior to March 3, 2021 as long as the obligation to provide assistance or funding was not incurred by the recipient prior to March 3, 2021. [9]

Last Revised: July 5, 2021

[1]DEPARTMENT OF THE TREASURY Coronavirus Relief Fund for States, Tribal Governments, and Certain Eligible Local Governments. Federal Register / Vol. 86, No. 10 / Friday, January 15, 2021, Page 2, available at: https://home.treasury.gov/system/files/136/CRF-Guidance-Federal-Register_2021-00827.pdf.

[2] Id.

[3] Id.

[4] Id.

[5] U.S. Department of Treasury Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions #4.6 at 17-18, https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[6] Id. at 3-4.

[7] A decompression shelter is an overflow housing site established to reduce crowding in existing shelters. See Centers for Disease Control and Prevention, Interim Guidance for Homeless Service Providers to Plan and Respond to Coronavirus Disease 2019 (COVID019), available at: https://www.cdc.gov/coronavirus/2019-ncov/community/homeless-shelters/plan-prepare-respond.html.

[9] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 24, 2021),  – FAQ #4.7, at 18, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Infrastructure & Maintenance Investments

Is street infrastructure work intended to make streets safer for people to recreate outdoors eligible under ARP?

The American Rescue Plan Act (“ARP”) authorizes infrastructure-related expenditures in specified areas that make “necessary investments in projects that improve access to clean drinking water, improve wastewater and stormwater infrastructure systems, and provide access to high-quality broadband service.”[1] The U.S. Department of the Treasury (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSFRF / CLFRF”) Interim Final Rule (“Rule”) identifies several acceptable uses of CSLFRF funds for infrastructure enhancements.[2]

According to Treasury’s CSFRF / CLFRF Frequently Asked Questions (“FAQs”), general infrastructure spending is specifically noted as ineligible for CSLFRF funds, 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).[3] (emphasis added)

The Rule also introduces the section of eligible use for public health and economic impacts with a description of an expectation that the “types of uses that would be responsive to the impacts of the COVID-19 public health emergency.”[4]

Although “general infrastructure” spending is not an eligible use of CSLFRF, unless used for (i) necessary investment in water, sewer, and broadband; or (ii) in response to a specific pandemic-related public health need, the second justification may be relevant to this initiative. The Treasury FAQs, updated June 24, 2021, respond to inquiries regarding investments in “improving outdoor spaces,” describing several potential justifications for such improvements as eligible uses of CSLFRF allocations as part of a response to the COVID-19 pandemic.[5] This guidance is important for municipalities to review when evaluating priorities for CSLFRF activity selection. Of note, Treasury specifically incorporates comments stating that activity under this provision should “build stronger neighborhoods and communities and address health disparities and the social determinants of health” as well as the need to create additional open spaces to facilitate social distancing.[6]

Street infrastructure work intended to open streets and calm traffic appears to have a less direct nexus to a specific pandemic-related public health need as compared to the example cited in the Rule of investment for vaccine delivery facilities. However, given that the municipality’s apparent intent is to address the pandemic’s need for social distancing and aid impacted industries (which may include improving outdoor accessibility through crowd-thinning techniques) to decrease the spread of disease, a cautious approach to public space development and transportation corridor modification may be seen as an eligible use of funds.  

As stated in the Treasury guidance, States and municipalities can use CSFRF or CLFRF funds for infrastructure projects if they can both identify a negative impact of the COVID-19 public health emergency and sufficiently link the proposed infrastructure project to the mitigation of the identified negative impact.[7] In an abundance of caution, this would be an appropriate area for a municipality to await further guidance from Treasury before committing time and effort to any road or street related project, even one with design parameters to address specific public health improvements.  

However, there may be other relevant provisions in the guidance from the Rule. From an administrative standpoint, the revenue loss provision of the ARP may provide a path to States and municipalities for the use of CSFRF or CLFRF funds on street infrastructure projects. More specifically, CLFRF funds can be used for the “provision of government services to the extent of the reduction in revenue experienced due to the COVID-19 public health emergency.”[8] The Rule states that the ARP used nonspecific language in this provision in order to “provide recipients with broad latitude” to use FRF funds for this purpose.[9] A list of examples of eligible government services includes:

  • maintenance or pay-go funded building of infrastructure, including roads;
  • health services;
  • school or educational services; and
  • the provision of police, fire, and other public safety services.[10]

Street infrastructure projects designed to make streets safer for people to recreate outdoors despite social distancing requirements may be an eligible use of revenue loss funds under the Rule and relevant guidance. The answer is far from certain, but one municipalities may choose to pursue as long as they understand the risks of doing so.

Last Updated: June 28, 2021

[1] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., at Section 9901 (amending Section 603(c)(1)), available at: https://www.congress.gov/bill/117th-congress/house-bill/1319/text#H7C2075B5C62541F9A348BDF1DDBECEB6.

[3] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions

issued June 24, 2021 - FAQ#4.2 at 17, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf

[5] 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

[6] Id.

[7] Id.

[8] Id. at 51.

[9] Id. at 60.

[10] Id.

Program

COVID-19 Federal Assistance e311

Topics

Timing of Funds

What steps should cities take to help minimize the damage of a potential takeback (i.e. a scenario in which a second tranche of ARP funds would be re-allocated to other policy priorities)?

Any takeback of American Rescue Plan Act (“ARP”) funds—in which the Federal Government would hypothetically re-allocate the second tranche of ARP funding towards other priorities—would normally require new legislation. Neither the text of the ARP nor the U.S. Department of the Treasury (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Interim Final Rule (the “Rule”) provide the Secretary of the Treasury with discretion in the distribution of the second tranche of CSLFRF. The ARP states:

The Secretary shall (emphasis added) pay to each metropolitan city for which an amount is allocated under paragraph (1), each State for which an amount is allocated under paragraph (2) for distribution to nonentitlement units of local government, and each county for which an amount is allocated under paragraph (3), the Second Tranche Amount for such city, State, or county not earlier than 12 months after the date on which the First Tranche Amount is paid to the city, State, or county.[1]

The Rule adds:

Section 603 of the Act provides that the Secretary will make payments to local governments in two tranches, with the second tranche being paid twelve months after the first payment. … Splitting payments to States into two tranches will help encourage recipients to adapt, as necessary, to new developments that could arise over the coming twelve months, including potential changes to the nature of the public health emergency and its negative economic impacts.[2]

As the Rule explains, the CSLFRF was split into two tranches to enable flexibility for recipients to respond to the impact of the COVID-19 pandemic as it continues to evolve.

In order to do so, and to lessen the impact of any potential takeback, waiting to allocate or spend the funds contained in the second tranche of CSLFRF would be the most prudent course of action. Additionally, municipalities can plan contingency funding sources for prospective second tranche projects to further reduce the damage of a potential takeback.

However, as noted above, a takeback would be unlikely unless legislation is passed which amends the ARP. Having said that, municipal leaders may consider raising concerns over a possible takeback with their respective Congressional Delegations, perhaps in concert with other recipients of CSLFRF.

Information about reducing the risk of a takeback of funds by Treasury (for example, on grounds of improper oversight or accountability) can be found on the Bloomberg Philanthropies site in the response to the question ‘How can cities increase the likelihood that funds will not be subject to clawbacks?’

Last Updated: June 25, 2021

[1] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, Subtitle M, Section 603b (7)B, amending 42 U.S.C. § 801 et seq., https://www.congress.gov/bill/117th-congress/house-bill/1319/text#HAECAA3A95C4E4FFAB6AA46CE5F9CB2B5.

[2] Treas. Reg. 35 CFR 31 at 102-3, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Procurements

Will there be administrative caps on the use of funds for each procurement? May interdepartmental billings for professional technical services, such as engineering design, be charged to ARP/CLFRF funds. Do they fall within a possible administrative cap?

The U.S. Department of Treasury (“Treasury”) has not indicated whether there will be administrative caps on the use of ARP or Coronavirus Local Fiscal Recovery Funds (“CLFRF”).  Nor is there Treasury guidance related to interdepartmental billings for professional technical services. There is, however, general Treasury guidance which municipalities can consider.

Treasury’s Interim Final Rule (the “Rule”) regarding the CLFRF states that CLFRF funds “will be subject to the provisions of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200) (the “Uniform Guidance”), including the cost principles and restrictions on general provisions for selected items of cost.”[1] For more details regarding implementation of the Uniform Guidance, please see the following e311 resource:

As of now, Treasury guidance for ARP and CLFRF does not explicitly state that there is a cap on administrative costs, except that such costs must be reasonable and allocable under the Uniform Guidance.[2]

Treasury has indicated that recipients may use CLFRF funds for: (i) direct cost (“those that are identified specifically as costs of implementing the [CLFRF] program objectives, such as contract support, materials, and supplies for a project”); and (ii) indirect cost (“general overhead costs of an organization where a portion of such costs are allocable to the [CLFRF] awards such as the cost of facilities or administrative functions like a director’s office”).[3] Treasury further notes that:

Each category of cost should be treated consistently in like circumstances as direct or indirect, and recipients may not charge the same administrative costs to both direct and indirect cost categories, or to other programs. If a recipient has a current Negotiated Indirect Costs Rate Agreement (NICRA) established with a Federal cognizant agency responsible for reviewing, negotiating, and approving cost allocation plans or indirect cost proposals, then the recipient may use its current NICRA. Alternatively, if the recipient does not have a NICRA, the recipient may elect to use the de minimis rate of 10 percent of the modified total direct costs pursuant to 2 CFR 200.414(f).[4]

With regard to interdepartmental billings for professional technical services, such as  engineering design services, these “charge back” type expenses would likely be categorized as direct costs rather than administrative costs and would therefore be built into the overall programmatic budget.

Treasury recently issued additional guidance relative to “pre-project” development costs for water, sewer and broadband infrastructure projects, and it is illustrative for potential “charge back” costs such as engineering design fees.  Specifically:

To determine whether Funds can be used on pre-project development for an eligible water or sewer project, recipients should consult whether the pre-project development use or cost is eligible under the Drinking Water and Clean Water State Revolving Funds (CWSRF and DWSRF, respectively). Generally, the CWSRF and DWSRF often allow for pre-project development costs that are tied to an eligible project, as well as those that are reasonably expected to lead to a project. For example, the DWSRF allows for planning and evaluations uses, as well as numerous pre-project development costs, including costs associated with obtaining project authorization, planning and design, and project start-up like training and warranty for equipment. Likewise, the CWSRF allows for broad pre-project development, including planning and assessment activities, such as cost and effectiveness analyses, water/energy audits and conservation plans, and capital improvement plans. Similarly, pre-project development uses and costs for broadband projects should be tied to an eligible broadband project or reasonably expected to lead to such a project. For example, pre-project costs associated with planning and engineering for an eligible broadband infrastructure build-out is considered an eligible use of funds, as well as technical assistance and evaluations that would reasonably be expected to lead to commencement of an eligible project (e.g., broadband mapping for the purposes of finding an eligible area for investment).[5]

In contrast to potential direct costs described by Treasury, administrative costs include: “[c]osts required to administer Fiscal Recovery Funds, oversee subrecipients and beneficiaries, and file periodic reports with Treasury.”[6]

Last Updated: June 24, 2021

[1] Treas. Reg. 35 CFR 31 at [97], 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 17, 2021), – FAQ #9.3, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[3] Dept. Of Treasury Compliance and Reporting Guidance (State and Local Fiscal Recovery Funds), June 17, 2001, [7], available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[4] Id.

[5] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 17, 2021), – FAQ #6.12, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[6] Treas. Reg. 35 CFR 31 at [121], available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

Program

COVID-19 Federal Assistance e311

Topics

Federal Funding Streams, FEMA Funding

How does ARP funding correlate with duplication of benefits requirements in FEMA PA funding? For example, can we use FEMA PA funding for vaccinations if it is also an eligible use for other ARP funding streams?

A municipality likely can use Federal Emergency Management Agency (“FEMA”) Public Assistance (“PA”) funds for vaccinations and other eligible emergency protective measures even if those uses are also eligible under the American Rescue Plan Act (“ARP”). However, the FEMA PA fund recipients must “ensur[e] that they do not accept payment for the same item of work twice” [1] from the two programs’ funding streams.

Municipalities that receive federal funding to address the COVID-19 public health emergency should perform due diligence to avoid duplication of benefits (“DOB”) and thoroughly review and follow the guidance at § 312 of The Stafford Act, 42 USC 5155,[2] and 44 CFR § 206.191.[3] DOB occurs if a person, household, business, government, or other entity receives financial assistance from multiple sources for an identical purpose, and the total assistance received for that purpose is more than the total need for assistance. DOB is addressed in greater detail in the following previously published responses: 

In June 2020, FEMA published a Fact Sheet acknowledging overlap between congressionally-authorized pandemic response funding sources at multiple federal agencies, which specifically addresses the overlap of FEMA PA and ARP funding for emergency protective measures.[4] The Fact Sheet explicitly mentions state, local, tribal, and territorial (“SLTT”) government entities and the DOB mandate by stating:

Section 312 of the Stafford Act prohibits all federal agencies from duplicating benefits for disaster relief. Multiple agencies having authority to expend funds for the same purpose is not, by itself, a duplication of benefits under Section 312. However, all federal agencies are prohibited by Section 312 from paying SLTTs for the same work twice. FEMA is coordinating closely with other federal agencies to provide information about the eligible use of various COVID-19 funding resources. Recipients and subrecipients are ultimately responsible for ensuring that they do not accept payment for the same item of work twice. FEMA applicants will certify in the PA application process that assistance is not being duplicated.[5]

Recipients of FEMA PA and ARP funds should diligently track allocations of payments from each funding source and the related expenditures that address the COVID-19 public health emergency to avoid DOB. Further suggestions for tracking multiple revenue streams are included in the following previously published responses: 

In addition, FEMA explicitly outlines further guidance for maneuvering through different federal funding streams as it relates to PA funds, stating that:

As FEMA continues to coordinate with our federal partners to ensure coordination of funding, we will provide additional guidance to SLTTs for where they can seek funding. If an applicant applies to FEMA for PA funding and then determines it no longer wants the funding for the cost of certain activities from FEMA and will instead seek funding from another federal agency, the applicant should notify FEMA as soon as possible. Applicants should notify FEMA by withdrawing or amending their PA project application if funding has not been awarded yet or request an updated version to amend their PA project if funding has been awarded.[6]

Finally, municipalities should prioritize funds by assessing their relative need for all eligible emergency protective measures. Municipalities should determine the total amount of assistance available for each need, as some funding sources address various needs while others are more specific concerning their eligible use categories. In addition, by reviewing funding source scope and relevant deadlines, municipalities can better align their allocated funding with their needed emergency protective measures.

Last Updated: June 23, 2021

[1] FEMA FACT SHEET: Coronavirus Disease 2019 (COVID-19) Public Health Emergency: Coordinating Public Assistance and Other Sources of Federal Funding, at 1-2, available at: https://www.fema.gov/sites/default/files/2020-07/FEMA-COVID-19_coordinating-public-assistance-and-other-sources-of-federal-funding_07-01-2020.pdf.

[2] ROBERT T. STAFFORD DISASTER RELIEF AND EMERGENCY ASSISTANCE ACT [Public Law 93–288;

Approved May 22, 1974] [As Amended Through P.L. 116–284, Enacted January 1, 2021], available at:

https://www.govinfo.gov/content/pkg/COMPS-2977/pdf/COMPS-2977.pdf

[4] FEMA FACT SHEET: Coronavirus Disease 2019 (COVID-19) Public Health Emergency: Coordinating Public Assistance and Other Sources of Federal Funding, available at: https://www.fema.gov/sites/default/files/2020-07/FEMA-COVID-19_coordinating-public-assistance-and-other-sources-of-federal-funding_07-01-2020.pdf.

[5] Id., at pp. 1-2.

[6] Id. at p. 1.