Today, the United States Treasury released the much-anticipated final rule governing spending guidelines for the American Rescue Plan Fiscal Recovery Funds Program (SLFRF). The final rule helps clarify changes that would increase flexibility and create the most impact for communities across the country and provides some significant expanded use of funds. State, territorial, local, and Tribal governments must comply with the final rule beginning on April 1, 2022, when the final rule takes effect.

Prior to April 1, 2022, recipients may take actions and use funds in a manner consistent with the final rule, and Treasury will not take action to enforce the Interim final rule if a use of funds is consistent with the terms of the final rule, regardless of when the SLFRF funds were used. Please see the Statement Regarding Compliance with the Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule and Final Rule for more information.

Click here to see the Final Rule
Click here to see an Overview of the Final Rule

 

Key Changes from the Interim Final Rule to the Final Rule

• Treasury has expanded the non-exhaustive list of uses that recipients can use to respond to COVID-19 and its economic impacts. This includes clarifying that recipients can use funds for certain capital expenditures to respond to public health and economic impacts and making services like childcare, early education, addressing learning loss, and affordable housing development available to all communities impacted by the pandemic.
• Treasury has expanded support for public sector hiring and capacity.
• Treasury has streamlined options to provide premium pay for essential workers.
• Treasury has broadened eligible water, sewer, and broadband infrastructure projects – understanding the unique challenges facing each state and locality in delivering clean water and high-speed broadband to their communities.
• Treasury has simplified the program for small localities seeking revenue recapture through the option to elect a standard allowance of $10 million for revenue loss rather than calculating revenue loss through the full formula.
   

Replacing Lost Public Sector Revenue

The Coronavirus State and Local Fiscal Recovery Funds provide needed fiscal relief for recipients that have experienced revenue loss due to the onset of the COVID-19 public health emergency. Specifically, SLFRF funding may be used to pay for “government services” in an amount equal to the revenue loss experienced by the recipient due to the COVID-19 public health emergency.

Government services generally include any service traditionally provided by a government, including construction of roads and other infrastructure, provision of public safety and other services, and health and educational services. Funds spent under government services are subject to streamlined reporting and compliance requirements.

In order to use funds under government services, recipients should first determine revenue loss. They may, then, spend up to that amount on general government services.

 

Determining Revenue Loss

Recipients may now elect a “standard allowance” of $10 million to spend on government services through the period of performance. Newly offered in the final rule, Treasury presumes that up to $10 million in revenue has been lost due to the public health emergency and recipients are permitted to use that amount (not to exceed the award amount) to fund “government services.” The standard allowance provides an estimate of revenue loss that is based on an extensive analysis of average revenue loss across states and localities, and offers a simple, convenient way to determine revenue loss, particularly for SLFRF’s smallest recipients.

All recipients may elect to use this standard allowance instead of calculating lost revenue using the formula in the Interim Final Rule, including those with total allocations of $10 million or less. Electing the standard allowance does not increase or decrease a recipient’s total allocation.

 

Spending on Government Services

Recipients can use SLFRF funds on government services up to the revenue loss amount, whether that be the standard allowance amount or the amount calculated. Government services generally include any service traditionally provided by a government, unless Treasury has stated otherwise. Here are some common examples, although this list is not exhaustive:

• Construction of schools and hospitals
• Road building and maintenance, and other infrastructure
• Health services
• General government administration, staff, and administrative facilities
• Environmental remediation
• Provision of police, fire, and other public safety services (including purchase of fire trucks and police vehicles)

Government services is the most flexible eligible use category under the SLFRF program, and funds are subject to streamlined reporting and compliance requirements. Recipients should be mindful that certain restrictions, which are detailed further in the Restrictions on Use section and apply to all uses of funds, apply to government services as well.

 

Compliance Requirements

Whether you are using Recovery Funds under the lost revenue provisions for government services or one of the other eligible use categories, numerous compliance requirements, such as specific procurement rules, apply.

These compliance requirements are detailed in the Compliance and Reporting Guidance issued by the U.S. Treasury. In addition, a single audit (compliance audit) will need to be completed if total expenditures (including Coronavirus Local Fiscal Recovery Funds) are over the $750,000 threshold within one fiscal year. The single audit is not based on when the funds are received. If all federal expenditures for an entity are less than $750,000 within a fiscal year, a single audit will not be required.

The funds can be used to cover eligible expenditures by December 31, 2024 and if contracted, by December 31, 2026. Local governments have time to properly plan the best use of these funds for their individual communities. Contact us using the form below - we can help!
 

Upcoming Webinars

Keep in mind that this guidance was just released today. The U.S. Treasury is hosting webinars with recipients and stakeholders to brief and answer questions about the Final Rule.

If Treasury reaches RSVP capacity and you cannot attend a webinar or prefer to be briefed at your convenience, Treasury will post a recording of the webinar hosted on January 7, 2022. 

Sources: Government Finance Officers Association (GFOA)
U.S. Treasury