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

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

A. Treasury Guidance

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

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

The Final Rule also states:

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

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

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

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

C. Conclusion

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

Last Updated: April 1, 2022

[1] Treas. Reg. 31 CFR Part 35 at 185, available at: https://home.treasury.gov/system/files/136/SLFRF-Final-Rule.pdf.

[2] Id.

[3] Id.

[5] US Department of Treasury CSLFRF Reporting and Compliance Guidance (emphasis added), available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[6] Id., at 171.

[7] 2 CFR § 200.403, available at: https://www.law.cornell.edu/cfr/text/2/200.403.

[8] 2 CFR § 200.404, available at: https://www.law.cornell.edu/cfr/text/2/200.404.