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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