Program

COVID-19 Federal Assistance e311

Topics

Fund Planning & Allocation, Program Administration

What can cities use ARP funds for, broadly speaking?

Overview

The ARP authorized the newly established Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) to provide assistance to state, local, tribal, and territorial (“SLTT”) governments.

The ARP provides $350 billion in assistance to SLTT governments through CSLFRF. States, territories, and tribal governments will receive $219.8 billion pursuant to the Coronavirus State Fiscal Recovery Fund (“CSFRF”). Local governments will receive $130.2[1] billion through the Coronavirus Local Fiscal Recovery Fund (“CLFRF”). Of the $130.2 billion, $45.6 billion is for metropolitan cities based on the Community Development Block Grant (“CDBG”) formula,[2] $65.1 billion is for counties based on population,[3] and $19.5 billion is for municipalities with populations under 50,000 (Non-Entitlement Units of Government, or “NEUs”) based on population.[4]

Eligible Uses

As outlined in section 9901 of the ARP, eligible uses of CLFRF assistance include:

  • supporting the COVID-19 public health response;
  • addressing negative economic impacts (e.g., assistance to households, small business and non-profit support, assistance to unemployed workers, etc.);
  • providing premium pay for essential workers;
  • covering payroll expenses for public health and public safety employees;
  • replacing revenue loss due to the COVID-19 public health emergency; and
  • developing water, sewer, and broadband infrastructure.[5]

Recipients Have Flexibility in Deciding How to Deploy Funds but Must be Mindful of Restrictions

In addition to the statutory guidance relating to CSLFRF mentioned above, on May 17, 2021, the U.S. Department of the Treasury (“Treasury”) published an Interim Final Rule (the “Rule”) to implement the new Fiscal Recovery Fund authorities.[6] The Rule emphasizes the flexibility that recipients have in deciding how to use CSLFRF funds:

Within the eligible use categories outlined in the Fiscal Recovery Funds provisions of ARPA, State, local, and Tribal governments have flexibility to determine how best to use payments from the Fiscal Recovery Funds to meet the needs of their communities and populations. The Interim Final Rule facilitates swift and effective implementation by establishing a framework for determining the types of programs and services that are eligible under the ARPA along with examples of uses that State, local, and Tribal governments may consider.[7]

Recipients should be aware of the restrictions imposed upon funds obtained from CSLFRF, including but not limited to:

  • making deposits into pension funds or “rainy day funds;”
  • using funds for the purpose of reducing taxes collected by states and territories;
  • using funds as a non-federal match for any program that does not authorize the use of federal funds for cost-matching;
  • paying principal or interest on outstanding debt; and
  • paying settlements or judgments since these would not be considered provision of a government service.[8]

Some Fundamental Rules Regarding Funding Allocations

How much funding a local government is eligible for depends on whether the municipality is a “metropolitan city” or a “non-entitlement unit of local government,” as defined by the Housing and Community Development Act of 1974.[9]

Treasury directs that states shall distribute funding proportionately among the total population of the non-entitlement units of local government (“NEUs”). The Rule provides further information about the distribution of CSLFRF funds to NEUs.[10] The total amount distributed to NEUs may not exceed an amount equal to 75 percent of the most recent budget for the NEUs as of January 27, 2020.[11]

Allocations to metropolitan cities can be found here on the Coronavirus State and Local Fiscal Recovery (“CSLFR”) page.[12] State governments will receive a specific allocation of funds from Treasury and are responsible for distributing the funds to NEUs within their state.[13] Award amounts are based on the population of the NEU. The aggregate allocations to states for distribution to NEUs are detailed here. Additionally, the status of payments to states for distribution to NEUs, which was updated on August 16, 2021, is located here.

In addition, tribal governments should be aware of and prepare for Treasury’s guidance regarding the disbursement in two tranches of CSLFRF funds to tribes. The CSLFRF Frequently Asked Questions (“FAQ”) document addressed this and reviewed the topic further on July 19, 2021.[14]

Some Good Practices: Planning

Local governments receiving assistance from CSLFRF should consider the following non-exhaustive steps in developing plans for the use of funds:

  • Stabilize government operations by replacing revenue and rehiring furloughed employees.
  • Conduct a comprehensive capacity assessment and unmet needs analysis.
  • Review eligible uses for funds obtained from CSLFRF and assess potential uses.[15]
  • Identify water, sewer, and broadband infrastructure priorities that may be eligible for funding through CSLFRF.[16]
  • Form a cross-sector recovery oversight committee and engage the public.
  • Assess and catalog available funding to prioritize needs.
  • Develop or update local recovery plan.

With respect to CSLFRF, municipalities can sign up for email updates from Treasury for any changes to the Rule or FAQs.

Some Good Practices: Reporting Requirements

Treasury has published Compliance and Reporting Guidance for CSLFRF.[17] 

Local governments are required to submit one Interim Report, which will include the local government’s expenditures by category at the summary level.[18] The Interim Report will cover spending from the date the local government  received funds to July 31, 2021 and is due by August 31, 2021. This report is similar to the report required by the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Coronavirus Relief Fund (“CRF”) with modifications for expenditure categories and the addition of data elements related to specific eligible uses.[19]

Local governments other than NEUs will be required to submit quarterly project and expenditure reports, including financial data, information on contracts, and subawards over $50,000.[20] The first report will cover spending from the date the county receives funds to September 30, 2021, and is due by October 31, 2021. Subsequent reports, covering only a single quarter, will be due 30 days after each quarter end. These reports are also similar to the reports required by the CRF and feature modifications for expenditure categories and the addition of data elements related to specific eligible uses.[21]

NEUs will be required to submit project and expenditure reports on an annual basis. The first report will cover spending from the date the NEU receives funds to September 30, 2021 and is due by October 31, 2021. Subsequent reports will be due annually by October 31.[22] The NEU distribution Template User Guide provides instructions and additional details to assist recipients in completing the Draft NEU Distribution Reporting Template.[23] For reference, states and territories are required to provide an update on distributions to eligible NEUs under the following circumstances:[24]

  • As part of the Interim Report due on August 31, 2021.
  • Every month until all distributions have been made.
  • Where information or status has been changed.
  • As part of the Recipient’s Project and Expenditure Report.

Municipalities with a population of over 250,000 residents are required to submit a Recovery Plan Performance Report that includes descriptions of projects funded, information on performance indicators, and the objectives of each award.[25] The initial Recovery Plan Performance Report will cover activities from the date the local government receives CSLFRF to July 31, 2021, and is due by August 31, 2021.[26] Grantees with populations below 250,000 residents are not required to submit this report.

On August 1, 2021, Treasury released the Recovery Plan Performance Report Template. The Recovery Plan “provides information on the recipient’s projects and how they plan to ensure program outcomes are achieved in an effective and equitable manner.”[27] It is recommended, but not required, that recipients use this template to provide performance data which is then posted on the recipient’s website and provided to Treasury.[28] Technical guidance published on August 9, 2021, provides recommendations on navigating the Treasury Portal, advises on classifying and submitting formal reports and expenditures, and answers FAQs on reporting to Treasury on the use of CSLFRF.[29] 

Some Good Practices: Public Engagement

When Treasury published the Rule, it emphasized the need for public input in the course of recipients’ decision making relating to the use of CSLFRF funds. For example, the Rule states that:

Implementation of the Fiscal Recovery Funds also reflect the importance of public input, transparency, and accountability… Treasury urges State, territorial, Tribal, and local governments to engage their constituents and communities in developing plans to use these payments, given the scale of funding and its potential to catalyze broader economic recovery and rebuilding.[30]

It is important for recipients of CSLFRF to take steps to ensure that the public is involved in community decision-making about the use of this assistance.

Some Good Practices: Disproportionate Impact Considerations

The Rule includes a number of references to the COVID-19 pandemic’s disproportionate impact on households and small businesses, especially low-income workers and communities and people of color. For example, it notes that:

[A]lthough the pandemic’s impacts have been widespread, both the public health and economic impacts of the pandemic have fallen most severely on communities and populations disadvantaged before it began. Low-income communities, people of color, and Tribal communities have faced higher rates of infection, hospitalization, and death, as well as higher rates of unemployment and lack of basic necessities like food and housing. Pre-existing social vulnerabilities magnified the pandemic in these communities, where a reduced ability to work from home and, frequently, denser housing amplified the risk of infection. Higher rates of pre-existing health conditions also may have contributed to more severe COVID-19 health outcomes. Similarly, communities or households facing economic insecurity before the pandemic were less able to weather business closures, job losses, or declines in earnings and were less able to participate in remote work or education due to the inequities in access to reliable and affordable broadband infrastructure. Finally, though schools in all areas faced challenges, those in high poverty areas had fewer resources to adapt to remote and hybrid learning models. Unfortunately, the pandemic also has reversed many gains made by communities of color in the prior economic expansion.[31]

The Rule also states that:

[T]he pandemic and the necessary actions taken to control the spread had a severe impact on households and small businesses, including in particular low-income workers and communities and people of color. While eligible uses under sections 602(c)(1)(A) and 603(c)(1)(A) provide flexibility to recipients to identify the most pressing local needs, Treasury encourages recipients to provide assistance to those households, businesses, and non-profits in communities most disproportionately impacted by the pandemic.[32]

Therefore, it is important for recipients of CSLFRF to ensure that disproportionate impact considerations are analyzed in the course of making decisions about the use of such assistance.

Last Revised: August 24, 2021

[1] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., at Sections 602(a) and 603(a), available at: https://www.congress.gov/bill/117th-congress/house-bill/1319/text#H7C2075B5C62541F9A348BDF1DDBECEB6.

[2] Id., at Section 603(b)(1).

[3] Id., at Section 603(b)(3).

[4] Id., at 603(b)(2).

[5] Id., at Section 603(c)(1).

[7] Id., at 8 (emphasis added).

[8] Treas. Reg. 31 CFR 35, at 78-80, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf. See also Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #3.8, FAQ #4.1, FAQ #4.3, FAQ #4.4 and FAQ #8.1, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[9] The Housing and Community Development Act of 1974 (42 U.S.C. § 5302 Section 102(a)(4)) definition includes cities that relinquish or defer their status as a metropolitan city for purposes of receiving allocations under Section 106 of such Act (42 U.S.C. § 5306) for fiscal year 2021. The term ‘non-entitlement unit of local government’ means a ‘city,’ as that term is defined the Housing and Community Development Act of 1974 (42 U.S.C. § 5302(a)(5)), and that is not a metropolitan city.

[10] Treas. Reg. 31 CFR 35, at 108-110, available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[11] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., at Section 603(b)(2)(C)(iii). Available at: https://www.congress.gov/bill/117th-congress/house-bill/1319/text#H7C2075B5C62541F9A348BDF1DDBECEB6.

[12] U.S. Department of the Treasury, Allocation for Metropolitan Cities, available at: https://home.treasury.gov/system/files/136/fiscalrecoveryfunds-metrocitiesfunding1-508A.pdf.

[13] U.S. Department of the Treasury, Coronavirus State and Local Fiscal Recovery Funds for Non-entitlement Units of Local Government, available at: https://home.treasury.gov/policy-issues/coronavirus/assistance-for-state-local-and-tribal-governments/state-and-local-fiscal-recovery-fund/non-entitlement-units.

[14] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #1.4, at 2-3, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[15] Id., at #2-6, at 20.

[16] American Rescue Plan Act of 2021 § 9901, Pub. L. No. 117-2, amending 42 U.S.C. § 801 et seq., at Section 603(c)(1)(D), available at: https://www.congress.gov/bill/117th-congress/house-bill/1319/text# HAECAA3A95C4E4FFAB6AA46CE5F9CB2B5.

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

[18] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #9.2, at 35, (emphasis added), available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[19] Id.

[20] Id. (emphasis added).

[21] Id.

[22] Treas. Reg. 31 CFR Part 35, at 111, (emphasis added), available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[23] U.S. Department of the Treasury Recovery Plan Template, available at: https://home.treasury.gov/system/files/136/NEU-Distribution-Template-User-Guide.pdf

[24] Id., at 4.

[25] Coronavirus State and Local Fiscal Recovery Funds, Frequently Asked Questions (as of July 19, 2021) – FAQ #9.2, at 35-36, available at: https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

[26] Id.

[27] U.S. Department of the Treasury Recovery Plan Template, at 1, available at: https://home.treasury.gov/system/files/136/SLFRF-Recovery-Plan-Performance-Report-Template.docx.

[28] U.S. Department of the Treasury, “Compliance and Reporting Guidelines”, at 23, available at: https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.

[29] Department of Treasury, “State and Local Fiscal Recovery Funds: Treasury’s Portal for Recipient Reporting,” available at: https://home.treasury.gov/system/files/136/SLFRF_Treasury-Portal-Recipient-Reporting-User-Guide.pdf.

[30] Treas. Reg. 31 CFR 35 at 9 (emphasis added), available at: https://home.treasury.gov/system/files/136/FRF-Interim-Final-Rule.pdf.

[31] Id., at 5-6.

[32] Id., at 11.