Legal Alerts May 10, 2021

U.S. Treasury Releases Guidance on the Coronavirus State and Local Fiscal Recovery Funds

Six Ways the Funds Can be Used

Today, the U.S. Treasury released the Interim Final Rule on the Coronavirus State and Local Fiscal Recovery Funds. The funds were authorized by the American Rescue Plan Act of 2021, which was signed into law earlier this year. Under the ARPA, states, territories, metropolitan cities, counties and tribal governments will receive the funds directly from the U.S. Treasury. Local governments that are deemed non-entitlement entities will receive the funds through the state government. The Treasury Department said it expects to issue additional guidance on the distributions to NEUs next week.

Timing and Distribution of Funds
ARPA directed the U.S. Treasury to distribute the first 50 percent of the funds allocated to each local government within 60 days of enactment (May 11, 2021). The Interim Final Rule clarifies that states that have experienced a net increase in their unemployment rate of more than 2 percentage points from February 2020 to the latest available data will receive their full allocation of funds in a single payment. Tribes will receive their first 50 percent in May 2021 and their remaining 50 percent in June 2021. The remaining states and all local governments will receive the remaining 50 percent tranche 12 months later in May 2022. To avoid their return to the U.S. Treasury, funds will need to be obligated by Dec. 31, 2024 and expended by Dec. 31, 2026.

Use of the Coronavirus State and Local Fiscal Recovery Funds
The legislation directed six main categories in which the Coronavirus State and Local Fiscal Recovery Funds can be used. Today’s Interim Final Rule provides more specifics on those categories:

1. Support public health expenditures:
The Interim Final Rule provides that the funds can be used to address a broad range of public health needs related to the COVID-19 pandemic including mitigation, medical expenses, behavioral health care and public health resources. The Rule also provides that the funds can be used for payroll and covered benefit expenses for public health, health care, human services, public safety and similar employees, to the extent that they were working on the COVID-19 response.

2. Address negative economic impacts caused by the public health emergency:
In direct response to the economic impact of the COVID-19 pandemic, the Coronavirus State and Local Fiscal Funds can be used by local governments to provide expansive assistance to individuals, households, small businesses and impacted industries. Some examples of how this may be done include:

  • Aid to unemployed workers
  • Job training
  • Assistance to households who face food, housing or other financial insecurities
  • COVID-19 survivor benefits
  • Rehiring of public sector staff and replenishing unemployment insurance trust funds (both to pre-pandemic levels)
  • Loans, grants, in-kind assistance to small businesses to address financial challenges due to the COVID-19 pandemic and mitigation
  • Support local tourism, travel and hospitality
  • Investments in technology infrastructure

3. Serving the hardest-hit communities and families:
The Interim Final Rule states that the funds can be used to address the disproportionate public health and economic impacts of the COVID-19 pandemic on the hardest-hit communities, populations and households. Under this section, local governments may provide unique support where the local government provides services within a Qualified Census Tract, to families living within a Qualified Census Tract, by a Tribal government, or to other populations, households or geographic areas disproportionately impacted by the pandemic.

4. Replace lost public sector revenue:
The Interim Final Rule provides a methodology for each local government to calculate its reduction in revenue. The Rule provides that the computation will be the extent of the reduction in revenue by comparing actual revenue to an alternative representative what could have been expected to occur in the absence of the pandemic. The methodology begins with the last full fiscal year prior to the public health emergency and projects forward at either the recipient’s average annual revenue growth over the three full fiscal years prior to the public health emergency or 4.1 percent, the national average state and local revenue growth rate from 2015-2018. The Treasury Department specifies that any diminution in actual revenue relative to the expected trend can be presumed to be due to the COVID-19 public health emergency.

5. Provide premium pay for essential workers:
Recognizing the continuous work of essential workers during the pandemic, the Funds can be used to provided premium pay directly, or through grants to private employers, to essential workers who must be physically present at their jobs. including those whose work involves protecting the health and wellbeing of their communities.

6. Invest in water, sewer and broadband infrastructure:
The Interim Final Rule provides that the funds can be to be used in a variety of ways regarding water and sewer infrastructure. Water and wastewater projects are eligible when the project(s) aligns with, and would be eligible for, the Clean Water State Revolving Fund and Drinking Water State Revolving Fund. This includes projects that will upgrade or build facilities and the transmission, distribution, storage and replacement of lead service lines.

Regarding broadband, the Interim Final Rule provides that investment in wireline infrastructure that will provide a 100 Mbps symmetrical standard may be made only in areas that are unserved or underserved, which the Rule defines as an area lacking a wireline connection capable of providing 25/3 Mbps speed. Further, the Rule references other federal funds (Emergency Connection Funds and Emergency Broadband Funds) that can be used to provide assistance to households than cannot afford internet access or require digital literacy.

States, territories, counties, metropolitan cities or Tribal governments should request their funds directly from the Treasury Department using the Treasury Submission Portal. More information on the Interim Rule, including allocation amounts for all except NEUs can be found here.

Disclaimer: BB&K Legal Alerts are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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