May a municipality use federal COVID-19 related funds to pay hiring costs for administrative personnel?

Municipalities may use Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to pay for the payroll and benefits of employees corresponding to time spent on administrative work necessary due to the COVID-19 public health emergency and its negative economic impacts.[1] The Final Rule on CSLFRF promulgated by the U.S. Department of the Treasury (“Treasury”) provides additional methods for the application of minimizing administrative burden, including a recipient's use of reasonable estimates to implement these provisions.

Treasury authorizes a broad set of uses to restore and support government employment.[2] This includes hiring above a recipient’s pre-pandemic baseline, providing funds to employees that experienced pay cuts or furloughs, avoiding layoffs, and providing retention incentives.[3]

The Final Rule outlines two options to restore public sector pre-pandemic employment or increase employment above the municipality’s pre-pandemic employment baseline, depending on the municipality’s needs. Treasury provides additional details:

Eligible uses include hiring up to a pre-pandemic baseline that is adjusted for historic underinvestment in the public sector, providing additional funds for employees who experienced pay cuts or were furloughed, avoiding layoffs, providing worker retention incentives, and paying for ancillary administrative costs related to hiring…

…The final rule provides two options to restore pre-pandemic employment, depending on recipient’s needs. Under the first and simpler option, recipients may use [CSLFRF] funds to rehire staff for pre-pandemic positions that were unfilled or were eliminated due the pandemic without undergoing further analysis. Under the second option, the final rule provides recipients an option to hire above the pre-pandemic baseline, by adjusting the pre-pandemic baseline for historical growth in public sector employment over time, as well as flexibility on roles for hire. Recipients may choose between these options but cannot use both.

To pursue the first option, recipients may use [CSLFRF] funds to hire employees for the same positions that existed on January 27, 2020 but that were unfilled or eliminated as of March 3, 2021, without undergoing further analysis. For these employees, recipients may use [CSLFRF] funds for payroll and covered benefit costs that are obligated by December 31, 2024 and expended by December 31, 2026, consistent with the Uniform Guidance’s Cost Principles at 200 CFR Part 200 Subpart E. This option provides administrative simplicity for recipients that would simply like to restore pre-pandemic positions and would not like to hire above the pre-pandemic baseline.

To pursue the second option, recipients should undergo the analysis provided below. In short, this option allows recipients to pay for payroll and covered benefits associated with the recipient increasing its number of budgeted full-time equivalent employees (FTEs) up to 7.5 percent above its pre-pandemic employment baseline, which adjusts for the continued underinvestment in state and local governments since the Great Recession. State and local government employment as a share of population in 2019 remained considerably below its share prior to the Great Recession in 2007, which presented major risks to recipients mounting a response to the COVID-19 public health emergency. The adjustment factor of 7.5 percent results from estimating how much larger 2019 state and local government employment would have needed to be for the share of state and local government employment to population in 2019 to have been back at its 2007 level and is intended to correct for this gap.[4]

In addition, in the Final Rule,[5] Treasury outlines the steps a municipality can follow to perform this analysis. Steps require an examination of the recipient’s budget, an analysis of their pre-pandemic baseline, performance, and more.

Treasury adds that additional funds may be provided to employees who experienced pay cuts or were furloughed since the onset of the pandemic on January 27, 2020.[6] Recipients must be able to demonstrate that the pay cut or furlough was substantially due to the public health emergency or its negative economic impacts (e.g., fiscal pressures on state and local budgets) and should document that assessment.[7]

Last Revised: February 16, 2022