May a municipality make repairs to a city-owned convention center as a governmental service to the extent of revenue loss?

Revenue Loss and the Provision of Government Services

A major component of the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) is that it allows municipalities to address reductions in revenue due to the COVID-19 pandemic by using revenue replacement funds for the provision of government services. Regarding the eligibility of different “government services” for CSLFRF funding, the Final Rule clarifies that:

[G]enerally speaking, services provided by the recipient governments are “government services” under the interim final rule and final rule, unless Treasury has stated otherwise. Government services include, but are not limited to, maintenance or pay-go funded building of infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services. The aforementioned list of government services is not exclusive. However, recipients should be mindful that other restrictions may apply, including those articulated in the section Restrictions on Use.[1]

Although city-owned convention centers are not explicitly mentioned in the Final Rule, an important consideration is whether the contemplated repairs comport with the Final Rule’s requirement that revenue replacement funds be used for the provision of “government services.” Unless stated otherwise, government services include any service traditionally provided by the government.[2] Government services specified by Treasury include (as quoted above) “maintenance or pay-go funded building of infrastructure... and protection of critical infrastructure,” and as such, the critical inquiry is whether the maintenance on the convention center constitutes a “government service.”[3]

Potential uses that do not fall within other eligible use categories (e.g., responding to the public health and negative economic impacts of the pandemic; providing premium pay to essential workers; or making necessary investments in water, sewer and broadband infrastructure) may nevertheless be permissible as the provision of an eligible government service, which recipients can fund up to their amount of revenue loss.[4] Treasury allows the loss amount to be calculated by either using the revenue loss formula or using the standard allowance provision, a one-time election of $10 million to use under the lost revenue clause for the entire period of performance.[5] Recipients that select the standard allowance may use up to that amount for government services.[6]

Infrastructure spending beyond the amount allocated under the revenue loss provision is considered an ineligible expense, with exceptions for spending on water, sewer, and broadband investments.[7] For infrastructure spending to be eligible under another expense category, such as negative economic impacts, the project would need to respond to a specific pandemic public health need or negative economic impact.[8]                                                                                                       

It is important to recognize that, in making any determinations relative to use of funds, recipients must follow key compliance principles to substantiate use of funds and maintain a robust documentation and compliance system.[9]

Capital Expenditures

Capital expenditures: “…must be related and reasonably proportional to the pandemic impact identified and reasonably designed to benefit the impacted population or class.”[10] This is related to the public health or negative economic impact category and is not part of the revenue loss category analysis. Construction of convention centers or other large capital projects intended for general economic development are ineligible uses of funds.[11] Specifically, Treasury states:

Large capital expenditures intended for general economic development or to aid the travel, tourism, and hospitality industries – such as convention centers and stadiums – are, on balance, generally not reasonably proportional to addressing the negative economic impacts of the pandemic, as the efficacy of a large capital expenditure intended for general economic development in remedying pandemic harms may be very limited compared to its cost.[12]

However, when evaluating potential capital expenditure projects, Treasury recommends that recipients consider the possibility of improving existing capital assets that a municipality already owns.[13] In such a case, municipalities may review the framework for eligible uses beyond those enumerated to clarify the eligibility of the capital expenditure project.

Last Revised: February 24, 2022