Can CLFRF funds be used to pay for staffing costs for work administering non-CLFRF federal funds, e.g., other ARP grants, FEMA funds?

The American Rescue Plan Act of 2021 (“ARP”) permits the use of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) in response to the COVID-19 public health emergency and related negative economic impacts. This includes administrative expenses incurred from implementing these programs.[1]

The U.S. Department of the Treasury (“Treasury”) states in the CSLFRF Final Rule that:

[a]ll funds provided under the [CSLFRF] program must be used for projects, investments, or services that are eligible under the [CSLFRF] program. [CSLFRF] funds may not be used to fund an activity that is not, in its entirety, an eligible use under the [CSLFRF] program.[2]

Municipalities can braid CSLFRF with non-CSLFRF federal funds such as other ARP funds, Federal Emergency Management Agency (“FEMA”) funds, or other federal funding opportunities, but only within the guidance above which requires that all CSLFRF-braided funds must be used for eligible uses under the CSLFRF program. Braiding CSLFRF funds means that funds are used “in conjunction with other funding sources.”[3]

Treasury states in their CSLFRF Frequently Asked Questions (“FAQs”):

[c]ost sharing or matching funds are not required under [CSLFRF]. Funds may be used in conjunction with other funding sources, provided that the costs are eligible costs under each source program and are compliant with all other related statutory and regulatory requirements and policies. The recipient must comply with applicable reporting requirements for all sources of funds supporting the [CSLFRF] projects, and with any requirements and restrictions on the use of funds from the supplemental funding sources and the [CSLFRF] program.[4]

Treasury further states under the Final Rule that:

recipients may fund a project with both [CSLFRF] funds and other sources of funding, provided that the costs are eligible costs under each source program and are compliant with all other related statutory and regulatory requirements and policies. The recipient must comply with applicable reporting requirements for all sources of funds supporting the [CSLFRF] projects and with any requirements and restrictions on the use of funds from the supplemental funding sources and the [CSLFRF] program.[5]

Treasury further states:

[i]n addition, because [CSLFRF] funds must be obligated by December 31, 2024, and recipients must expend all funds under the award no later than December 31, 2026, recipients must be able to, at a minimum, determine and report to Treasury on the amount of [CSLFRF] funds obligated and expended and when such funds were obligated and expended.[6]

Treasury has provided further guidance in its CSLFRF Overview of the Final Rule:

[CSLFRF] funds may be used for direct and indirect administrative expenses involved in administering the program. For details on permissible direct and indirect administrative costs, recipients should refer to Treasury’s Compliance and Reporting Guidance. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs.[7]

Spending on Government Services

Treasury states the following about the revenue replacement provision for government services under the third statutory eligible use:

[r]ecipients can use [CSLFRF] funds on government services up to the revenue loss amount, whether that be the standard allowance amount, or the amount calculated using the above approach. Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise. Here are some common examples, although this list is not exhaustive:  

• General government administration, staff, and administrative facilities.[8]

Administrative Expenses

Regarding another potentially relevant eligible use related to staffing and administrative costs, Treasury has stated the following about responding to the public health emergency or its negative economic impacts under the first statutory eligible use:

[CSLFRF] funding may be used to improve the efficacy of public health and economic programs through tools like program evaluation, data, and outreach, as well as to address administrative needs caused or exacerbated by the pandemic. Eligible uses include:

•  Administrative costs for programs responding to the public health emergency and its economic impacts, including non-[CSLFRF] and non-federally funded programs.
• Address administrative needs caused or exacerbated by the pandemic, including addressing backlogs caused by shutdowns, increased repair or maintenance needs, and technology infrastructure to adapt government operations to the pandemic (e.g., video-conferencing software, data, and case management systems).[9]

Treasury has also stated that:

[r]ecipients may use funds to cover the portion of payroll and benefits of employees corresponding to time spent on administrative work necessary due to the COVID–19 public health emergency and its negative economic impacts. This includes, but is not limited to, costs related to disbursing payments of Fiscal Recovery Funds and managing new grant programs established using Fiscal Recovery Funds.[10]

Treasury indicates that recipients can use funds to assist other industries and programs if they can prove that their “impacts were due to the COVID-19 pandemic, as opposed to longer-term economic or industrial trends unrelated to the pandemic.”[11] Treasury does not exclude programs or initiatives that previously interacted with any other ARP grants, CRF funds, or FEMA funds.

Additional Considerations

Municipalities must follow Treasury’s guidance, which states that:

[r]ecipients also should maintain records to support their assessment of how businesses receiving assistance were affected by the negative economic impacts of the public health emergency and how the aid provided responds to these impacts.[12]

Municipalities should perform due diligence to ensure that the administrative costs of these other funding sources were not already covered by those funding sources or any other source. For example, FEMA does allow a portion of an award to go towards administrative costs.[13] Other programs under the ARP may have administrative allowances as well.[14] Municipalities must keep careful documentation to avoid any duplication of benefits relating to administrative costs.

Finally, municipalities should ensure that they comply with Treasury’s records retention requirements (regardless of whether CSLFRF is braided with another funding source). This includes, but is not limited to:

[f]inancial 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.[15]

Last Updated: March 18, 2022