What documentation will cities need to provide to show that city expenses are in response to the “public health emergency with respect to COVID-19 or its negative consequences”?

The American Rescue Plan Act of 2021 (“ARP”) grants broad, but not unlimited, discretion to local governments in using their allocations of Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) within four broad categories:

1. to respond to the COVID-19 public health emergency and its negative economic impacts;
2. to provide premium pay to essential workers;
3. to provide government services to the extent of eligible government revenue losses; and
4. to make necessary water, sewer, and broadband infrastructure investments.[1]

The U.S. Department of the Treasury’s (“Treasury”) CSLFRF Final Rule “clarifies and expands on how [CSLFRF] funds may be used for certain capital expenditures, including [the applicable] criteria and documentation requirements” in response to the public health emergency or its negative economic impacts.^[2]

The Final Rule states that:

Treasury provides presumptions and guidelines for capital expenditures that are enumerated earlier in sections Public Health, Negative Economic Impacts, and General Provisions: Other under the Public Health and Negative Economic Impact eligible use category . . . along with capital expenditures beyond those enumerated by Treasury. In addition to satisfying the two-part framework in Standards: Designating a Public Health Impact and Standards: Designating a Negative Economic Impact for identifying and designing a response to a pandemic harm, Treasury will require projects with total expected capital expenditure costs of $1 million or greater to undergo additional analysis to justify their capital expenditure. Increased reporting requirements will be required for projects that are larger in size, as well as projects that are not enumerated as eligible by Treasury . . . . Smaller projects with total expected capital expenditures below $1 million will not be required to undergo additional analysis to justify their capital expenditure, as such projects will be presumed to be reasonably proportional, provided that they are responding to a harm caused or exacerbated by the public health emergency. These standards and documentation requirements are designed to minimize administrative burden while also ensuring that projects are reasonably proportional and supporting­­ Treasury’s risk-based approach to overall program management and monitoring.^[3]­­­­

Recipients of CSLFRF must meet compliance and reporting requirements to ensure an equitable, transparent, and responsible recovery.[4] Treasury provides resources to help recipients understand how to comply with the guidelines set forth in ARP[5] and the Final Rule.[6] Most notably, Treasury recently updated the Compliance and Reporting Guidance[7] prescribing reporting requirements and deadlines with which recipients must comply. On January 24, 2022, Treasury also released the Project and Expenditure Report User Guide which provides additional information about the reports which recipients must complete. [8]

Good documentation practices include:

Demonstration of compliance and validation that the municipality met the rules and requirements of the different programs: Municipalities may have to forgo eligible funding or face de-obligation if they fail to meet documentation requirements or if they provide documentation that does not adequately support a claim under any given funding source. Municipalities should determine that a nexus to the COVID-19 public health emergency or its negative economic impacts exists in accordance with the eligible uses listed in the ARP and further addressed by the Final Rule.[9] Municipalities must be prepared to show documentation of their decision-making process. Municipalities will benefit from maintaining a record of all relevant documentation, such as invoices, proofs of payments, procurement methodologies, etc. To help prevent duplication of benefits (“DOB”), to demonstrate a nexus to the COVID-19 public health emergency or its negative economic impacts, and to maximize additional funding, it may be helpful to maintain documentation that is:

• detailed;
• stored centrally and electronically; and
• organized logically.

In addition to meeting the federal program requirements, municipalities should be prepared to show that they also followed the same policies and procedures they used for procurements from non-federal funds. A municipality’s procurement policies and procedures must comply with federal regulation at CFR 200.[10] Municipalities should designate a representative to: (i) track deadlines; (ii) monitor newly published guidance and regulations; and (iii) share pertinent information with internal representatives and external stakeholders. Municipalities may be subject to external audits.

Detailed tracking of costs is critical to avoiding duplication of benefits: No two funding sources can provide funding for the same item, service, or scope. In some cases, multiple funding sources may be eligible to provide funding for the same item, so each municipality must identify and choose which funding source will best meet its needs. For example, many COVID-19 funding sources may cover the cost of purchasing Personal Protective Equipment (“PPE”), so it is important to ensure that two or more funding sources are not used to reimburse the purchase of the same PPE, including donations.

The Compliance and Reporting Guidance states that “[r]ecipients should ensure they maintain proper documentation supporting determinations of costs and applicable compliance requirements, and how they have been satisfied as part of their award management, internal controls, and subrecipient oversight and management.”[11]

Table 1: Internal controls good practices[12]

Last Revised: March 31, 2022