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May a municipality use non-CSLFRF fiscal support to fund loan principal? Can CSLFRF fiscal support only pay for projected costs incurred? Is the loan principal qualified as a projected cost?

Under certain circumstances, municipalities may utilize non-American Rescue Plan Act (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to support payments on forgivable loans maturing after December 31, 2026. The U.S. Department of the Treasury’s (“Treasury”) recent update to the CSLFRF Frequently Asked Question (“FAQ”) #4.10 states in pertinent part:

Funds may be used in conjunction with other funding sources, provided that the costs are eligible costs under each source program and are compliant with all other related statutory and regulatory requirements and policies.[1]

A municipality can therefore use other funds in addition to CSLFRF assistance for eligible projects, likely including funding loan principal.[2]

Two: Can CSLFRF fiscal support only pay for projected costs incurred? 

It would be prudent for municipalities to wait for the issuance of Treasury’s Final Rule on CSLFRF programs prior to expending funds in these ways. Treasury’s training module entitled “SLFRF Recovery Plan Reporting: Evidence-based interventions and project evaluations” (dated August 11, 2021, recording not yet posted) encourages municipalities to ask for clarification on specific programs being considered.[3]

Treasury FAQ #4.11 states that recipients may use CSLFRF assistance to fund the principal on loans that either mature or are forgiven on or before December 31, 2026. [4] However, in cases where loans will mature after December 31, 2026, Treasury states that “the recipient may use Fiscal Recovery Funds for only the projected cost of the loan.”[5] Treasury’s Interim Final Rule (the “Rule”) sets the “period of performance through December 31, 2026, which provides recipients a reasonable amount of time to complete projects funded with payments from the Fiscal Recovery Funds.”[6] The Rule also requires that recipients obligate their CSLFRF funds by December 31, 2024.[7]

If a maturity date extends beyond the CSLFRF period of performance (December 31, 2026), municipalities must estimate costs that will be obligated by the December 31, 2024, deadline, as well as costs that will be expended (including repayment by recipients of these CSLFRF-funded loans) by December 31, 2026. As stated in the FAQs:

[A] recipient could contribute Fiscal Recovery Funds to a revolving loan fund, provided that the revolving loan fund makes loans that are eligible uses and the Fiscal Recovery Funds contributed represent the projected cost of loans made over the life of the revolving loan fund.[8]

Treasury’s FAQ #4.11 also outlines how municipalities may estimate the cost of loans.[9]

C: Is the loan principal qualified as a projected cost?

Although it is possible that non-CSLFRF fiscal support for forgivable loans may be used by a municipality for loans that mature after December 31, 2026, it would be prudent to wait for the ARP’s Final Rule prior to making any municipally granted loan expenditures (and recovery of principal to a CSLFRF-supported revolving fund). Other existing federal funds generally follow a period of performance that requires completion of projects and closeout requirements by the funding project’s end date.[10] 

Municipalities should seek guidance from Treasury regarding loans with maturity for either the blending of CSLFRF funds with other funds for activities beyond eligible use or those loans given to subrecipients that extend beyond the end date of December 31, 2026.

Last Revised: August 19, 2021

[1] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.10, at 24-25, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[2] Id., at #4.11, at 25.

[4] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.11, at 25-26, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[5] Id. (emphasis added).

[7] Id., at 97-98. 

[8] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #4.11, at 25-26, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[9] Id.

[10] For example, FEMA requires recipients of its public assistance funds to complete funded projects by the end of the period of performance. https://www.fema.gov/hmgp-appeal-categories/period-performance; see also https://www.govregs.com/regulations/expand/title45_chapterA_part75_subpartD_subjgrp24_section75.309#regulation_0_9.