Would an incentive program for residents to connect to existing sewer lines be considered an eligible use of ARP funding?

The U.S. Department of the Treasury’s (“Treasury”) Final Rule regarding the Coronavirus State and Local Fiscal Recovery Funds (“CSLFRF”) of the American Rescue Plan Act of 2021 (“ARP”) does not expressly indicate whether municipalities using ARP funds for the purpose of establishing or operating an incentive program to connect residents to existing sewer lines would be an eligible use of funds. However, the Final Rule states:

eligibilities include the development and implementation of incentive and educational programs that address and promote water conservation, source water protection, and efficiency related to infrastructure improvements, e.g., incentives such as rebates to install green infrastructure such as rain barrels or promote other water conservation activities.[1]

Treasury’s CSLFRF Frequently Asked Questions (“FAQs”) state that municipalities have some leeway in determining whether a water, sewer, or broadband project is eligible:

Recipients do not need approval from Treasury to determine whether an investment in a water, sewer, or broadband project is eligible under [CSLFRF]. Each recipient should review [applicable Treasury guidance] in order to make its own assessment of whether its intended project meets the eligibility criteria … A recipient that makes its own determination that a project meets the eligibility criteria as outlined in [Treasury guidance] may pursue the project as a [CSLFRF] project without pre-approval from Treasury. Local government recipients similarly do not need state approval to determine that a project is eligible under [CSLFRF]. However, recipients should be cognizant of other federal or state laws or regulations that may apply to construction projects independent of CSFRF/CLFRF funding conditions and that may require pre-approval.[2]

For water and sewer projects, [Treasury guidance] refers to the Environmental Protection Agency (EPA) Drinking Water and Clean Water State Revolving Funds (SRFs) for the categories of projects and activities that are eligible for funding. Recipients should look at the relevant federal statutes, regulations, and guidance issued by the EPA to determine whether a water or sewer project is eligible. Of note, [Treasury guidance] does not incorporate any other requirements contained in the federal statutes governing the [CSLFRF] or any conditions or requirements that individual states may place on their use of [CSLFRF].[3]

Under guidance given by the Environmental Protection Agency (“EPA”) for State Revolving Funds (“SRFs”) (which Treasury has stated should guide CSLFRF recipients):

States may customize loan terms to meet the needs of small and disadvantaged communities, or to provide incentives for certain types of projects. Beginning in 2009, Congress authorized the CWSRFs to provide further financial assistance through additional subsidization, such as grants, principal forgiveness, and negative interest rate loans. Through the Green Project Reserve, the CWSRFs target critical green infrastructure, water and energy efficiency improvements, and other environmentally innovative activities.[4]

If the municipality determines that an incentive program meets the intended eligibility criteria to fulfill a sewer infrastructure project and can be appropriately documented, the incentive program could satisfy eligibility requirements for CSLFRF funding. 

Treasury may provide additional information when it issues new FAQs specific to the Final Rule.[5]

Last Updated: March 31, 2022