May a municipality use funds obtained through the ARP to close funding gaps for the construction of income-restricted housing?

The Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) established by the American Rescue Plan Act of 2021 (“ARP”) permits the use of its funds for “permanent supportive housing or other programs or services to improve access to stable, affordable housing among individuals who are homeless, and the development of affordable housing to increase supply of affordable and high-quality living units.”[1] However, the U.S. Department of the Treasury’s (“Treasury”) Final Rule stipulates that these eligible use categories must be responsive to individuals and households that were impacted by the pandemic in addition to those that were disproportionately impacted, as defined in the Final Rule.[2]

Congress designed the CSLFRF to provide flexibility for governments to meet local needs, including the provision of individual rental assistance, addressing the housing and health needs of persons experiencing homelessness, and building and preserving affordable housing in impacted and disproportionately impacted communities. The CSLFRF provides opportunities for local governments to alleviate the immediate economic impacts of the COVID-19 pandemic on housing insecurity while addressing conditions that contributed to poor public health and economic outcomes during the pandemic; namely, concentrated areas with limited economic opportunity and inadequate or poor-quality housing.[3] The Final Rule lists several eligible services related to housing security and affordable housing, including:

• Emergency housing assistance: rental assistance, mortgage assistance, utility assistance, assistance paying delinquent property taxes, counseling, and legal aid to prevent eviction and homelessness & emergency programs or services for homeless individuals, including temporary residences for people experiencing homelessness.
• Programs or services to support long-term housing security: including development of affordable housing and permanent supportive housing.[4]

The Final Rule further notes that it:

• presumes that an expanded set of households and communities are “impacted” or “disproportionately impacted” by the pandemic, thereby allowing recipients to provide responses to a broad set of households and entities without requiring additional analysis. Further, the final Rule provides a broader set of enumerated eligible uses available for these communities as part of COVID-19 public health and economic response, including making affordable housing, childcare, and early learning services eligible in all impacted communities and making certain community development and neighborhood revitalization activities eligible for disproportionately impacted communities.[5]

In addition to the above-stated eligible services, the Final Rule also specifies that affordable housing development operating expenses, rehabilitation, and repair of public housing are eligible uses of CSLFRF funds.[6] The Final Rule states that all affordable housing projects must be responsive and proportional to the harm identified. Notably, Treasury has determined that affordable housing projects that are eligible under the National Housing Trust Fund (“HTF”) or the Home Investment Partnerships Program (“HOME”) are eligible uses of CSLFRF funds.[7] Additionally, Treasury has stated in the Final Rule that grants provided for the development of low-income housing through the Low-Income Housing Tax Credit (“LIHTC”) are eligible uses of CSLFRF; however, it should be noted that Treasury has not changed the guidance on providing loans or grants to for-profit entities.[8]

Last Revised: January 31, 2022