In what circumstances can a municipality use ARP funds for an infrastructure project not specified in the guidance?

The Coronavirus Local Fiscal Recovery Fund (“CLFRF”) provide recipients with “broad latitude” to use funds “for the provision of government services to the extent of the 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.”[1] The U.S. Department of the Treasury’s (“Treasury”) Final Rule, effective April 1, 2022, identifies the maintenance of infrastructure (such as roads) as a government service that may be funded by CLFRF under certain circumstances. According to the Final Rule, government services 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.[2]

The ARP also specifically authorizes expenditures of monies through the CLFRF “to make necessary investments in water, sewer, or broadband infrastructure.”[3] The ARP also authorizes use of CLFRF funds “to respond to the negative economic impacts”[4] of the COVID-19 pandemic. However, regarding infrastructure projects, the Final Rule states:

General infrastructure projects, including roads, streets, and surface transportation infrastructure, would generally not be eligible, unless the project responded to a specific pandemic public health need or a specific negative economic impact. The ARPA expressly includes infrastructure if it is ‘necessary’ and in water, sewer, or broadband, suggesting that the statute contemplates only those types of infrastructure.[5]

In summary, regarding revenue loss and provision of government services, the Final Rule may permit certain infrastructure projects such as road maintenance. And while the Final Rule indicates that infrastructure projects are generally excluded unless deemed “necessary” for improvements specifically related to water, sewer, or broadband, in responding to a specific public health need or a specific negative economic impact, general infrastructure projects may be permitted.  

A municipality may wish to consider the above scenarios in determining the eligibility of a supplemental project that is not specifically identified as eligible to receive CLFRF funds under these provisions.

To analyze whether a project is “necessary,” the Final Rule notes that:

Treasury considers an investment in infrastructure to be necessary if it is (1) responsive to an identified need to achieve or maintain an adequate minimum level of service, which for some eligible project categories may include a reasonable projection of increased need, whether due to population growth or otherwise and (2) a cost-effective means for meeting that need, taking into account available alternatives... DWSRF and CWSRF eligible projects continue to be presumed to be necessary investments under the final rule, with the exception of projects for the rehabilitation of dams and reservoirs. [6]

Recipients seeking to identify the categories of projects that would be eligible to receive funding assistance should check the EPA’s website for possible additional resources available in the event a project is not clearly eligible for CLFRF funds.[7] 

Last Revised: February 16, 2022