ARPA Fiscal Recovery Funds

Established by the American Rescue Plan Act of 2021 (ARPA), the Coronavirus State and Local Fiscal Recovery Program (SLFRP) provides $350 billion in emergency fiscal recovery funding (FRF) for eligible state, local, territorial, and Tribal governments. All state and local governments are eligible for some amount of aid to respond to acute pandemic needs, fill revenue shortfalls, and provide much needed support to populations hardest-hit by COVID-19.

All state, Tribal, county, territorial, and local governments are eligible for funds. All governments except non-metropolitan local governments (e.g. towns, villages, and smaller cities) will receive their funding by submitting an application through the Treasury Submission Portal (opens in new tab).

Smaller local governments will receive their funds through their state government. Details on this process are available from the Treasury (opens in new tab).

Source: US Treasury (opens in new tab).

To find out how much your state, county, and local government will receive, visit our up-to-date page of estimates.

Funds will begin to arrive in May 2021. Most local governments will receive funds in two equal payments, 12 months apart. One exception is states or U.S. territories with a large net increase in unemployment, which are eligible to receive their full funding in 2021 in two payments, one in May and one in June, rather than waiting a year for the second payment. The second exception is “non-entitlement units” of local government (towns and smaller cities), which will receive their payments from states rather than the Treasury.

Treasury estimates (opens in new tab) that 30 state governments will be subject to split payments as of May 10, 2021. Follow the link for the list by state.

The funds must be obligated by December 31, 2024. This does not necessarily mean expenses must be incurred by then.¹ The regulations intentionally adopt a flexible approach to the timeline for spending funds to give state and local governments the most options in how to use these funds to promote a robust and successful recovery.

The intent of these funds is to respond to needs created by the pandemic and rebuild a stronger, more equitable economy as the country recovers. To meet these goals Treasury has adopted permissive guidance that gives state and local governments flexibility to serve their community. Treasury lists seven categories of possible fund uses:

1. Supporting the public health response
2. Addressing the negative economic impacts of the public health emergency
3. Serving hardest-hit communities and families
4. Replacing lost public sector revenue
5. Providing premium pay for essential workers
6. Investing in water and sewer infrastructure
7. Investing in broadband infrastructure

1. States and Tribal governments may not offset tax cuts using Fiscal Recovery Funds (FRF)
2. No recipient may make an extraordinary contribution to pay down an unfunded pension liability

Civilytics has summarized all of the key provisions related to eligible uses of the funds, categorizing them in an easy-to-digest format. See the Eligible Uses FAQ tab.

The regulations published by Treasury are an Interim Final Rule, which means that while Treasury is actively seeking public comment, it is the controlling rule governing the use of the funds until a revised rule is implemented.

Implementation of the Fiscal Recovery Funds also reflect the importance of public input, transparency, and accountability. Treasury seeks comment on all aspects of the Interim Final Rule and, to better facilitate public comment, has included specific questions throughout this Supplementary Information. Treasury encourages State, local, and Tribal governments in particular to provide feedback and to engage with Treasury regarding issues that may arise regarding all aspects of this Interim Final Rule and Treasury’s work in administering the Fiscal Recovery Funds. In addition, the Interim Final Rule establishes certain regular reporting requirements, including by requiring State, local, and Tribal governments to publish information regarding uses of Fiscal Recovery Funds payments in their local jurisdiction. (p.9)

p.9 of the Interim Final Rule published May 10, 2021 by the US Treasury

The regulations begin by broadening the scope of responding to COVID-19 beyond just immediate public health needs. The regulations instruct recipients to identify a need or negative impact of the public health emergency or its resulting economic disruptions and then identify programs, services, or other interventions to address those needs or impacts.

Assessing whether a program or service “responds to” the COVID-19 public health emergency requires the recipient to, first, identify a need or negative impact of the COVID-19 public health emergency and, second, identify how the program, service, or other intervention addresses the identified need or impact. While the COVID-19 public health emergency affected many aspects of American life, eligible uses under this category must be in response to the disease itself or the harmful consequences of the economic disruptions resulting from or exacerbated by the COVID-19 public health emergency.

p.10 of the Interim Final Rule published May 10, 2021 by the US Treasury

Treasury emphasizes that the list of acceptable uses is non-exclusive, that is, things not listed by Treasury can still be acceptable. From the beginning Treasury is indicating broad flexibility in the use of funds and granting latitude for State, Tribal, and local governments to best assess how to use FRF to address local issues.

The Interim Final Rule implements these provisions by identifying a non-exclusive list of programs or services that may be funded as responding to COVID-19 or the negative economic impacts of the COVID-19 public health emergency, along with considerations for evaluating other potential uses of the Fiscal Recovery Funds not explicitly listed. The Interim Final Rule also provides flexibility for recipients to use payments from the Fiscal Recovery Funds for programs or services that are not identified on these non-exclusive lists but that fall under the terms of section 602(c)(1)(A) or 603(c)(1)(A) by responding to the COVID-19 public health emergency or its negative economic impacts.

p.11 of the Interim Final Rule published May 10, 2021 by the US Treasury

Treasury explicitly lists as acceptable uses some public health areas negatively impacted by COVID-19 including mental health care, substance misuse and overdose, domestic violence and preventative public health measures.

Other areas of public health have also been negatively impacted by the COVID-19 pandemic. For example, in one survey in January 2021, over 40 percent of American adults reported symptoms of depression or anxiety, up from 11 percent in the first half of 2019.26, The proportion of children’s emergency department visits related to mental health has also risen noticeably.27 Similarly, rates of substance misuse and overdose deaths have spiked: preliminary data from the CDC show a nearly 30 percent increase in drug overdose mortality from September 2019 to September 2020.28 Stay-at-home orders and other pandemic responses may have also reduced the ability of individuals affected by domestic violence to access services.

Finally, some preventative public health measures like childhood vaccinations have been deferred and potentially forgone.

p.14-15 of the Interim Final Rule published May 10, 2021 by the US Treasury

Treasury elaborates on p.17-21 to define other eligible public health uses, again, a non-exhaustive list.

The eligible uses when responding to the public health crisis, but not its disproportionate impact, are listed on pages 17-21 of the Interim Final Rule and include the following non-exhaustive set of items:

• COVID-19 Mitigation and Prevention
  • Public hospital improvements and infrastructure
  • Adaptations to public buildings to improve communicable disease mitigation, such as ventilation systems, heating and cooling upgrades, filtration systems
  • Other expenses that were allowable under the CARES Act
• Medical Expenses
  • This is not well defined in the Interim Final Rule other than to say that funds cannot be used as a contribution when accounting for required contributions to other Federal funds.
• Behavioral Health Care
  • Funding to provide mental health services where they do not exist and to expand outreach, including: “mental health treatment, substance misuse treatment, other behavioral health services, hotlines, or warmlines, crisis intervention, overdose prevention, infection disease prevention, and services or outreach to promote access to physical or behavioral health primary care and preventative medicine” (p. 20 Interim Final Rule)
• Public Health and Safety Staff
  • Treasury clarifies what employees expenses are eligible for coverage under this provision but does not provide a clear definition of which employees would be eligible for coverage except to say that, if a unit or division that an employee works in is dedicated to responding to COVID-19, those employees are eligible. Communities will have broad latitude to classify public employees as responding to the crisis, but funds are only eligible for expenses incurred beginning in March 2021, not retrospectively (p. 20 of the Interim Final Rule).²
• Expenses to Improve the Design and Execution of Public Health Programs
  • Local governments may use FRF to engage in planning and analysis to improve programs addressing the COVID-19 pandemic, including targeted consumer outreach, improvements to data or technology infrastructure, impact evaluations, and data analysis.
  • A lottery incentivizing people to get vaccinated against COVID-19 would be eligible under this provision (opens in new tab).

Treasury specifically lists one definition of addressing disparities in public health outcomes while leaving recipients flexibility in being able to define other ways of addressing disproportionate impact. Treasury states that any services provided by a Tribal government or provided to the residents of a Qualified Census Tract (QCT) (opens in new tab) will be considered automatically responsive to disparities in public health outcomes.

Treasury provides specific examples of eligible services in a QCT, including outreach to help community members access health services and address the social determinants of health, public benefit navigator services (probably provided by non-profits), housing services to support healthy environments, remediation of lead paint, and violence intervention programs.

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; and

Evidence-based community violence intervention programs to prevent violence and mitigate the increase in violence during the pandemic.

p.22-23 of the Interim Final Rule published May 10, 2021 by the US Treasury

Some or all of the above services may still be eligible to be funded by FRF as a ‘general use’ not just a ‘disproportionate impact’ provided they are responding to the Negative Economic Impacts as outlined in the subsequent section of the rule. Communities wishing to provide these services outside of a QCT should carefully review the FRF guidelines about negative economic impacts.

Most government programs that help people who are struggling to pay bills, get healthcare, or secure shelter, stability, and/or treatment and care will be eligible. Unemployment assistance, food, shelter, cash assistance, reimbursement for medical costs, job training and grants to hard-hit businesses and non-profits will all qualify.

Treasury gives two important details here – that funds must be deployed to “respond to” the economic crisis and that responses must be “related and reasonably proportionate.” Broad latitude is emphasized in the legislation and rule. Expand below to see the non-exhaustive list of programs outlined by Treasury.

• Unemployment assistance and services
• States replenishing their unemployment insurance trust funds
• Assistance to households including:
  • Food assistance
  • Rent, mortgage, and utility assistance
  • Legal aid to prevent eviction
  • Direct cash payments
  • Emergency assistance for burials, home repairs, weatherization or “other needs”
  • Internet access or digital literacy assistance
  • Job training
• Expenses to improve efficacy of existing economic relief programs
• Loans or grants to small businesses and non-profits
• Rehiring public employees
• Aid to impacted industries

These items are non-exclusive meaning other activities that can be shown to “respond to” and be “related and reasonably proportionate” to the economic impact can also qualify.

Yes.

Cash transfers must be reasonably proportional to the negative economic impact they are intended to address. Cash transfers grossly in excess of the amount needed to address the negative economic impact identified by the recipient would not be considered to be a response to the COVID-19 public health emergency or its negative impacts. In particular, when considering the appropriate size of permissible cash transfers made in response to the COVID-19 public health emergency, State, local and Tribal governments may consider and take guidance from the per person amounts previously provided by the Federal government in response to the COVID-19 crisis. Cash transfers that are grossly in excess of such amounts would be outside the scope of eligible uses under section 602(c)(1)(A) and 603(c)(1)(A) and could be subject to recoupment.

p.33-34 of the Interim Final Rule published May 10, 2021 by the US Treasury

Yes.

Recipients may consider additional criteria to target assistance to businesses in need, including small businesses. Such criteria may include businesses facing financial insecurity, substantial declines in gross receipts (e.g., comparable to measures used to assess eligibility for the Paycheck Protection Program), or other economic harm due to the pandemic, as well as businesses with less capacity to weather financial hardship, such as the smallest businesses, those with less access to credit, or those serving disadvantaged communities.

p.35 of the Interim Final Rule published May 10, 2021 by the US Treasury

Yes.

To facilitate transparency and accountability, the Interim Final Rule requires that State, local, and Tribal governments publicly report assistance provided to private-sector businesses under this eligible use, including tourism, travel, hospitality, and other impacted industries, and its connection to negative economic impacts of the pandemic. Recipients also should maintain records to support their assessment of how businesses or business districts receiving assistance were affected by the negative economic impacts of the pandemic and how the aid provided responds to these impacts.

p.36 of the Interim Final Rule published May 10, 2021 by the US Treasury

Yes.

Treasury outlines three categories of additional uses of funds.

1. Building Stronger Communities through Investments in Housing and Neighborhoods
2. Addressing Educational Disparities
3. Promoting Healthy Childhood Environments

Expand the quote below to see Treasury’s interpretation for these broad eligible uses of funds:

\[The funds\]… provide resources to not only respond to the immediate harms of the pandemic but also to mitigate its longer-term impact in compounding the systemic public health and economic challenges of disproportionately impacted populations. Treasury encourages recipients to consider funding uses that foster a strong, inclusive, and equitable recovery, especially uses with long-term benefits for health and economic outcomes.

p.41 of the Interim Final Rule published May 10, 2021 by the US Treasury

Premium pay is extra money to compensate essential workers who faced and continue to face elevated health risks due to working during the pandemic. The rule states that eligible workers are those whose work involves regular in-person interactions or regular physical handling of items that were also handled by others.

"… to remunerate essential workers for the elevated health risks they have faced and continue to face during the public health emergency. To ensure that premium pay is targeted to workers that faced or face heightened risks due to the character of their work, the Interim Final Rule defines essential work as work involving regular in-person interactions or regular physical handling of items that were also handled by others."

p.47 of the Interim Final Rule published May 10, 2021 by the US Treasury

The regulations clarify that remote worker positions, management positions, and other types of positions that did not involve regular in-person interactions would not be eligible and that not all work in all sectors is essential. It specifically calls out healthcare, childcare, education, transportation, food production and services, and other industries as among those that are essential and thus eligible.

"…industries recognized as essential critical infrastructure sectors…include healthcare, public health and safety, childcare, education, sanitation, transportation, and food production and services, among others as noted above. As provided under sections 602(g)(2) and 603(g)(2), the chief executive of each recipient has discretion to add additional sectors to this list, so long as additional sectors are deemed critical to protect the health and well-being of residents."

p.48 of the Interim Final Rule published May 10, 2021 by the US Treasury

Yes, premium pay is capped to keep within the bounds of the legislative intent of a proportionate response. Premium pay requires a justification if it would increase a worker’s total pay above 150% of the average annual wage for all occupations in the state or the county.

The table below illustrates three scenarios for giving eligible workers a $10,000 premium pay bonus. In the first two scenarios, the total pay including the premium pay bonus would remain under the state, the county, or both income caps and not require further justification from the recipient. In the third scenario, however, the high base pay of the employee means that any premium pay would need to be accompanied by a written justification to the Treasury.

Example created by Civilytics.

Treasury has full language clarifying the intent of these regulations.

“If premium pay would increase a worker’s total pay above 150 percent of their residing state’s average annual wage for all occupations, as defined by the Bureau of Labor Statistics’ Occupational Employment and Wage Statistics, or their residing county’s average annual wage, as defined by the Bureau of Labor Statistics’ Occupational Employment and Wage Statistics, whichever is higher, on an annual basis, the State, local, or Tribal government must provide Treasury and make publicly available, whether for themselves or on behalf of a grantee, a written justification of how the premium pay or grant is responsive to workers performing essential worker \[sic\] during the pandemic.”

p.49-50 of the Interim Final Rule published May 10, 2021 by the US Treasury

Yes. Premium pay may be provided retrospectively for work performed any time since the start of the public health emergency, and Treasury encourages recipients to provide retrospective premium pay where possible to essential workers who have not yet been adequately compensated for work previously performed. However, such compensation must be in addition to wages already received – that is, employers may not use FRF to compensate themselves for premium pay previously provided.

“The definition of premium pay also clarifies that premium pay may be provided retrospectively for work performed at any time since the start of the COVID-19 public health emergency, where those workers have yet to be compensated adequately for work previously performed. Treasury encourages recipients to prioritize providing retrospective premium pay where possible, recognizing that many essential workers have not yet received additional compensation for work conducted over the course of many months. Essential workers who have already earned premium pay for essential work performed during the COVID-19 public health emergency remain eligible for additional payments, and an essential worker may receive both retrospective premium pay for prior work as well as prospective premium pay for current or ongoing work. \[…\] However, such compensation must be ‘in addition to’ remuneration or wages already received. That is, employers may not reduce such workers’ current pay and use Fiscal Recovery Funds to compensate themselves for premium pay previously provided to the worker.”

p.50-51 of the Interim Final Rule published May 10, 2021 by the US Treasury

Treasury assumes recipients will distribute the funds through grants to employers who will then make the necessary disbursement to their workers. Grants to private employers will need to be monitored and reported to Treasury for public disclosure to ensure transparency and appropriate use of the funds.

“To ensure any grants respond to the needs of essential workers and are made in a fair and transparent manner, the rule imposes some additional reporting requirements for grants to third-party employers, including the public disclosure of grants provided. See Section VIII of this Supplementary Information, discussing reporting requirements. In responding to the needs of essential workers, a grant to an employer may provide premium pay to eligible workers performing essential work, as these terms are defined in the Interim Final Rule and discussed above.”

p.51 of the Interim Final Rule published May 10, 2021 by the US Treasury

Recipient governments have broad latitude to use FRF to pay for continuation of government services at pre-pandemic levels and avoid “austerity measures” in the face of revenue losses resulting from COVID-19. Treasury encourages governments “to use payments from the Fiscal Recovery Funds to avoid cuts to government services and, thus, enable State, local, and Tribal governments to continue to provide valuable services and ensure that fiscal austerity measures do not hamper the broader economic recovery.” (p. 53)

Revenue Loss will be defined by measuring decreases in “general revenue” which Treasury clarifies will follow the components of revenue reported in the Census Bureau’s Annual Survey of State and Local Government Finances.

“The Interim Final Rule adopts a definition of ‘general revenue’ based largely on the components reported under ‘General Revenue from Own Sources’ in the Census Bureau’s Annual Survey of State and Local Government Finances, and for purposes of this Interim Final Rule, helps to ensure that the components of general revenue would be calculated in a consistent manner. By relying on a methodology that is both familiar and comprehensive, this approach minimizes burden to recipients and provides consistency in the measurement of general revenue across a diverse set of recipients.”

p.54 of the Interim Final Rule published May 10, 2021 by the US Treasury

Recipients who demonstrate a decline in general revenue will have significant flexibility in deploying FRF to maintain government operations. Treasury gives specific and clear guidelines on how to calculate the amount of FRF recipients will have available to fund this work.

An important detail is that revenue loss is compared to a counterfactual trend of 4.1 percent annual growth or the annual revenue growth over the prior three years to COVID-19, whichever is higher. This is more generous than calculating revenue loss based on an assumption of flat revenue from the most recent fiscal year and ensures that most recipients will be able to allocate at least a portion of FRF to funding general government operations over the period of the award.

In general, recipients will compute the extent of the reduction in revenue by comparing actual revenue to a counterfactual trend representing what could have been expected to occur in the absence of the pandemic… In other words, the counterfactual trend starts with the last full fiscal year prior to the COVID-19 public health emergency and then assumes growth at a constant rate in the subsequent years. Because recipients can estimate the revenue shortfall at multiple points in time throughout the covered period as revenue is collected, this approach accounts for variation across recipients in the timing of pandemic impacts. Although revenue may decline for reasons unrelated to the COVID-19 public health emergency, to minimize the administrative burden on recipients and taking into consideration the devastating effects of the COVID-19 public health emergency, any diminution in actual revenues relative to the counterfactual pre-pandemic trend would be presumed to have been due to the COVID-19 public health emergency. For purposes of measuring revenue growth in the counterfactual trend, recipients may use a growth adjustment of either 4.1 percent per year or the recipient’s average annual revenue growth over the three full fiscal years prior to the COVID-19 public health emergency, whichever is higher.

p.56-57 of the Interim Final Rule published May 10, 2021 by the US Treasury

Note that “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 \[CARES Act\] or as part of \[ARPA\]” (p. 56).

To help explain what a response under the Revenue Loss use of FRF might look like, Civilytics is including the following worked example.

Consider a city with $500 million in base year general revenue. In this case the base year is the most recent full fiscal year prior to the onset of COVID-19 in the US (January 27, 2020).

Estimate a counterfactual revenue equal to base year revenue *

, where n is the number of months since the end of the base year (p.58).

Select the higher of either 4.1% revenue growth or the growth observed in the three years prior to the COVID-19 public health emergency.

The reduction in revenue is equal to counterfactual revenue less actual revenue. This is the amount eligible for use under this provision.

Assuming Tree City is eligible for $200M in ARPA aid, $62M of it would be eligible for funding general government operations under this Revenue Loss provision (see below). The remainder would need to allocated to other acceptable uses under the act.

The intention of revenue loss funds is to maintain government operations at the level they were expected to reach without a pandemic. As such funds used under this provision have wide latitude and can be used to provide most services normally funded by recipient governments. The following is a non-exhaustive list from the Interim Final Rule:

“Sections 602(c)(1)(C) and 603(c)(1)(C) of the Act provide recipients with broad latitude to use the Fiscal Recovery Funds for the provision of government services. Government services can include, but are not limited to, maintenance or pay-go funded building of infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services.”

p.60 of the Interim Final Rule published May 10, 2021 by the US Treasury

Reporting requirements for funds used in this way are likely to be restricted to demonstrating the amount of the revenue loss and evidence the funds were deployed to make up the difference. Unlike other provisions, Treasury does not indicate additional reporting provisions that may be associated with this use of funds.

Fiscal Recovery Funds can be used to fund “necessary investments” in water, sewer, and broadband infrastructure. “Necessary investments” are defined as those needed to provide an adequate level of service, such as adequate broadband to work or attend school, and those that are unlikely to be made using private funds.

Treasury does place restrictions on how projects using these funds are to be conducted and will institute a separate guidance for reporting requirements on this use in the future:

“To provide public transparency on whether projects are using practices that promote on-time and on-budget delivery, Treasury will seek information from recipients on their workforce plans and practices related to water, sewer, and broadband projects undertaken with Fiscal Recovery Funds. Treasury will provide additional guidance and instructions on the reporting requirements at a later date.”

p.63 of the Interim Final Rule published May 10, 2021 by the US Treasury

Treasury gives some specific examples, including investments in cybersecurity practices to secure drinking water systems, building or upgrades facilities to distribute and store water, etc. Treasury specifically encourages recipients to consider replacing lead service lines because of their impact on children’s health. More broadly, Treasury relies on existing rules and regulations regarding what is and is not water and sewer infrastructure using the projects eligible under the EPA Clean Water State Revolving Fund or Drinking Water State Revolving Fund — projects eligible under these programs would be presumed to be eligible uses.

Recipients may use Fiscal Recovery Funds to invest in a broad range of projects that improve drinking water infrastructure, such as building or upgrading facilities and transmission, distribution, and storage systems, including replacement of lead service lines. Given the lifelong impacts of lead exposure for children, and the widespread nature of lead service lines, Treasury encourages recipients to consider projects to replace lead service lines.

Fiscal Recovery Funds may also be used to support the consolidation or establishment of drinking water systems. With respect to wastewater infrastructure, recipients may use Fiscal Recovery Funds to construct publicly owned treatment infrastructure, manage and treat stormwater or subsurface drainage water, facilitate water reuse, and secure publicly owned treatment works, among other uses. Finally, consistent with the CWSRF and DWSRF, Fiscal Recovery Funds may be used for cybersecurity needs to protect water or sewer infrastructure, such as developing effective cybersecurity practices and measures at drinking water systems and publicly owned treatment works. Many of the types of projects eligible under either the CWSRF or DWSRF also support efforts to address climate change.

p.67 of the Interim Final Rule published May 10, 2021 by the US Treasury

Treasury highlights the need for universally accessible, high-speed, reliable and affordable broadband coverage to meet the needs of the pandemic and protect communities in the future. Recipients are encouraged to invest in areas without existing services, but this is not a requirement in the rule.

“In selecting an area to be served by a project, recipients are encouraged to avoid investing in locations that have existing agreements to build reliable wireline service with minimum speeds of 100 Mbps download and 20 Mbps upload by December 31, 2024, in order to avoid duplication of efforts and resources.”

p.76 of the Interim Final Rule published May 10, 2021 by the US Treasury

Treasury encourages recipients to prioritize support for broadband networks owned, operated by, or affiliated with not-for-profit entities like local governments, co-operatives, and non-profits. As Treasury notes, these providers are more likely to be committed to serving entire communities and have less focus on turning a profit (p. 76).

Treasury defines adequate broadband as upload and download speeds of 100 Mbps and notes that millions of Americans live in areas that do not meet this either because there is no broadband infrastructure or it is unaffordable.

"…tens of millions of Americans live in areas where there is no broadband infrastructure that provides download speeds greater than 25 Mbps and upload speeds of 3 Mbps. By contrast, as noted below, many households use upload and download speeds of 100 Mbps to meet their daily needs. Even in areas where broadband infrastructure exists, broadband access may be out of reach for millions of Americans because it is unaffordable, as the United States has some of the highest broadband prices in the Organisation for Economic Co-operation and Development (OECD). In selecting an area to be served by a project, recipients are encouraged to avoid investing in locations that have existing agreements to build reliable wireline service with minimum speeds of 100 Mbps download and 20 Mbps upload by December 31, 2024, in order to avoid duplication of efforts and resources."

p.70 of the Interim Final Rule published May 10, 2021 by the US Treasury

Treasury does provide some flexibility about the definition of broadband speeds in instances where symmetrical broadband speeds of 100 Mbps would be impractical:

“Under the Interim Final Rule, eligible projects are expected to be designed to deliver, upon project completion, service that reliably meets or exceeds symmetrical upload and download speeds of 100 Mbps. There may be instances in which it would not be practicable for a project to deliver such service speeds because of the geography, topography, or excessive costs associated with such a project. In these instances, the affected project would be expected to be designed to deliver, upon project completion, service that reliably meets or exceeds 100 Mbps download and between at least 20 Mbps and 100 Mbps upload speeds and be scalable to a minimum of 100 Mbps symmetrical for download and upload speeds. In setting these standards, Treasury identified speeds necessary to ensure that broadband infrastructure is sufficient to enable users to generally meet household needs, including the ability to support the simultaneous use of work, education, and health applications, and also sufficiently robust to meet increasing household demands for bandwidth.”

p.71 of the Interim Final Rule published May 10, 2021 by the US Treasury

The US Treasury Interim Final Rule published May 10, 2021 governing the Fiscal Recovery Fund program is broadly permissive. State, Tribal, and local governments are given a variety of eligible uses for funds in order to best meet the recovery needs of their local context. In most cases, for most activities, recipients can treat these funds as largely unrestricted and eligible to support most activities. This document reviews the specific exceptions to that rule.

1. Extraordinary deposits into a pension fund for the purpose of reducing accrued unfunded liability.
2. For State and territorial governments, using the funds to pay for a tax cut.

Deposits are an extraordinary payment for the purpose of reducing accrued unfunded liability. Deposits made in the course of funding an employer contribution as part of the salary and benefits of an employee are not considered a deposit, but instead a “payroll contribution” and are allowed.

the Interim Final Rule does not permit this assistance to be used to make a payment into a pension fund if both: 1. the payment reduces a liability incurred prior to the start of the COVID-19 public health emergency, and 2. the payment occurs outside the recipient’s regular timing for making such payments. Under this interpretation, a “deposit” is distinct from a “payroll contribution,” which occurs when employers make payments into pension funds on regular intervals, with contribution amounts based on a pre-determined percentage of employees’ wages and salaries.

US Treasury Interim Final Rule, p.79, May 10, 2021

No. Treasury clarifies the language to clearly allow payroll contributions to pension funds as eligible expenses when those payroll contributions are eligible costs under the other provisions of the law.

Accordingly, if an employee’s wages and salaries are an eligible use of Fiscal Recovery Funds, recipients may treat the employee’s covered benefits as an eligible use of Fiscal Recovery Funds. For purposes of the Fiscal Recovery Funds, covered benefits include costs of all types of leave (vacation, family-related, sick, military, bereavement, sabbatical, jury duty), employee insurance (health, life, dental, vision), retirement (pensions, 401(k)), unemployment benefit plans (Federal and State), workers’ compensation insurance, and Federal Insurance Contributions Act taxes (which includes Social Security and Medicare taxes).

US Treasury Interim Final Rule, p.80, May 10, 2021

Treasury clarifies this provision only applies to State and territorial governments — not local or Tribal governments. A tax cut is referred to by Treasury as a “reduction in net tax revenue.” The rule goes into great detail about how Treasury will monitor and verify this provision. The intent of the rule is to avoid fiscal recovery funds being used to reduce government spending and deny funding to much needed recovery efforts in State and territorial governments.

Moreover, this approach recognizes that, because money is fungible, even if Fiscal Recovery Funds are not explicitly or directly used to cover the costs of changes that reduce net tax revenue, those funds may be used in a manner inconsistent with the statute by indirectly being used to substitute for the State’s or territory’s funds that would otherwise have been needed to cover the costs of the reduction. By focusing on the cost of changes that reduce net tax revenue—and how a recipient government is offsetting those reductions in constructing its budget over the covered period—the framework prevents efforts to use Fiscal Recovery Funds to indirectly offset reductions in net tax revenue for which the recipient government has not identified other offsetting sources of funding.

US Treasury Interim Final Rule, p.82-83, May 10, 2021

Treasury identifies a 4-step process in the Interim Final Rule that will be used to verify that funds were not used to offset tax cuts.

1. Recipients will identify and value the changes in law that would result in a reduction of tax revenue and the sum of these values is the amount to be “paid for” with sources other than Fiscal Recovery Funds.
2. If the total value of the reductions in tax revenue is below a minimum threshold (1%) then no sources of funding are needed.
3. If the tax revenue in any year is greater than the amount of the tax revenue for the fiscal year ending in 2019 adjusted for inflation then there is no net reduction in tax revenue.
4. If neither #2 or #3 is true, then the recipient government needs to identify tax changes that would increase the general fund revenue and spending cuts in areas not being replaced by Fiscal Recovery Funds to offset the total value of covered tax changes.

A recipient government will not be required to repay to the Treasury an amount that is greater than the recipient government’s actual tax revenue shortfall relative to the baseline (i.e., fiscal year 2019 tax revenue adjusted for inflation). This “revenue reduction cap,” together with Step 3, ensures that recipient governments can use organic revenue growth to offset the cost of revenue reductions.

US Treasury Interim Final Rule, p.84, May 10, 2021

Further details and clarifications of this process that are helpful to affected recipients (State and territorial government officials) are available on p.85-88 of the Interim Final Rule.

Yes. Fiscal Recovery Funds are subject to other limitations and restrictions provided by Federal statutes. Most importantly, Fiscal Recovery funds cannot be used as non-Federal matching funds for Federal programs that bar the use of Federal funds for meeting matching requirements. (p. 96)

Also, recipients should be aware that the Universal Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200 of the Uniform Guidance) apply to Fiscal Recovery Funds as well.

As provided for in the award terms, payments from the Fiscal Recovery Funds as a general matter will be subject to the provisions of the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (2 CFR 200) (the Uniform Guidance), including the cost principles and restrictions on general provisions for selected items of cost.

US Treasury Interim Final Rule, p.97, May 10, 2021

Treasury will review all required reporting of Fiscal Recovery Fund uses in order to ensure compliance with these regulations and the statute. Treasury notes that compliance failure will be identified based on reporting provided by recipients. But, Treasury also reserves the right to consider other information to aid it in identifying a violation such as information from members of the public. Once a violation has been identified, a multi-step process of fact-finding will begin (p.100) to determine how much, if any, funding is to be recouped.

1. Treasury will submit a notice to a recipient government informing them of its finding of ineligible uses of funds and the amount of money to be recovered.
2. Recipient has 60 calendar days to submit a request for reconsideration (an appeal) of the decision by Treasury. This request should include:
   1. A full explanation of why the finding should be reconsidered
   2. Submission of all relevant additional information to support the request
   3. Additional information relevant to determining if a violation occurred (e.g. evidence of eligible uses of funds)
3. Within 60 calendar days of receipt of the appeal the recipient will be notified by the Secretary of Treasury of the decision to affirm, withdraw, or modify the notice of recoupment. This decision is final.
   1. This notice will include an explanation of the decision including responses to the recipient’s supporting reasons and considerations of additional information.
4. Any amount subject to recoupment must be paid within 120 calendar days of receipt of any final notice. If there is no request for reconsideration payment must be made within 120 calendar days of the initial notice.