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How governments can spend Coronavirus State and Local Fiscal Recovery Funds

May 28, 2021

By Matt Schueler, Brian Anderson, Josh Faivre and Rebecca Powell

The American Rescue Plan Act of 2021 (ARPA) established a Coronavirus State Fiscal Recovery Fund and a Coronavirus Local Fiscal Recovery Fund. On May 17, the Department of the Treasury issued an Interim Final Rule to implement both funds and clarify what the funds can and cannot be spent on.

The two funds are intended to provide support to state, local and tribal governments in responding to the impact of COVID-19. The state fiscal recovery fund is targeted toward states, territories and tribal governments, while the local fiscal recovery fund is targeted toward metropolitan cities, nonentitlement units of local government, and counties.

We covered the broader guidelines of what the funds can and cannot be used for in our previous article. In this article, we’ll dive into more specifics, including examples of uses.

What state, local and tribal governments can use fiscal recovery funds on

The interim final rule establishes a framework for determining the types of programs and services that are eligible under the ARPA and provides examples of uses that state, local and tribal governments may consider.

To assess whether a program or service is eligible, governments should first identify a need or negative impact of COVID-19 and, second, identify how the program or service addresses that identified need or impact. The program or service must be in response to the virus itself or its economic consequences.

The interim final rule gives examples of eligible public health uses:

  • COVID-19 mitigation and prevention: Examples of mitigation and prevention include vaccination programs, medical care, testing, enforcement of public health orders, purchases of personal protective equipment, and capital investments in public facilities to meet pandemic operational needs. See page 18 of the interim final rule for the full list.
  • Medical expenses: This incudes care and services to address near- and longer-term needs.
  • Behavioral healthcare: This includes mental health treatment, substance misuse treatment, hotlines or warmlines, crisis intervention, overdose prevention, infectious disease prevention and more.
  • Public health and safety staff: Funds may be used for payroll and covered benefits expenses for public health and safety employees to the extent their services mitigate or respond to the pandemic. They are considered fully covered if they or their operating unit or division is primarily dedicated to responding to the pandemic. Make sure to support your assessment by maintaining records such as payroll records, attestations from supervisors or staff, or regular work product or correspondence. 
  • Expenses to improve the design and execution of health and public health programs: This includes planning and analysis that improves programs addressing the COVID-19 pandemic, such as targeted consumer outreach, improvements to data or technology infrastructure, impact evaluations, and data analysis.

Eligible uses to address disparities in public health outcomes:

  • Funding community health workers to help community members access health services and services to address the social determinants of health
  • Funding public benefits navigators to assist community members with navigating and applying for available federal, state and local public benefits or services
  • Housing services to support healthy living environments and neighborhoods conducive to mental and physical wellness
  • Remediation of lead paint or other lead hazards to reduce risk of elevated blood lead levels among children
  • Evidence-based community violence intervention programs to prevent violence and mitigate the increase in violence during the pandemic

Eligible uses to respond to the negative economic impacts of the pandemic: 

  • Assistance to unemployed workers: These services may extend to workers unemployed due to the pandemic or the resulting recession or those who were already unemployed when the pandemic began and remain so due to the negative economic impacts.
  • State Unemployment Insurance Trust Funds: Recipients may make deposits into the state account of the Unemployment Trust Fund up to the level needed to restore the pre-pandemic balances of such account as of January 27, 2020.
  • Assistance to households: This includes food assistance; rent, mortgage or utility assistance; counseling and legal aid to prevent eviction or homelessness; emergency assistance for burials, home repairs, weatherization or other needs; internet access; job training; and cash assistance. Note that cash transfers grossly in excess of the amount needed to address the negative economic impact would not be considered to be a response to COVID-19 or its negative impacts.
  • Expenses to improve efficacy of economic relief programs: This includes the use of data analysis, targeted consumer outreach, improvements to data or technology infrastructure and impact evaluations.
  • Small businesses and nonprofits: This includes loans or grants to mitigate financial hardship (such as declines in revenues or periods of business closure) by supporting operating costs. It includes loans, grants or in-kind assistance to implement COVID-19 prevention or mitigation tactics, such as social distancing, enhanced cleaning, barriers or partitions, or COVID-19 vaccination, testing or contact tracing programs. It includes technical assistance, counseling or other services to assist with business planning needs. There are additional criteria, too (see page 35 of the interim final rule).
  • Rehiring state, local and tribal government staff: Includes payroll, covered benefits and other costs associated with rehiring public sector staff up to the pre-pandemic staffing level.
  • Aid to impacted industries: Aid may include implementing COVID-19 mitigation and prevention measures to safely resume tourism, travel and hospitality services, as well as improvements to ventilation, physical barriers, provision of personal protective equipment, and consultation with infection prevention professionals to develop safe reopening plans. Note: To facilitate transparency and accountability, the interim final rule requires governments to publicly report assistance provided to private-sector businesses under this eligible use and its connection to negative economic impacts of the pandemic.
  • Building stronger communities through investments in housing and neighborhoods: This includes services to address homelessness and to improve access to stable, affordable housing, to increase the supply of affordable and high-quality living units; and housing vouchers, residential counseling or housing navigation assistance to facilitate household moves to neighborhoods with high levels of economic opportunity and mobility for low-income residents.
  • Addressing educational disparities: This includes new, expanded or enhanced early learning services or administration of those services; providing assistance to high-poverty school districts to advance equitable funding; evidence-based educational services such as tutoring, summer, afterschool, and other extended learning and enrichment programs; and evidence-based practices to address the social, emotional and mental health needs of students.
  • Promoting healthy childhood environments: This includes new or expanded high-quality childcare, home visiting programs and enhanced services for child welfare-involved families and foster youth to provide support and training.

The interim final rule notes uses outside the scope of the above category:

  • A general infrastructure project would not be eligible unless the project responded to a specific pandemic public health need (e.g., investments in facilities for the delivery of vaccines) or a specific negative economic impact like those described above (e.g., affordable housing in a QCT). The ARPA explicitly includes infrastructure if it is “necessary” and in water, sewer or broadband.
  • Eligible uses also do not include contributions to rainy day funds, financial reserves or similar funds, or the payment of interest or principal on outstanding debt instruments, including short-term revenue or tax anticipation notes, or other debt service costs. The interim final rule precludes use of funds to cover the costs of debt incurred prior to March 3, 2021. Fees or issuance costs associated with the issuance of new debt would also not be covered using payments from the fiscal recovery funds.
  • For the same reasons, eligible uses would not include satisfaction of any obligation arising under or pursuant to a settlement agreement, judgment, consent decree or judicially confirmed debt restructuring plan in a judicial, administrative or regulatory proceeding, except to the extent the judgment or settlement requires the provision of services that would respond to the COVID-19 public health emergency.

The interim final rule elaborates on premium pay for essential workers: 

  • Essential workers include: Staff at nursing homes, hospitals and home care settings; workers at farms, food production facilities, grocery stores and restaurants; janitors and sanitation workers; truck drivers, transit staff and warehouse workers; public health and safety staff; childcare workers, educators and other school staff; and social service and human services staff.
  • Essential work is defined as work involving regular in-person interactions or regular physical handling of items that were also handled by others. Telework performed from a residence does not count.
  • ARPA defines premium pay as an amount up to $13 per hour in addition to wages or remuneration the worker otherwise receives and in an aggregate amount not to exceed $25,000 per eligible worker. Any premium pay or grants provided using funds should prioritize compensation of lower income eligible workers that perform essential work.
  • Premium pay may be provided retrospectively for work performed at any time since the start of the pandemic for those workers who have yet to be compensated adequately for work previously performed. An essential worker may receive both retrospective premium pay for prior work as well as prospective premium pay for current or ongoing work.

The interim final rule also touches on revenue:

  • Revenue loss: A recipient’s reduction in revenue is measured relative to the revenue collected in the most recent full fiscal year prior to the emergency.
  • General revenue: In calculating revenue, recipients should sum across all revenue streams covered as general revenue – “General Revenue from Own Sources” in the Census Bureau’s Annual Survey of State and Local Government Finances. Exclude refunds, correcting transactions, proceeds from issuance of debt, sale of investments, or agency or private trust transactions, as well as revenue generated by utilities and insurance trusts. Note that the definition of general revenue would include all revenue from tribal enterprises, as this revenue is generated from economic activity and is available to fund government services. “General revenue” includes intergovernmental transfers between state and local governments, but excludes intergovernmental transfers from the federal government (including federal transfers made via a state to a local government pursuant to the CRF or as part of the Fiscal Recovery Funds.)
  • Calculation of loss: To measure revenue growth in the counterfactual trend, recipients may use a growth adjustment of either 4.1% per year or the recipient’s average annual revenue growth over the three full fiscal years prior to the pandemic, whichever is higher.

One of the big allowable uses is investments in infrastructure (water, sewer and broadband):

  • Broadband infrastructure: Eligible expenses allowable to help households obtain broadband internet.
  • Water and sewer infrastructure: Funds can be used on the wide range of projects eligible to receive financial assistance through the Environmental Protection Agency’s Clean Water State Revolving Fund or Drinking Water State Revolving Fund. This includes projects to construct, improve and repair wastewater treatment plants; control non-point sources of pollution; improve resilience of infrastructure to severe weather events; create green infrastructure; and protect waterbodies from pollution. It also includes replacing lead service lines, assisting communities in making water infrastructure capital improvements, and on green infrastructure projects that support stormwater system resiliency. 

Other items to note:

  • Timeline: The interim final rule permits funds to be used to cover costs incurred beginning on March 3, 2021 and through December 31, 2024.
  • Transfers: A state, territory or tribal government may transfer funds to a private nonprofit organization, tribal organization, public benefit corporation involved in the transportation of passengers or cargo, or a special-purpose unit of State or local government. A local government may transfer funds to the same entities (other than tribal organizations). Recipients are responsible for monitoring any sub-receipted funds.
  • NEUs: Distributions to nonentitlement units of government (NEU) cannot exceed 75% of the NEU’s most recent budget. Amounts received in excess of such cap must be returned to the Treasury.
  • Reporting: There are different requirements for NEUs versus other units of government. NEUs will file annual reports and other units will file an interim and then subsequent quarterly reports. The initial annual Project and Expenditure report for NEUs must cover activity from the date of award to September 30, 2021, and must be submitted to the Treasury by October 31, 2021. The subsequent annual reports must be submitted to Treasury by October 31 each year. Governments with greater than 250,000 in population will be required to submit an annual Recovery Plan Performance report.

At 151 pages, the interim final rule covers quite a bit, and we couldn’t highlight everything in one article. If you have any questions about how to use money from the Coronavirus State Fiscal Recovery Fund or the Coronavirus Local Fiscal Recovery Fund, contact us. We’re here to help your government spend the funds appropriately, including properly tracking and reporting your spend.

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Author(s)

Matthew J. Schueler, CPA
Partner
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Brian M. Anderson, CPA
Senior Manager
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Josh M. Faivre, CPA
Manager, Audit
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