Program

COVID-19 Federal Assistance e311

Topics

Compliance & Reporting, Workforce & Economic Development

Under the American Rescue Plan Act (“ARP”), how close of a nexus must be demonstrated to show that services provided are directly tied to a person impacted by the pandemic or a person within a vulnerable population?

Though the U.S. Department of the Treasury’s (“Treasury”) Interim Final Rule (the “Rule”) does not specify the exact nexus that must be demonstrated between the pandemic and a proposed project or service. The guidance indicates that municipalities must make a threshold determination as to whether the COVID-19 public health emergency: (i) caused an existing economic harm; and (ii) identify how the services funded by the ARP proportionally address that economic harm. Municipalities using ARP funds to assist small business owners must demonstrate a direct nexus to the pandemic.

The Rule encourages municipalities to support to both (Black Identifying Person of Color) BIPOC communities and small businesses. According to the Rule, “Treasury encourages recipients to provide assistance to those households, businesses, and non-profits in communities most disproportionately impacted by the pandemic” which includes “households and small businesses, including in particular low-income workers and communities and people of color[.]”[1]

The ARP permits municipalities to use Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to respond to the negative economic consequences related to the COVID-19 pandemic. As stated by the Rule:

[e]ligible uses that respond to the negative economic impacts of the public health emergency must be designed to address an economic harm resulting from or exacerbated by the public health emergency…assistance or aid to individuals or businesses that did not experience a negative economic impact from the public health emergency would not be an eligible use under this category.[2]

If a municipality wishes to provide direct relief to individual persons or business owners, its use of CSLFRF must abide by Treasury guidance:

In considering whether a program or service would be eligible under this category, the recipient should assess whether, and the extent to which, there has been an economic harm, such as loss of earnings or revenue, that resulted from the COVID-19 public health emergency and whether, and the extent to which, the use would respond or address this harm. A recipient should first consider whether an economic harm exists and whether this harm was caused or made worse by the COVID-19 public health emergency.[3]

The Rule states, “a recipient may presume that a household or population that experienced unemployment or increased food or housing insecurity or is low- or moderate-income experienced negative economic impacts resulting from the pandemic.”[4]  

Low-income and minority groups also have eligibility for CSLFRF funds under sections 602(c)(1)(A) and 603(c)(1)(A). Treasury notes that “[i]n recognition of the disproportionate negative economic impacts on certain communities and populations, the Rule identifies services and programs that will be presumed to be responding to the negative economic impacts of the COVID-19 public health emergency when provided in these [low-income and minority groups] communities.”[5]

Treasury identifies “businesses in need” as:

businesses facing financial insecurity, substantial declines in gross receipts… or other economic harm due to the pandemic, as well as businesses with less capacity to weather financial hardship, such as the smallest businesses, those with less access to credit, or those serving disadvantaged communities.[6] 

For such businesses, Treasury provides “broad latitude to choose whether and how to use the Fiscal Recovery Funds to respond to and address the negative economic impact.”[7] However, “[r]esponses must be related and reasonably proportional to the extent and type of harm experienced; uses that bear no relation or are grossly disproportionate to the type or extent of harm experienced would not be eligible uses.”[8]

Also, when provided in a Qualified Census Tract (“QCT”), Treasury considers some services and economic assistance automatically eligible for CSLFRF funding. These services include:

  • Building stronger communities through investments in housing and neighborhoods;
  • Addressing educational disparities; and
  • Promoting healthy childhood environments.[9]

Treasury further indicates:

Recipients may also provide these services to other populations, households, or                 geographic areas disproportionately impacted by the pandemic. In identifying these      disproportionately impacted communities, recipients should be able to support their         determination that the pandemic resulted in disproportionate public health or economic          outcomes to the specific populations, households, or geographic areas to be served.[10]

Thus, when providing economic assistance to persons or businesses using CLFRF funds, municipalities must determine at the outset “whether an economic harm exists and whether this harm was caused or made worse by the COVID-19 public health emergency” in addition to identifying how the services or assistance provided proportionally responds to said harm.[11]

In the Compliance and Reporting Guidance issued by Treasury, one of the key principles to effective compliance regimes is that “CSLFRF-funded projects should advance shared interests and promote equitable delivery of government benefits and opportunities to underserved communities, as outlined in Executive Order 13985, On Advancing Racial Equity and Support for Underserved Communities Through the Federal Government.”[12] The Federal government’s push to promoting “equitable delivery of government benefits and opportunities to underserved communities” is further support for delivering assistance to individuals that are a part of larger, underserved communities.

To assist small business owners using CSLFRF, municipalities may utilize the funds to assist small business owners who have experienced a “negative economic impact from the public health emergency,”[13] or small business owners who operate their business in a QCT or otherwise-defined disproportionately impacted community.[14]

Last Revised: August 13, 2021

[1] Treas. Reg. 31 CFR 35 at 11-12, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[2] Treas. Reg. 31 CFR 35 at 30-31, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[3] Id. at 30-31.

[5] Id. at 38.

[6] Id. at 35.

[7] Id. at 31.

[8] Id.

[9] Id. at 38-40.

[10] Id. at 38.

[11]Id. at 31.

[12] U.S. Department of the Treasury, “Compliance and Reporting Guidelines”, at 3, available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[13] Id. at 30.

[14] Id. at 38-40.