How can a city use federal funds to help residents with overdue utility payments?

Generally, municipalities may access several different programs established or expanded by the American Rescue Plan Act of 2021 (“ARP”) to help residents with overdue utility bills during the period of the COVID-19 public health emergency.

The U.S. Department of the Treasury’s (“Treasury”) Final Rule on the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) lists overdue utility bills during the COVID-19 pandemic as a form of household assistance.[1] Additionally, these utility bills may predate March 3, 2021 as long as the economic impact of the COVID-19 pandemic caused the overdue bills and the cost of providing assistance to the household was not incurred by the municipality prior to March 3, 2021.[2] Treasury guidance does not indicate whether these payments for utility bills may be made directly to the service provider or if they must be paid to the resident. Rather, the Final Rule states that in considering whether a potential use is eligible under this category, a recipient (i.e., the municipality) must consider whether, and the extent to which, the household has experienced a negative economic impact from the pandemic.[3]  

The Final Rule clarified the definition of households and communities that are impacted under CSLFRF:

• Low- or-moderate income households or communities;
• Households that experienced unemployment;
• Households that experienced increased food or housing insecurity;
• Households that qualify for the Children’s Health Insurance Program, Childcare Subsidies through the Child Care Development Fund (CCDF) Program, or Medicaid;
• When providing affordable housing programs: households that qualify for the National Housing Trust Fund and Home Investment Partnerships Program;
• When providing services to address lost instructional time in K-12 schools: any student that lost access to in-person instruction for a significant period of time.[4]

The Emergency Rental Assistance Program (“ERAP”), expanded through the ARP, also includes utility assistance for households that pay rent (but not for homeowners) and meet other income and financial hardship criteria[5] as an eligible use.[6] Both ERAP1 and ERAP2 funds can be used for this purpose if conditions are met. ERAP encourages (and in the case of ERAP1 funds, requires) recipients to work directly with utility providers to pay for utility bills for renters who have overdue utility bills.[7] All payments through this program must be associated with an invoice, bill, or evidence of payment for overdue payments, as well as documentation of the eligibility of the recipient.[8] Treasury has not published further guidance for municipalities that control utilities, but as noted above, does encourage direct payment to utility providers.

The Homeowner Assistance Fund (“HAF”), likewise established by the ARP, also includes utilities as an eligible use, but encourages municipalities “to consider program designs that leverage utility assistance from other federal programs that have been created expressly for that purpose before using HAF funds for utility assistance.”[9] Additionally, any household that receives funding from this program must submit attestations and documentation of their financial hardship and other eligibility requirements.[10]

The ARP also provided supplemental funding to the Low Income Home Energy Assistance Program (“LIHEAP”). Utility bills are also an eligible use of LIHEAP funds.[11] This program is administered through states, tribes, and territories.[12]

For example, if determined a necessary expenditure, a government may be able to provide grants to individuals facing economic hardship to allow them to pay their utility fees and thereby continue to receive essential services.

In conclusion, there are several avenues a municipality may wish to take to provide utility assistance to residents with overdue utility payments. In general, assistance is limited to residents facing economic hardships, though each program has its additional eligibility and program requirements. Municipalities should first complete a needs assessment to tailor the use of federal funds and maximize relief for its residents’ hardships.

Treasury may provide additional information when it issues new Frequently Asked Questions (“FAQs”) associated with the Final Rule.