What are the differences between eligible uses of funding for CARES Act and ARP?

The U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule states that:

Generally, funding uses eligible under CRF as a response to the direct public health impacts of COVID-19 will continue to be eligible under the [ARP], including those not explicitly listed in the final rule, with the following two exceptions: (1) the standard for eligibility of public health and safety payrolls has been updated… and (2) expenses related to the issuance of tax-anticipation notes are no longer an eligible funding use.[1]

Treasury has provided guidance on how a municipality may determine whether a response is an eligible use of CSLFRF. The Final Rule has been restructured to aid these determinations and to identify the appropriate eligible use category, as “each eligible use category has separate and distinct standards for assessing whether a use of funds is eligible.”[2] Under the Final Rule,

Standards, restrictions, or other provisions in one eligible use category do not apply to the others. Therefore, recipients should first determine which eligible use category a potential use of funds fits within, then assess whether the potential use of funds meets the eligibility standard or criteria for that category. In the case of uses to respond to the public health and negative economic impacts of the pandemic, recipients should also determine which subcategory the eligible use fits within (i.e., public health, assistance to households, assistance to small businesses, assistance to nonprofits, aid to impacted industries, or public sector capacity and workforce), then assess whether the potential use of funds meets the eligibility standard for that sub-category.[3]

Treasury’s Final Rule has identified many eligible uses for municipalities providing assistance to households and individuals, including those experiencing homelessness. Assistance can be provided as “individual-level assistance (e.g., rapid rehousing services) or assistance for groups of individuals (e.g., master leases of hotels, motels, or similar facilities to expand available shelter).”[4] To further assist those experiencing homelessness, Treasury has enumerated “transitional shelters (e.g., temporary residences for people experiencing homelessness)” as eligible capital expenditures.[5] The Final Rule has also expanded municipality use of  CSLFRF “to address the general lack of affordable housing and housing challenges underscored by the pandemic” to combat rising homelessness in their communities.[6] These eligible uses for affordable housing include “services that primarily increase access to affordable, high-quality housing and support stable housing and homeownership over the long term.”[7]

With the clarifications provided by the Final Rule and the guidance on determining eligible uses not explicitly addressed by Treasury, municipalities should have enough guidance to begin considering investment options and ultimately to develop spending plans. When a potential item that is not explicitly listed by Treasury is being considered for an investment of funds, municipalities can help mitigate the risk of a subsequent determination that the expense is ineligible for ARP funds by carefully documenting the methodology and rationale they used for considering it an allowable use and its alignment to either the public health emergency or its negative economic impacts.

Last Revised: March 7, 2022