When determining what constitutes the “negative economic impacts” of COVID-19, should municipalities look to FY2020 or prior fiscal years for comparison?

When assessing whether a program or service is an eligible use to respond to the negative economic impacts of the COVID–19 public health emergency, the U.S. Department of the Treasury’s (“Treasury”) Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) Final Rule indicates several eligibility requirements:

1. First, there must be a negative economic impact, or an economic harm, experienced by an individual or a class; and
2. Second, the response must be designed to address the identified economic harm or impact resulting from or exacerbated by the public health emergency.[1]

The recipient should assess whether, and the extent to which, there has been an economic harm, such as loss of earnings or revenue, that resulted from the COVID–19 public health emergency.[2]

[T]he recipient must assess whether, and the extent to which, the use would respond to or address this harm or impact.[3]

Responses must also be related and reasonably proportional to the extent and type of harm experienced; uses that bear no relation or are grossly disproportionate to the type or extent of harm experienced would not be eligible uses.[4]

Although Treasury does not explicitly identify a specific fiscal year that municipalities should use as a comparison benchmark for negative economic impacts, regarding the use of CSLFRF for the provision of government services, the Final Rule states:

Sections 602(c)(1)(C) and 603(c)(1)(C) of the Social Security Act provide that [CSLFRF] funds may be used “for the provision of government services to the extent of the reduction in revenue of such . . . government due to the COVID–19 public health emergency relative to revenues collected in the most recent full fiscal year of the . . . government prior to the [COVID-19 public health] emergency.”[5]

Finally, recipients must follow key compliance principles to substantiate the use of funds and maintain a robust documentation and compliance system.[6]

Recipients should also ensure the use of strong internal controls, including documented processes and procedures for all decision-making and final determinations, such as which fiscal year comparisons are used. Some strong internal controls include:

• written policies and procedures;
• written standards of conduct;
• risk-based due diligence;
• risk-based compliance monitoring; and,
• record maintenance and retention.[7]

Last Revised: February 20, 2022