Are there any flexible federal funds that can be used for a general purpose?

Federal financial assistance comes in many forms, such as grants, cooperative agreements, and loans, but all federal financial assistance has a specific programmatic purpose or intent. Most forms of federal funding are very prescriptive, with guidance that has developed over many years, greatly limiting the flexibility of the recipient’s deployment of the funds. The American Rescue Plan Act of 2021 (“ARP”) includes several funding streams to address the country’s ongoing recovery from the health and economic effects of the COVID-19 pandemic. These funding streams address a myriad of concerns relating to healthcare, vaccination efforts, small businesses, housing, education, childcare, and relief for individuals and households.

Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) authorized by the U.S Department of the Treasury (“Treasury”) allow municipalities great flexibility in utilizing their allocations. CSLFRF are available until December 31, 2024, for the following main uses:

• 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;
• To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers;
• 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
• To make necessary investments in water, sewer, or broadband infrastructure.[1]

Treasury emphasizes that funds may not be used for deposit into any pension fund or, for states and territories only, to offset a reduction, directly or indirectly, in net tax revenue resulting from a change in law, regulation, or administrative interpretation.[2]

Treasury generally defines government services as any services provided by the recipient government.

Government services include, but are not limited to, maintenance or pay-go funded building of 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]

For calculating revenue loss, municipalities have two options. One is the actual revenue loss according to Treasury’s formula. Treasury’s Final Rule implementing the CSLFRF outlines the method by which municipalities should calculate revenue loss:

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 the amount of revenue the recipient would have expected in the absence of the downturn caused by the pandemic. The counterfactual revenue 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 the average annual growth rate across all State and Local Government “General Revenue from Own Sources” in the most recent three years prior to the emergency, 5.2 percent, or the recipient’s average annual revenue growth in the three full fiscal years prior to the COVID-19 public health emergency. This approach to the growth rate provides recipients with the option to use a standardized growth adjustment when calculating the counterfactual revenue trend and thus minimizes administrative burden, while not disadvantaging recipients with revenue growth that exceeded the national average prior to the COVID-19 public health emergency by permitting these recipients to use their own revenue growth rate over the preceding three years.

Step 3: Identify actual revenue, which equals revenues collected over the twelve months immediately preceding 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.[4]

Alternatively, municipalities may choose a “standard allowance” of up to $10 million to spend on government services through the period of performance.[5] As this is a one-time allowance, recipients must decide whether they will take the standard allowance or calculate revenue loss on an annual basis.

Last Updated: February 16, 2022