On January 6, 2022, the U.S. Department of the Treasury issued a final rule on the use of Coronavirus State & Local Fiscal Recovery Funds (SLFRF) provided to state, local, and tribal governments pursuant to the American Rescue Plan (ARP). While the final rule largely includes the eligible uses of SLFRF funds described in the interim rule issued in May of 2021, the Treasury expanded and provided more detail on eligible uses. The final rule also modifies the rules applicable to tribal governments, particularly with regard to the ability to use SLFRF funds to replace lost revenue.
The new final rule applies to all expenditures of SLFRF funds starting April 1, 2022.
A detailed summary prepared by the Treasury of the final rule can be found here. A shorter summary is below.
Tribes may use SLFRF funds to:
- Replace lost revenue and pay for “government services” up to the amount of the Tribe’s revenue loss. ARP permits Tribes to use SLFRF funds to replace revenue that was lost due to the pandemic. With the final rule, the Treasury is now permitting Tribes calculate the revenue lost due to the pandemic by either (a) using a “standard amount” of $10 million (i.e., all of the SLFRF funds they received if they received less than $10 million in SLFRF funds), or (b) calculating the Tribe’s specific revenue loss using the Treasury’s formula.
SLFRF funds that are used to replace lost revenue can be used to pay for any government services. Government services generally include any service traditionally provided by a government, unless the Treasury has stated otherwise, such as:
- Construction of schools and hospitals;
- Road building and maintenance, and other infrastructure;
- Health services;
- General government administration, staff, and administrative facilities;
- Environmental remediation; or
- Provision of police, fire, and other public safety services (including purchase of fire trucks and police vehicles).
- Address COVID-19 and its impact on public health as well as address economic harms caused by COVID-19. In general, to identify eligible uses of funds within this category, the final rule states that Tribes should (1) identify a COVID-19 public health or economic impact on an individual or class (i.e., a group), and (2) design a program that responds to that impact. Responses should be related and reasonably proportional to the harm identified and reasonably designed to benefit those impacted.
The groups to whom assistance can be provided under this category is broad and includes assistance to households, small businesses, and nonprofits. Each of the categories (households, small businesses, and nonprofits) in the final rule are separated between “impacted” and “disproportionately impacted” classes: Impacted classes experienced the general, broad-based negative economic impacts of the pandemic; disproportionately impacted classes faced additional impacts from the pandemic due to preexisting disparities.
Eligible uses for assistance to impacted households include cash assistance, aid for re-employment, job training, food, rent, mortgages, utilities, affordable housing development, childcare, early education, and addressing learning loss.
Eligible uses for assistance to impacted small businesses or nonprofits include loans or grants to mitigate financial hardship, technical assistance for small businesses, and other uses.
Tribes can also use SLFRF funds to provide assistance to industries like travel, tourism, and hospitality that faced substantial pandemic impacts, and/or address impacts to the Tribe, for example by re-hiring Tribal workers who were laid off during the crisis.
Finally, Tribes also have the ability to identify (1) other populations or groups, beyond those presumed eligible, that experienced pandemic impacts or disproportionate impacts and (2) other programs, services, or capital expenditures, beyond those listed in the final rule, to respond to those impacts.
- Capital projects that respond to the public health and negative economic impacts of the pandemic. Capital expenditures that respond to the pandemic can be funded using SLFRF funds. Such capital expenditures are subject to the same eligibility standard as other eligible uses to respond to the pandemic’s public health and economic impacts. They must be related and reasonably proportional to the pandemic impact identified and reasonably designed to benefit the impacted population or class.
The Treasury used the following projects as examples of eligible capital expenditures, as long as they meet the other requirements of the final rule:
- Improvements or construction of medical facilities generally dedicated to COVID-19 treatment and mitigation (e.g., emergency rooms, intensive care units, telemedicine capabilities for COVID-19-related treatment);
- Acquisition of equipment for COVID-19 prevention and treatment, including ventilators, ambulances, and other medical or emergency services equipment;
- Improvements to or construction of emergency operations centers and acquisition of emergency response equipment (e.g., emergency response radio systems);
- Installation and improvements of ventilation systems;
- Adaptations to public facilities and schools (excluding construction of new facilities for the purpose of mitigating spread of COVID-19 in the facility); and
- Mitigation measures in small businesses, nonprofits, and impacted industries (e.g., developing outdoor spaces).
The final rule states that the following capital projects are generally ineligible:
- Construction of new correctional facilities in response to an increase in rate of crime;
- Construction of new congregate facilities to decrease spread of COVID-19 in a facility;
- Construction of convention centers, stadiums, or other large capital projects intended for general economic development or to aid impacted industries.
- Provide premium pay for eligible workers performing essential work. SLFRF funds can be used to provide premium pay to individuals who are working in-person in specified industries and who are below a wage threshold or non-exempt from the Fair Labor Standards Act overtime provisions.
- Invest in water, sewer, and broadband infrastructure. Tribes can use SLFRF funds on necessary infrastructure projects in a variety of areas, including improving access to clean drinking water, wastewater and stormwater infrastructure, and expanding broadband connectivity.
The final rule details a broad range of water and sewer projects that are eligible to be funded using SLFRF funds, including projects eligible under the Environmental Protection Agency’s Clean Water State Revolving Fund and Drinking Water State Revolving Fund, and lead remediation, stormwater infrastructure, and aid for private wells and septic units.
Tribes can also use SLFRF funds for high-speed broadband infrastructure in areas that do not have access to adequate speeds, affordable options, or where connections are inconsistent or unreliable. Any such projects funded with SLFRF funds must participate in specified low-income subsidy programs.
- Ineligible Uses. The final rule also specifies that certain expenses and projects cannot be funded with SLFRF funds. The following are the ineligible uses of SLFRF funds:
- Payments on debt service or replenishments of rainy day funds.
- Satisfaction of settlements and judgments.
- Uses that contravene or violate the American Rescue Plan Act, Uniform Guidance conflicts of interest requirements, and other federal, state, and local laws and regulations.
- Deadline to Expend the Funds. SLFRF funds must be used for costs incurred on or after March 3, 2021. SLFRF Funds must be obligated by December 31, 2024, and expended by December 31, 2026.
- Subrecipients. Tribes may undertake projects on their own or through subrecipients, which carry out eligible uses on behalf of a tribe, including pooling funds with other Tribes or blending and braiding SLFRF funds with other sources of funds.
- Non-federal Match or Cost-Share Requirements. SLFRF funds available under the “revenue loss” eligible use category generally may be used to meet the non-federal cost-share or matching requirements of other federal programs. SLFRF funds beyond those that are available under the revenue loss eligible use category may not be used to meet the non-federal match or cost-share requirements of other federal programs, other than as specifically provided for by statute.
- Administrative Expenses. SLFRF funds may be used for direct and indirect administrative expenses involved in administering the program, in accordance with the Treasury’s Compliance and Reporting Guidance. Costs incurred for the same purpose in like circumstances must be treated consistently as either direct or indirect costs.
- Reporting. Tribes are required to comply with the Treasury’s Compliance and Reporting Guidance, which includes submitting mandatory periodic reports to the Treasury.
- Recoupment. Funds used in violation of the final rule are subject to remediation and recoupment. The Treasury may identify funds used in violation through reporting or other sources. Recipients will be provided with an initial written notice of recoupment with an opportunity to submit a request for reconsideration before the Treasury provides a final notice of recoupment. If the recipient receives an initial notice of recoupment and does not submit a request for reconsideration, the initial notice will be deemed the final notice. The Treasury may pursue other forms of remediation and monitoring in conjunction with, or as an alternative to, recoupment.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.