Do employees hired as part of a specific CSLFRF program, such as staff for a mental health diversion center fully funded with CSLFRF, count against the “cap” for restoring or enhancing public sector staffing?

The U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule sets forth four distinct categories of eligible uses of program funding:

• Responding to public health and negative economic impacts;
• Providing premium pay to essential workers;
• Providing governmental services to the extent of revenue loss due to the pandemic; and
• Making necessary investments in water, sewer, and broadband.[1]

Moreover, the Final Rule affords recipients broad discretion to design programs that are responsive to specific public health and negative economic impacts of the pandemic.[2] These programs may be structured in various ways, provided they comply with program specific regulations and any applicable requirements outlined in the Uniform Guidance (2 CFR Part 200, et seq.).[3] 

In responding to negative economic impacts related to the pandemic, the Final Rule allows recipients “to restore and bolster public sector capacity.”[4] When defining eligible uses that bolster public sector capacity, the Final Rule includes both the payroll and covered benefits for public safety, public health, health care, human services, and similar employees for the portion of their time responding to COVID-19 and the payroll and covered benefits to restore and support public sector employment, which may include hiring back employees for pre-pandemic positions or hiring up to a pre-pandemic baseline adjusted for historic underinvestment.[5]

In the case of a mental health diversion center, the Final Rule’s definition of public health staff includes employees providing “mental health services to patients and supervisory personnel, including medical staff assigned to schools, prisons, and other such institutions.”[6] Municipalities should assess the portion of the staff’s time dedicated to responding “to the public health or negative economic impacts of the pandemic, apart from the typical pre-pandemic job duties.”[7]

Whether or not the staff hired as part of a specific CSLFRF program count towards the “cap” for restoring public sector employment may depend on which option the municipality selects. Under the first option, a municipality may hire employees for the same positions that existed on January 27, 2020, but that were unfilled or eliminated as a of March 3, 2021.[8] The Final Rule does not explicitly allow recipients to exclude staff dedicated to responding to COVID-19 public health emergency under this option.

Under the second option, a municipality may pay for the payroll and covered benefits associated with increasing its full-time equivalent employees to 7.5% above its budgeted FTE level on January 27, 2020.[9] When calculating its “actual number of FTEs,” a municipality may exclude FTEs dedicated to responding to the COVID-19 public health emergency.[10] The Final Rule provides the following illustrative example:

A hypothetical recipient with 1000 budgeted FTEs on January 27, 2020 (950 filled FTE positions and 50 unfilled FTE positions). The recipient’s pre-pandemic baseline is 1000 FTEs; its adjusted pre-pandemic baseline is 1000 * 1.075 = 1075 FTEs. Now, assume that on March 3, 2021, the recipient had 800 budgeted FTEs in total (795 filled FTE positions and 5 unfilled FTE positions), with 50 FTEs primarily dedicated to responding to the COVID-19 public health emergency. The recipient would have the option of using either 800 FTEs or 750 FTEs as its actual number of FTEs for the calculation; assuming it chooses the lower number, it would be able to fund up to 325 FTEs with [C]SLFRF funds (that is, 1075 – 750 = 325 FTEs). Specifically, the recipient would be able to use [C]SLFRF to fund payroll and covered benefits for up to 325 FTEs that begin their employment on or after March 3, 2021, for costs obligated by December 31, 2024, and expended by December 31, 2026, consistent with the Uniform Guidance’s Cost Principles, as long as [C]SLFRF funds are used for additional FTEs hired over the recipient’s 750 FTE level (which is its March 3, 2021 budgeted FTE level).[11]

In conclusion, if a municipality chooses the second option to restore pre-pandemic employment, then staff hired after March 3, 2021, that are primarily dedicated to COVID-19 response, may be excluded from the calculation when determining the number of full-time equivalent employees that can be funded with CSFRF. Municipalities should carefully consider the underlying regulations. 

Last Updated: February 28, 2023