January 7, 2022 | Cole Karr
The U.S. Department of the Treasury issued Thursday its final rule for the American Rescue Plan Act’s (ARPA) $350 billion Coronavirus State and Local Fiscal Recovery Fund (CSLFRF).
While special districts are not eligible for direct CSLFRF funds, ARPA definitively authorizes states, counties, and cities to transfer funds that they receive to special districts. NSDC believes it is important to keep special district members informed on the latest developments so that districts can understand eligible uses of funds and whether a transfer request is appropriate. Accordingly, NSDC encourages special districts to communicate their eligible needs to their city, county, and state governments and request CSLFRF transfers to accommodate unmet needs. Should districts receive transfers of funds, the transferring state, county, or city would be responsible for all regulatory reporting requirements on districts’ use of funds to Treasury.
States that received the first half of their allocation under the State Coronavirus Recover Fund last spring will receive their second tranche on May 10, 2022. Counties and metropolitan cities (those with populations greater than 50,000) will receive their second tranche of the Local Coronavirus Fiscal Recovery Fund no sooner than one year from the 2021 date they received their first tranche.
The final rule will take effect April 1, 2022. While state and local governments may continue obligating funds under the interim rule’s guidance until the effective date without penalty, governments also may leverage funds using the final rule’s guidance now.
Treasury considered more than 1,500 comments to the May 17, 2021 interim final rule and made changes fostering greater program flexibility and ease of use. Primary adjustments of concern for special districts in the rule include bolstering and streamlining the fund’s use under its revenue loss provision, expanding use of funds to respond to public health and economic impacts, allowing use of funds to enhance public sector workforce capacity above pre-pandemic levels, providing additional criteria for determining “necessary” investments in water and wastewater infrastructure.
Major elements of the final rule are outlined below.
Addressing Public Sector Revenue Loss
CSLFRF’s final rule makes substantial changes to strengthen governments’ ability to backfill revenue losses and utilize the funds for general government services. Treasury defines “government services” to include any service the government traditionally provides, such as hospital construction, infrastructure construction and maintenance, public safety services, health services, and more. This includes, but is not limited to, purchase of firetrucks, ambulances, medical equipment, and transportation services.
The final rule outlines two options for calculating revenue loss.
- Option 1: A government agency may utilize a “standard allowance” of up to $10 million to accommodate lost revenues due to the pandemic. Treasury determined this amount to be the average revenue loss due to the pandemic across states and localities. If an agency receives less than $10 million for its total award, then the full amount may be utilized under the revenue loss provision.
- Option 2: Calculating revenue loss as the difference between actual revenues received and what the projected revenue growth rate would have been over the course of the eligibility period.
The final rule clarifies that the calculation should use as the base year the full fiscal year completed prior to January 27, 2020, when the public health emergency was declared. Treasury will now allow the base projected growth rate to be either 5.2 percent over three years or the agency’s rate of growth over the three fiscal years prior to the public health emergency – whichever is greater.
Click here to read Treasury’s instructions to calculate revenue loss using Option Two’s formula.
Funds received under the revenue loss category may be used for non-federal match and cost-sharing requirements for other grant programs except for cost-share on states’ Medicaid and Children’s Health Insurance Program (CHIP).
COVID-19-Related Expenditures and Addressing Economic Impacts
Expenditures in response to COVID-19
Efforts made to mitigate and prevent the spread of COVID-19 between March 3, 2021, and December 31, 2024, are eligible for reimbursement and for use at any time during the eligibility period. Generally, expenditures must be made in a response to the public health emergency or an issue resulting from the pandemic. The final rule offers a non-exhaustive list of eligible projects that includes, but is not limited to:
- Vaccination programs, including vaccine incentives and vaccine sites
- Testing programs, equipment, and sites
- Monitoring, contact tracing & public health surveillance (e.g., monitoring for variants)
- Public communication efforts
- Public health data systems
- COVID-19 prevention and treatment equipment, such as ventilators and ambulances
- Medical and personal protective equipment
- Support for isolation or quarantine
- Ventilation system installation and improvement
- Technical assistance on mitigation of COVID-19 threats to public health and safety
- Transportation to reach vaccination or testing sites, or other prevention and mitigation services for vulnerable populations
- Support for prevention, mitigation, or other services in congregate public facilities
- Medical facilities generally dedicated to COVID-19 treatment and mitigation
- Temporary medical facilities and other measures to increase COVID-19 treatment capacity
- Emergency operations centers & emergency response equipment (e.g., emergency response radio systems)
- Public telemedicine capabilities for COVID-19 related treatment
Consistent with the interim final rule, use of funds also includes behavioral and mental health programs and efforts to respond to public safety concerns and increased crime experienced throughout the pandemic.
Payroll and Benefits for Public Health and Safety Workers
Especially significant for more than 7,500 special districts providing health and emergency services, the CSLFRF may be utilized to cover payroll and benefits of public health and safety staff including emergency medical responders, firefighters, police officers, and employees providing medical and mental health services, as well as all supervisory and support personnel.
For administrative convenience, the final rule allows full payroll and benefits of an employee that is at least 51 percent dedicated to COVID-19 response. CSLFRF funding will cover the salary and benefits of employees with 50 percent or less of time devoted to responding to COVID-19 in proportion to the hours worked responded to the public health crisis.
The salary and benefit provision for public health and safety workers is covered between March 3, 2021, and December 31, 2024.
Capital investment projects continue to be eligible under CSLFLF in response to public health, public safety, and economic impacts of the pandemic. Governments should identify the need for the investment due to COVID-19 and how the investments are a solution to communities’ needs. These may include, but are not limited to, hospitals, schools, and affordable housing in underserved communities. Treasury has established project thresholds outlining regulatory reporting requirements for recipients.
Utility Arrearage and Property Tax Assistance
The final rule allows utility arrearages as an eligible expense, considered “assistance to households.” Furthermore, the final rule also allows recipients to provide support for households to make property tax payments.
Public Workforce Recruitment and Retention
The final rule expands public agencies’ ability to leverage funds to recruit and fill positions vacated due to the pandemic. Recipients of funds may either use funds to hire and pay employees’ salary and benefits for positions that existed on January 27, 2020, but were either unfilled or eliminated as of March 3, 2021. Alternatively, state and local governments may use funds to increase their workforce and pay new salaries and benefits at a 7.5 percent cap above the agency’s pre-pandemic workforce budget.
Public sector employers may also leverage CSLFRF to provide additional pay for workers who experienced pay cuts or furloughs during the pandemic. Agencies may also utilize funds to ensure no future reductions in pay or staff take effect. Finally, governments may provide retention incentives for employees of up to 25 percent of their base pay.
Special districts receiving CSLFRF transfers may utilize the funds to offer premium pay to eligible workers that were required to report to work in-person and had regular, in-person interactions with other individuals or objects handled by other individuals, thus risking COVID exposure.
The final rule identifies “eligible workers” as those who were needed for the continuation of critical infrastructure and essential services during the pandemic. Treasury’s non-exhaustive list of eligible employees include those in the state and local government workforce. Special districts with employees providing services such as emergency response, fire protection, healthcare, home healthcare, childcare services, electricity, drinking water, wastewater treatment and sanitation, cemetery, transit, cargo logistics (such as ports), and other critical infrastructure services may consider premium pay as an option to eligible employees.
Premium pay allows for up to $13 per hour in addition to an eligible employee’s regular wage; however, the total of the regular wage and premium pay bonus should not exceed 150 percent of a state’s average hourly wage for all occupations. The maximum amount of premium pay an eligible employee may receive is $25,000. Agencies may provide retroactive premium pay dating back to January 27, 2020. Workers are eligible to receive premium pay until December 31, 2024.
Water, Sewer, and Broadband
Water and Sewer Projects
Consistent with the interim final rule, all projects that are otherwise eligible for EPA’s Drinking Water State Revolving Fund and Clean Water State Revolving Fund are considered to meet the outlined “necessary investments” standard.
In addition, Treasury is expanding the definition of “necessary investments” in water and sewer infrastructure beyond the interim final rule’s limitation to projects otherwise eligible for the Drinking Water and Clean Water state revolving funds.
The final rule defines a “necessary investment in infrastructure” as a project that meets three criteria. The project must be:
- Responsive to an identified need to achieve or maintain an adequate minimum level of service, which may include a reasonable projection of increased need, whether due to population growth or otherwise.
- A cost-effective means for meeting that need, considering available alternatives.
- Projected to be sustainable over its estimated useful life if the project that would add drinking water supply to meet projected population growth.
In the final rule, Treasury outlines examples of “necessary investments” as the following (not an exhaustive list):
- Stormwater infrastructure including culvert maintenance and repair as well as replacement of storm sewer systems.
- Projects to improve safe drinking water quality at residential well sites.
- Certain dam and reservoir rehabilitation for facilities with the primary purpose of providing drinking water – including habitat restoration projects.
- Lead remediation activities.
The final rule determines “necessary” investments in broadband services to be those that would provide standard high-speed internet services in communities that lack access to reliable and affordable broadband services. The CSLFRF requires public agencies to prioritize this use of funds that would provide 100 mbps download/20 mbps speed through wireline connections. Projects that have alternative federal or state broadband expansion funds already allocated should not be considered for CSLFRF funds.
The use of funds for broadband expansion should be focused on last-mile connections, and Treasury encourages local governments to provide support with these funds to existing high speed networks that be owned by or affiliated with local governments, nonprofits, and cooperatives.
Finally, service providers receiving or benefiting from project funds will be required to provide a subsidy program for low-income households, which can be accomplished by either requiring participation in the Federal Communications Commission’s Affordable Connectivity Program or provide access to an affordability program comparable to the Affordable Connectivity Program. Recipients are also encouraged to include a low-cost internet plan that is not subject to data usage caps.
Regardless of available uses on any of the above categories, U.S. Treasury has stressed in its formal announcements that it will not pre-approve any eligible projects.
Restrictions of Use
Special districts accessing CSLFRF funds through a transfer from a state or local government should be aware of key restrictions on use of funds. Primary restrictions of general concern to districts include:
- Funds should not be used for debt services or replenishing financial reserves.
- The final rule continues to expressly prohibit program funds to be deposited into pension accounts; however, local agencies may continue to provide payroll contributions for public health and safety staff whose payroll and benefits may be covered using CSLFRF.
- Payments on legal settlements and judgments.
- New in the final rule, funds cannot be used to undermine COVID-19 public health and safety practices or counteract Centers for Disease Control and Prevention (CDC) guidance and recommendations.
Treasury will provide additional resources on the final rule in the form of FAQ documents as the Department receives questions in the time ahead. NSDC will notify members of the documents’ availability as well as any further updates as they become available.
CSDA members can expect in the near future additional tools and guidance regarding accessing CSLFRF funds from their respective Counties in order to take advantage of the many existing and expanded fund uses noted in this brief.
Contact Cole Karr, NSDC Federal Advocacy Coordinator, for questions.