Lori A. Lordo, CPA
As local governments begin to take advantage of the 2021 American Rescue Plan Act, we would like to provide an overview of the funding applicable to local governments, eligible expenditures and reporting requirements.
What is the Coronavirus Local Fiscal Recovery Fund and What Activities are Unallowed for Reimbursement?
The Coronavirus Local Fiscal Recovery Fund (FRF) divides $130.2 billion evenly between counties, municipalities, and metropolitan cities, with $65.1 billion allocated to counties, $45.47 billion allocated to metropolitan cities, and $19.53 billion allocated to non-entitlement units (NEU) or municipalities. A metropolitan city is defined as having a population of 50,000 or more whereas a non-entitlement unit (NEU) or municipality is defined as having a population of 50,000 or less. FRF can be used to cover eligible expenditures obligated by December 31, 2024 and performed by December 31, 2026.
What activities are unallowable?
- FRF recipients are not eligible for reimbursement for extraordinary pension fund contributions. (However, FRF can be used to fund routine payroll contributions for pensions of employees whose wages or salaries are an eligible use.)
- Funding debt service, legal settlements, or judgements
- Deposits to rainy day funds or financial reserves
- FRF cannot be used as non-federal match for federal programs whose statute bans other federal funds to meet matching requirements.
- States have an additional restriction that they can’t use the money to offset a net tax reduction.
Can FRF be transferred?
Yes. FRF funds can be transferred by a metropolitan city, NEU, or county to the following entities:
- Private nonprofits as defined in the McKinney-Vento Homeless Assistance Act at 42 U.S.C. 11360. (This is a federal law that provides federal money for homeless shelter programs.)
- Public benefit corporation involved in the transportation of passengers or cargo
- Special-purpose unit of a state or local government
- To the state which such entity is located
Recently, there have been several FAQ clarifications regarding eligible expenditures. You should expect that guidance and FAQ’s will be updated frequently throughout the year by the Treasury. Failure to comply with restrictions on use contained within the guidance will result in recoupment of funds by the U.S. Treasury.
There are five categories of allowable uses of funds as further explained below.
Category #1: Support the Public Health Response
Funding may be used to address a broad range of public health needs including COVID-19 mitigation efforts, medical expenses, behavioral healthcare, and public health and safety staff with the covered period beginning March 3, 2021. Specific examples of mitigation efforts eligible for funding include (but are not limited to) vaccination programs, medical expenses, testing, contact tracing, isolation or quarantine, PPE purchases, support for vulnerable populations to access medical or public health services, public health surveillance, enforcement of public health orders, public communication efforts, enhancement of healthcare capacity, including alternative care facilities, support for prevention, mitigation or other services in congregate living, enhancement of public health data systems, capital investments in public facilities to meet pandemic operational needs, and ventilation improvements in key settings like healthcare facilities and public facilities.
Funding may also support behavioral healthcare needs including mental health treatment, substance misuse treatment, other behavioral health services, crisis intervention, services, or outreach to promote access to health and social services, and hotlines or warmlines. Additionally, funding can be used to cover payroll costs and covered benefit expenses for employees involved in public health, healthcare, human services, public safety, and similar employees if their services are devoted to mitigating or responding to the pandemic. Public health and public safety workers may be considered entirely devoted to mitigating or responding to the pandemic, and therefore fully covered, if the employee or their unit or division is considered primarily dedicated to responding to the pandemic. FRF recipients in this classification should reassess their workers’ responsibilities periodically and maintain records to support this assessment. Support would include payroll records, attestations from supervisors or staff, or regular work products demonstrating work on COVID-19 response.
Category #2: Responding to Negative Economic Impacts
Eligible uses that respond to the negative economic impacts of the pandemic must be designed to address an economic harm resulting from or exacerbated by the public health emergency. Responses must be related and reasonably proportional to the extent and type of harm experienced; uses that bear no relation or are grossly disproportionate to the type or extent of harm experienced would not be eligible uses.
What are eligible uses to respond to negative economic impacts?
- Assistance to unemployed workers
- Assistance to households
- Expenses to improve efficacy of economic relief programs
- Small businesses and non-profits
- Rehiring state and local government staff
- Aid to impacted industries
Additionally, the following are eligible expenses in QCT’s or other areas disproportionately impacted by the pandemic:
- Building stronger communities through investments in housing and neighborhoods
- Addressing educational disparities
- Promoting healthy childhood environments
What are eligible uses to address disparities in disproportionately impacted communities?
Additional services are deemed eligible when provided in a Qualified Census Tract (QCT) or to others disproportionately impacted by the pandemic. Services must facilitate access to resources that improve health outcomes, including services that connect residents with health care resources and public assistance programs and build healthier environments. This includes:
- 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
Category #3: Provide Government Services to the Extent of Reduction in Revenue
Recipients may use payments from the FRF for government services to the extent of the reduction in revenue experienced due to the pandemic. Reduction in revenue is measured relative to revenue collected in the most full fiscal year prior to the emergency. If on a calendar year, revenue is measured from 2019.
How is general revenue defined?
General revenue includes revenues collected by the recipient and generated from the underlying economy.
- It’s loosely based on the Census Bureau’s definition of general revenue.
- It includes a range of different tax revenues as well as other types of revenue that are available to support government services.
- In calculating revenue, the recipient should sum it across revenue streams covered as general revenue on an entity-wide basis.
- It includes intergovernmental transfers between state and local governments that are non-federal revenues.
What categories are excluded from general revenue?
- Refunds or recoveries spent in the same fiscal year, which are deducted from expenditures
- Other correcting transactions
- Proceeds from issuance of debt or sale of investments
- Agency or private trust transactions
- All Intergovernmental transfers from the federal government including amounts passed through the state or other local governments
- Revenue from utilities and insurance trusts
To measure growth, use the higher of 4.1% or the recipient’s average annual revenue growth over the 3 full fiscal years prior to the pandemic.
What are eligible government services expenditures to offset revenue loss?
Government services can include but not be limited to:
- Maintenance of infrastructure or pay-go spending for building new infrastructure, including roads and bridges
- Modernization of cybersecurity, including hardware, software, and protection of critical infrastructure
- Health services
- Environmental remediation
- School or educational services; and
- Police, first responders, and other public safety services
What are ineligible government services to offset revenue loss?
- Interest or principal on any outstanding debt instrument
- Generally, satisfaction of any obligation arising under or pursuant to a settlement agreement, judgment, consent decree
- Replenishing financial reserves (e.g., rainy day or other reserve funds)
- Any pension fund contributions not directly related to eligible salaries charged to FRF
Category #4: Premium Pay
Premium pay can be paid to eligible workers performing essential work. “Premium pay” means an additional amount up to $13 per hour that is paid to an eligible worker during the pandemic. A cap of $25,000 is imposed for any single eligible worker. Premium pay also includes grants to third-party employers that have eligible workers who perform essential work. Premium pay can be retroactive back to January 27, 2020 (double dipping is not allowed).
How is premium pay defined?
Essential Work is defined as work involving regular in-person interactions or regular physical handling of items that were also handled by others. Essential work does not include telework performed from a residence
Eligible workers are defined as workers needed to maintain continuity of operations of essential critical infrastructure sectors. This includes any work performed by an employee of a state or local government.
Note that if premium pay increases worker’s total pay above 150% of the residing state’s average annual wage for all occupations, the FRF recipient must provide the Treasury and make widely available a written justification of how the premium pay is responsive to workers performing essential work during the public health emergency.
What are examples of premium pay for eligible workers?
- Any work performed by an employee of the state, or local government
- 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
Category #5: Make Necessary Investments in Water, Sewer, Stormwater, or Broadband Infrastructure
This category allows for a broad range of necessary investments in projects that improve access to clean drinking water, improve wastewater and stormwater infrastructure systems, and provide access to high-quality broadband service. Necessary investments are designed to provide an adequate minimum level of service and are unlikely to be made using private sources of funds.
Necessary investments include projects that are required to maintain a level of service that, at least, meets applicable health-based standards, considering resilience to climate change, or establishes or improves broadband service to unserved or underserved populations to reach an adequate level to permit a household to work or attend school, and that are unlikely to be met with private sources of funds.
Projects should include strong labor standards, project labor agreements, offer wages at or above prevailing wage rates, and include local hire provisions.
What are eligible infrastructure projects?
- Includes stormwater infrastructure that improves access to clean drinking water
- Infrastructure projects selected for FRF would also need to qualify for financial assistance through the Environmental Protection Agency (EPA) through the Clear Water State Revolving Fund (CWSRF) or Drinking Water State Revolving Fund (DWSRF). Types of projects eligible for CWSRF assistance include 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; protect waterbodies from pollution; and develop effective cybersecurity practices and measures. Projects may invest in the following DWSRF projects to improve drinking water infrastructure such as building or upgrading facilities and transmission, distribution and storage systems and the replacement of lead service lines.
- Wastewater infrastructure projects can consist of the construction of publicly owned treatment infrastructure, management and treatment of stormwater or subsurface drainage water, facilitation of water reuse, or securing of publicly owned treatment works.
- Broadband should support households and businesses that do not deliver 25 Mbps download/3 Mbps upload.
- Fund projects that deliver reliable services a minimum 100Mbps download/100 Mbps upload speed unless impracticable due to geography, topography or excessive costs.
- May also develop effective cybersecurity practices and measures.
Reporting Requirements for NEU’s
- NEU’s first reporting deadline will be April 30, 2022.
- NEU’s will be required to submit an annual project and expenditure report to the Treasury until 12/31/26.
- The initial report will cover activity from the date of award to September 30, 2021.
The first report should include the following:
- NEU Recipient Number (unique identification code; assigned by the state to the NEU as part of the request for funding)
- Copy of signed award terms and conditions agreement
- Copy of signed assurances of compliance with Title VI of Civil Rights Act of 1964
- Copy of actual budget documents validating top-line budget total provided to the state as part of the request for funding (should be the same as submitted to the state).
- States, territories, counties, and cities, and Tribal governments will be required to report project and expenditure data next on January 31, 2022.
Reporting Requirements – Project & Expenditure Reports
Reports are to be filed quarterly for states, counties, and metropolitan cities that receive more than $5 million in FRF. The initial report will cover 3 quarters and will be due on January 31, 2022. The report will be filed annually for counties and metropolitan cities that receive less than $5 million FRF and NEU’s. Annual filers first reporting deadline will be on April 30, 2022 and will be due on October 31st in subsequent years. Subsequent reports must be submitted within 30 days after end of the reporting period. FRF recipients are required to report by expenditure category and projects. The Expenditure Category (EC) is a coding system to track how funding is used and is used to identify where additional programmatic data is required.
-Appendix 1 of the Treasury Compliance & Reporting Guidance lists 66 expenditure categories.
-EC’s with a * require evidence-based intervention reporting.
-EC’s with a ^ must report on whether projects are primarily serving disadvantaged communities.
-Project reporting is defined as closely related activities toward a common purpose/goal. Each project must align to one Expenditure Category. FRF recipients will be required to report on project status (not started; less than 50%; 50% or more; and completed).
What other reporting is required?
- Project inventory
- Project demographic distribution – funding in economically disadvantaged communities
- Civil rights compliance
- Subawards – obligations & expenditures ≥ $50,000
- Programmatic data
Recovery Plan Performance Report
This is a strategic plan on how a FRF recipient will spend the money and is required for states, counties and metropolitan cities with more than 250,000 in population. This report will include key performance indicators as well as programmatic data. The initial report is due August 31st and will be submitted annually thereafter.
Does an FRF recipient have to comply with Single Audit requirements?
Possibly, since federal funding is being provided under this Act. CFDA number 21.027 has been assigned to the Coronavirus State and Local Fiscal Recovery Funds with reporting required based upon when the expenditures were incurred not when cash has been received. A Single Audit will need to be completed if total federal funds (including Coronavirus Local Fiscal Recovery Funds) are over the $750,000 threshold. The audit will be subject to the provisions of the Uniform Administrative Requirements, Cost Principles, and Uniform Guidance including the cost principles and restrictions on general provisions for selected items of cost. If FRF are the only federal funds received in 2021, an FRF recipient should consider a program specific audit instead of a single audit if they qualify. To qualify, the FRF can only have one CFDA number and permission must be obtained from the grantor (federal/state).