Can ARP funds be used to rebuild or replace a government building, such as a fire station or police headquarters?

Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) may be used to rebuild or replace government buildings, such as fire or police stations, under the revenue loss eligible use category enumerated in the U.S. Department of the Treasury’s (“Treasury”) Final Rule. However, CSLFRF recipients must undertake an eligibility analysis prior to funding these projects under the public health and negative economic impacts eligibility category.

Treasury provides substantial discretion regarding the distribution and use of CSLFRF. Treasury has outlined four categories of eligible uses for CSLFRF in its Final Rule, stating that funds may be used:

a) To respond to the public health emergency or its negative economic impacts by providing 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) To provide government services related to lost revenue due to the COVID–19 public health emergency, including revenues collected in the most recent full fiscal year prior to the emergency; and

d) To invest in water, sewer, or broadband infrastructure.[1]

Treasury provides many enumerated eligible uses of funds. However, for uses of funds that are not explicitly enumerated as eligible, there is the possibility of eligibility under the “public health and negative economic impacts” and “revenue loss” statutory eligible use categories. To determine if ARP funds can be used to rebuild or replace a government building such as a fire station or police headquarters, these categories could offer potential paths for consideration.

To determine if the rebuilding or replacing of government buildings is eligible under the public health and negative economic impacts category per the Final Rule, it is essential to note that a non-exhaustive list of enumerated eligible uses is provided, and therefore not all uses are listed.

Rebuilding or replacing government buildings for police and fire under the public health and negative economic impacts category is not an explicitly enumerated use.[2] To help determine if other uses of funds are eligible, the Final Rule includes standards that apply to all proposed public health uses.[3]

The Final Rule outlines a two-part framework for determining eligibility:

1. Designating a Public Health Impact - A negative public heath impact or harm must be experienced by an individual or class and the identified impact or harm must be addressed or responded to by the program, service, or other intervention proposed.
2. Designating a Negative Economic Impact for identifying and designing a response to a pandemic harm - The response “must be reasonably designed to benefit the individual or class that experienced the public health impact or harm” and must be “reasonably proportional to the extent and type of public health impact or harm experienced.”[4]

In addition to satisfying the two-part framework above, projects with total expected capital expenditure costs of $1 million or greater must undergo additional analysis to justify their capital expenditure. Treasury requires funding recipients to submit a written justification explaining why a certain project meets the substantive requirements for the capital expenditure.[5]

Treasury implemented tiered treatment for eligibility standards that require a written justification.

• For capital expenditures of less than $1 million, a written justification is not required because these expenditures “would encapsulate the costs of a significant portion of equipment or small renovations. These types of smaller projects are often a necessary and reasonably proportional part of a response to the public health emergency; therefore, the $1 million threshold provides a simplified pathway to complete smaller projects more likely to meet the eligibility standard.”[6]
• For capital expenditures of $1 million or greater, a written justification is required. The justification helps clarify the framework while considering the needs of different communities, and while also considering that the project may be less responsive to pandemic needs given the length of time a large construction project may take. Further, this type of project may not fit into the timeline constraints of an obligation date of December 31, 2024, and an expended date of December 31, 2026.[7]
• For capital expenditures of $10 million or more, a written justification is required, and recipients must submit this justification as part of the regular reporting.[8]

As mentioned above, rebuilding or replacing government buildings for police and fire under the public health and negative economic impacts category are not enumerated uses under the negative economic impacts category. Accordingly, recipients should apply the eligibility standards listed above to all proposed projects to develop a case-by-case analysis to determine eligibility.

There is some degree of flexibility regarding the use of funds for government services under the revenue loss provision. For example, if the use of funds is considered an ineligible response to the public health and negative economic impact of the pandemic, the project may be eligible for funding as a government service up to the amount of revenue loss provided other restrictions,[9] as outlined in the Restrictions on Use section of the Final Rule.[10]

Rebuilding or replacing government buildings is an eligible expense under the revenue replacement category in the Final Rule. Utilizing this category, “recipients may use funds up to the amount of revenue loss for government services, generally, services traditionally provided by recipient governments are government services, unless Treasury has stated otherwise.”[11]

The following is a non-exhaustive list of examples from Treasury:

• Construction of schools and hospitals
• Road building and maintenance and other infrastructure
• Environmental remediation
• General government administration, staff, and administrative facilities
• Provision of police, fire, and other public safety services (including the purchase of fire trucks and police vehicles)[12]

As the most flexible eligible use category under the CSLFRF program, funds under revenue replacement used to provide government services are subject to streamlined reporting and compliance requirements.[13] It is essential to note that if funds outside revenue replacement are used, capital expenditure eligibility and reporting requirements will apply to the project as defined in the Final Rule.[14] When determining the project’s eligibility beyond revenue replacement, the municipality must consider how the project relates to its public health response.

Last Updated: July 7, 2022