What are some good practices you would recommend when planning for COVID relief? Can municipalities access the plans of other cities?

Municipalities need a comprehensive and strategic approach to make the most effective use of the American Rescue Plan Act of 2021’s (“ARP”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”). As addressed in the U.S. Department of the Treasury’s (“Treasury”) CSLFRF Final Rule and the CSLFRF Frequently Asked Questions (“FAQs”), the broad and long-term uses of CSLFRF can include:

• addressing the negative economic impacts of COVID-19;
• responding to the ongoing COVID-19 pandemic;
• providing premium pay to eligible workers;
• supporting investments in water, sewer, and broadband infrastructure;
• provision of government services to the extent of reduction in revenue;
• supporting the costs of consultants; and
• supporting public jobs programs.[1]

Below are some considerations and suggested practices.

1. Identify Funding Sources

As an initial step, municipalities should identify all available funding to create a strategy that defines when and how funds should be used. Municipalities should consider: (i) which sources are more restrictive vs. least restrictive; and (ii) the short-term and long-term fiscal impact of fund uses.

Where possible, municipalities should prioritize more restrictive funding over more flexible funding. For example, utilizing Federal Emergency Management Agency (“FEMA”) Public Assistance (“PA”) funding for all eligible activities before using Coronavirus Relief Funds (“CRF”) derived from the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES”) for expenditures that are ineligible for FEMA reimbursement may result in a more efficient and effective use of federal funding. Additionally, FEMA PA funding typically is not capped or competitive, as it is based on actual or estimated project costs;[2] thus, prioritizing FEMA PA funding may help maximize overall federal funding.

Municipalities experienced different economic and physical health impacts from COVID-19. Municipalities should tailor their respective response plans to meet their specific needs. Municipalities experiencing more significant economic shortfalls than others should plan strategically for the use of CSLFRF through the revenue loss provision of the ARP. The Final Rule gives recipients the “broad latitude” to use funds for the provision of government services to the extent of reduction in revenue due to the COVID-19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency.[3] Government services can include, but are not limited to:

• maintenance or pay-go funded building of infrastructure, including roads;
• modernization of cybersecurity, including hardware, software, and protection of critical infrastructure;
• health services;
• environmental remediation;
• school or educational services; and
• the provision of police, fire, and other public safety services.[4]

The Final Rule permits recipients to elect a fixed amount of revenue loss, set at $10 million total for the entire period of performance, that can be used to fund government services as an alternative to calculating revenue loss.[5] This specifically allows smaller municipalities greater flexibility in use of funds for government services.[6] Municipalities should note that the decision to elect Treasury’s standard allowance is irrevocable, and the standard allowance cannot exceed a municipality’s total CSLFRF allotment. Municipalities may also use CSLFRF to rebuild public sector capacity.[7]

2. Strategize and Prioritize

As a secondary step, municipalities should perform unmet needs assessments, gap analyses, and impact assessments to gauge the impact of COVID-19 on its community. Doing so requires evaluation of the pre-COVID-19 status of the community as well as the conditions resulting from COVID-19. The municipality can then provide a tailored menu of response options for allocating CSLFRF to maximize program effectiveness.

3. Future Prosperity and Growth

When developing a strategy beyond providing services and replacing revenue, municipalities will need to strategically address and deploy funds to maximize future prosperity and growth. Some considerations may include:

• immediacy of assistance to residents and small businesses, particularly those in disproportionately impacted and historically disadvantaged communities;
• inclusivity of minority-owned businesses and people of color; and
• complementing federal and state funding and initiatives.

Capital improvements such as costs for water, sewer, and broadband infrastructure are allowable uses of CSLFRF.[8] Certain capital expenditures require a written justification, which must include the following:

(i) description of the harm or need to be addressed;

(ii) an explanation of why a capital expenditure is appropriate; and

(iii) a comparison of the proposed capital expenditure and at least two other alternative capital expenditures to demonstrate why the proposed capital expenditure is superior.[9]

Municipalities can consider identifying existing capital plans that could be expedited through ARP funding and would benefit the community’s recovery from the COVID-19 public health emergency.

4. Collaborate

Because some CSLFRF funds will flow through state governments to local governments, communities should examine opportunities to collaborate on funding regional projects or regional recovery planning initiatives. Local officials should consider engaging the local business community, nonprofits, and community leaders to provide input on:

• the recovery planning process;
• setting goals;
• recommending areas for investment; and
• tracking the performance and distribution of funds.

Municipalities should consider working collaboratively with state agencies and other CSLFRF recipients, as recipients of CSLFRF are permitted to pool funds either by “expend[ing] funds directly on the [joint] project or by transfer[ring] funds to another government undertaking the project on behalf of multiple recipients.”[10] Through direct outreach to similarly-funded entities, municipalities could identify parallel or complementary project ideas in the form of regional recovery initiatives or other planning projects. This could enable local governments to leverage additional opportunities with respect to the $1.9 trillion in the ARP.

Municipalities may consult the National Association of Counties (“NACo”) case studies on “How Counties are Investing Coronavirus Relief Funds.” Although these examples focus on CRF expenditures, the initiatives and projects compiled by NACo provide overall best practice examples for the use of CSLFRF. Case studies are organized by the following:

• vaccine distribution;
• housing and rental assistance;
• nonprofit support;
• small business support;
• economic and workforce development;
• social safety-net services;
• food assistance;
• hospitality and tourism development;
• hazard pay;
• broadband expansion; and
• allocations to smaller municipalities.[11]

A wide range of similar resources are available for municipalities to consult.[12],[13],[14]

5. Maintain Sufficient Oversight

Municipalities must regularly assess their internal controls to ensure sufficient measures are in place to prevent mistakes or misconduct that might result in the misuse of federal funds.[15] Internal controls and oversight, including oversight of subrecipients, are addressed in these previously published responses:

• What are good practices for documenting and accounting for programs using federal funds?[16]
• What are some of my city's obligations and responsibilities to prevent fraud related to ARP funds?[17]

Last Updated: March 15, 2022