Program

COVID-19 Federal Assistance e311

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Fund Planning & Allocation, Tourism

Can a municipality use ARP funds to support “friends of” organizations for specific parks, venues, or other tourism-related activities?

The Interim Final Rule (the “Rule”) released by the U.S. Department of the Treasury (“Treasury”) “encourages recipients to provide assistance to those households, businesses, and non-profits in communities most disproportionately impacted by the pandemic.”[1] Further, the Rule indicates that “aid to tourism, travel, hospitality, and other impacted industries in response to the negative economic impacts of the COVID-19 public health emergency” is an eligible use of Coronavirus State and Local Fiscal Recovery Funds (“CLFRF”).[2] Additionally, the FAQ associated with CLFRF states that transfers may be made by municipalities to non-profit organizations.[3]

Accordingly, it seems that a municipality may use funds from the ARP’s CLFRF to support “friends of” organizations for specific parks, venues, or other tourism-related activities, so long as the funds are used in a manner that responds to a demonstrable and negative impact of the COVID-19 pandemic and the organization is an eligible not-for-profit. Treasury does not make any CLFRF awards directly to such organizations. They can receive funding only as a subrecipient from state and local governmental units designated as recipients of CLFRF.[4]

Municipalities should strongly consider whether it is more appropriate to undertake the grant funded activity before determining a subgrant is the best means for achieving the stated objective.

Prior to providing aid to these sectors, municipalities must determine whether the need for such aid is due to the COVID-19 pandemic instead as opposed to unrelated longer-term economic or industrial trends.[5] Aid may be considered responsive to the negative economic impacts of the pandemic if it supports businesses, attractions, business districts, and Tribal development districts operating prior to the pandemic and affected by required closures and other efforts to contain the pandemic.

The Rule demonstrates various ways in which such aid can be allotted to the specifically named industries is needed as a result of the COVID-19 pandemic. For instance, the Rule states that “small businesses and non-profits faced significant challenges in covering payroll, mortgages or rent, and other operating costs as a result of the public health emergency and measures taken to contain the spread of the virus.”[6]  Additionally, “[n]on-profits, which provide vital services to communities, have similarly faced economic and financial challenges due to the pandemic.”[7] Again, aid provided to specific permitted industries can only be provided if responsive to the negative impacts that the pandemic has had on the specific industry in question.

The Rule also specifies that aid may be used to implement COVID-19 mitigation and infection prevention measures to enable safe resumption of tourism, travel, and hospitality services.[8] The Treasury Department has identified several examples of mitigation and infection prevention measures that qualify:

  • improvements to ventilation;
  • physical barriers or partitions;
  • signage to facilitate social distancing;
  • provision of masks or personal protective equipment; and
  • consultation with infection prevention professionals to develop safe reopening plans.[9]

The Rule requires that municipal governments publicly report assistance provided under this eligible use, including details on how this assistance remedies negative economic impacts of the pandemic.[10] Recipients must maintain records to assess how businesses or business districts receiving assistance were affected by the negative economic impacts of the pandemic and how the aid provided in response to these impacts.[11]

Regarding the transfer of CLFRF funds from a municipal government to a subrecipient, the Rule permits local governments “to transfer [CLFRF] funds to other constituent units of government …or private entities” beyond those specified in the statute.”[12] At this time, this broad language does not include further restrictions. However, when considering whether to utilize CLFRF for “friends of”/non-profit entities, municipalities must monitor and oversee the subrecipient’s use of CLFRF funds to ensure the subrecipient’s compliance with statutory and regulatory requirements. Smaller organizations often do not have the training and experience to understand how to comply with Federal grant requirements and may require assistance from grant recipients. Smaller organizations may require assistance regarding the eligible uses of funds and the terms and conditions of awards. Municipalities remain responsible for reporting to Treasury on their subrecipients’ use of payments from the CLFRF funds for the duration of the award.[13]

Last Updated: August 3, 2021

[1] Treas. Reg. 31 CFR 35, at 11, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf

[2] Id. at 141. 

[3] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #1.8, at 3, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[4] Id.

[5] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule, 31 CFR Part 35 RIN 1505-AC77, at 37, https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf

[6] Id. at 34.

[7] Id. at 26-27.

[8] Id.

[9] Id. at 36.

[10] Id. at 37-38.

[11] Id. at 38.

[12] Id. at 105-106.

[13] Id. at 106.