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COVID-19 Federal Assistance e311

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Fund Planning & Allocation, Workforce & Economic Development

May municipalities use ARP funds to invest in small businesses in the community or private sector start-up investment funds to support economic growth?

According to recent guidance from the U.S. Department of the Treasury ("Treasury"), municipalities may use ARP funds to address a wide range of small business needs.

Section 9901 of the ARP P.L. 117-2 created the Coronavirus State Fiscal Relief Fund (“CSFRF”) and the Coronavirus Local Fiscal Relief Fund (“CLFRF”) (together, “CSLFRF”).[1]

The ARP authorizes recipients of these funds to use the assistance in several ways, one of which is:

(A) to respond to the public health emergency with respect to the Coronavirus Disease 2019 (COVID–19) or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality. (emphasis added).

This language indicates that investments in some small businesses and nonprofits within a municipality’s community are eligible activities under the ARP.

Treasury's Interim Final Rule (the "Rule") implementing the CSLFRF further interpreted the ARP's authorized uses of funds. The Supplementary Information discussion which accompanies the Rule states:

  • Small Businesses and Non-profits. As discussed above, small businesses and non-profits faced significant challenges in covering payroll, mortgages, rent, and other operating costs as a result of the public health emergency and measures taken to contain the spread of the virus. State, local, and Tribal governments may provide assistance to small businesses to: (i) adopt safer operating procedures; (ii) weather periods of closure, or (iii) mitigate financial hardship resulting from the COVID-19 public health emergency, including:
  • Loans or grants to mitigate financial hardship such as declines in revenues or impacts of periods of business closure, for example by supporting payroll and benefits costs, costs to retain employees, mortgage, rent, or utilities costs, and other operating costs;
  • Loans, grants, or in-kind assistance to implement COVID-19 prevention or mitigation tactics, such as physical plant changes to enable social distancing, enhanced cleaning efforts, barriers or partitions, or COVID-19 vaccination, testing, or contact tracing programs; and
  • Technical assistance, counseling, or other services to assist with business planning needs.[2]

Thus, ARP funds can be used to address a broad range of small business needs.

In addition to the statutory and regulatory provisions cited above, Treasury has also published a series of Frequently Asked Questions (FAQs) relating to the implementation of ARP.  Question 2.5 in the June 21, 2021 version of the FAQs addresses the question of eligible use of funds for small businesses:

  • Loans or grants to mitigate financial hardship such as declines in revenues or impacts of periods of business closure, for example by supporting payroll and benefits costs, costs to retain employees, mortgage, rent, or utilities costs, and other operating costs;
  • Loans, grants, or in-kind assistance to implement COVID-19 prevention or mitigation tactics, such as physical plant changes to enable social distancing, enhanced cleaning efforts, barriers or partitions, or COVID-19 vaccination, testing, or contact tracing programs; and
  • Technical assistance, counseling, or other services to assist with business planning needs.[3]

Note that the eligible services are in response to the negative economic impacts of COVID-19.

Another of Treasury’s June 21, 2021 FAQs addresses assistance for private sector start-up investment funds to support economic growth:

As discussed in the Interim Final Rule, recipients may provide assistance to small businesses that responds to the negative economic impacts of COVID-19. The Interim Final Rule provides a non-exclusive list of potential assistance mechanisms, as well as considerations for ensuring that such assistance is responsive to the negative economic impacts of COVID-19.

Treasury acknowledges a range of potential circumstances in which assisting small business startups could be responsive to the negative economic impacts of COVID-19, including for small businesses and individuals seeking to start small businesses after the start of the COVID-19 public health emergency. For example:

  • A recipient could assist small business startups with additional costs associated with COVID-19 mitigation tactics (e.g., barriers or partitions; enhanced cleaning; or physical plant changes to enable greater use of outdoor space).
  • A recipient could identify and respond to a negative economic impact of COVID- 19 on new small business startups; for example, if it could be shown that small business startups in a locality were facing greater difficult accessing credit than prior to the pandemic, faced increased costs to starting the business due to the pandemic, or that the small business had lost expected startup capital due to the pandemic.
  • The Interim Final Rule also discusses eligible uses that provide support for individuals who have experienced a negative economic impact from the COVID-19 public health emergency, including uses that provide job training for unemployed individuals. These initiatives also may support small business startups and individuals seeking to start small businesses.[4]

Recipients or subrecipients of Fiscal Relief Fund (“FRF”) assistance cannot anticipate every potential issue that might arise while using FRF assistance. Therefore, municipalities may wish to involve counsel to ensure compliance with federal, state, and local laws.

In addition, section 3301 of the ARP provides $10 billion to State and Tribal governments to fund the State Small Business Credit Initiative (“SSBCI”),[5] an allocation that will expand the scale of the previously-authorized SSBCI to include:

  • $500 million to support very small businesses with fewer than ten employees;
  • $1.5 billion for states to support businesses owned by socially and economically disadvantaged people;
  • $1 billion for an incentive program to boost funding tranches for states that show robust support for businesses owned by socially and economically disadvantaged individuals; and
  • $500 million for technical assistance.[6]

The Small Business Association (“SBA”) website also includes resources related to COVID-19 relief funded under ARP and other federal programs that may provide insight on additional ways municipalities can assist small businesses.[7]

Last Updated: July 7, 2021

[1] American Rescue Plan Act (HR 1319 Subtitle M Section 603(c)(1)(A),  https://www.congress.gov/bill/117th-congress/house-bill/1319/text#HC028912924A04512A1F80BFA0F1C1051.

[2] Treas. Reg. 35 CFR 31 at 34-35, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[3] U.S. Department of the Treasury Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of June 24, 2021), at FAQ #2.5, at 4-5, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf

[4] Id at FAQ #2.20, at 11-12.

[5] American Rescue Plan Act (H.R.1319, 117th Cong. § 9901 (amending 42 U.S.C § 801  

et seq., at Subtitle C Section 3301)), available at: https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319enr.pdf. 

[7] Small Business Administration COVID-19 relief options, https://www.sba.gov/funding-programs/loans/covid-19-relief-options.