Beaumont City Council
October 17, 2023

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4427 generally would not be able to offset a
reduction in net tax revenue occurring
after December 31, 2024.

For these reasons, Treasury is
maintaining this element of the interim
final rule without change.
(2) In excess of the de minimis. Under
the framework established in the
interim final rule, after establishing that
a covered change occurred, the recipient
government next calculates the total
value of all covered changes in the
reporting year resulting in revenue
reductions, identified in Step 1. If the
total value of the revenue reductions
resulting from these changes is below
the de minimis level, the recipient
government is deemed not to have any
revenue -reducing changes for the
purpose of determining the recognized
net reduction. If the total is above the de
minimis level, the recipient government
must identify sources of in -year revenue
to cover the full costs of changes that
reduce tax revenue. Under the interim
final rule, the de minimis level is
calculated as 1 percent of the reporting
year's baseline.

Public Comment: Many commenters
supported the inclusion of the de
minimis, noting that the de minimis
protects recipients from penalty
resulting from minor or incidental
changes, minimizes administrative
burden, and enhances predictability of
the application of the offset provision.

Some commenters expressed concern
that the fixed threshold could result in
cliff effects.

Treasury Response: A clear de
minimis threshold supports recipient
governments' compliance with the offset
provision. A de minimis level
recognizes the inherent challenges and
uncertainties that recipient governments
face, and thus allows relatively small
reductions in tax revenue without
consequence. In other words, states and
territories may make many small
changes to alter the composition of their
tax revenues or implement other
policies with marginal effects on tax
revenues. They may also make changes
based on projected revenue effects that
turn out to differ from actual effects,
unintentionally resulting in minor
revenue changes that are not fairly
described as "resulting from" tax law
changes. However, a de minimis does
not automatically result in
consequences under the offset
provision, since a recipient government
could demonstrate that other, non-
SLFRF funds to offset a net reduction in
tax revenue. Accordingly, any cliff
effects associated with a clear de
minimis threshold are mitigated by
other aspects of the framework.

Public Comment: Commenters
expressed a range of views regarding the
amount of the de minimis. Some
commenters argued that the de minimis
was too generous, noting that the choice
of 1 percent could, in some cases,
permit reductions in net tax revenue of
hundreds of millions of dollars. These
commenters advocated that the de
minimis be lowered (e.g., to 25 basis
points) or be tied to a fixed amount.

Other commenters argued that the
choice of de minimis was not well
supported by the statute, advocated for
a larger de minimis and suggested that
the amount be tied to the recipient
government's total expenditures in the
prior fiscal year.

Treasury Response: Treasury adopted
a de minimis threshold as an
administrative accommodation for the
reasons discussed above. As discussed
in the interim final rule, Treasury
determined that the 1 percent de
minimis level reflects the historical
reductions in revenue due to minor
changes in state fiscal policies and was
determined by assessing the historical
effects of state -level tax policy changes
in state EITCs implemented to effect
policy goals other than reducing net tax
revenues.362
For these reasons, Treasury is
adopting the 1 percent de minimis
without change.
(3) Safe harbor. Next, under the
interim final rule, if the revenue
reduction caused by the covered
changes exceeds the 1 percent de
minimis threshold, the recipient
government compares the reporting
year's actual tax revenue to the baseline.

If actual tax revenue is greater than the
baseline, Treasury will deem the
recipient government not to have any
recognized net reduction for the
reporting year, and therefore to be in a
safe harbor and outside the ambit of the
offset provision. This approach is
consistent with the ARPA, which
contemplates recoupment of SLFRF
funds only in the event that such funds
are used to offset a reduction in net tax
revenue. If net tax revenue has not been
reduced, the offset provision does not
apply. In the event that actual tax
revenue is above the baseline, the
organic revenue growth that has
occurred, plus any other revenue -raising
changes, by definition must have been
enough to offset the in -year costs of any
covered changes. One commenter
argued that the offset for organic growth
be adjusted to reflect population growth.

To minimize administrative burden, and
362 Data provided by the Urban -Brookings Tax
Policy Center for state -level EITC changes for 2004-
2017.
for the reasons discussed above,
Treasury is maintaining the
measurement of actual tax revenue
without adjustment for population
growth.
(4) Consideration of other sources of
funding. The recipient government will
then identify and calculate the total
value of changes that could pay for
revenue reduction due to covered
changes and sum these items. This
amount can be used to pay for up to the
total value of revenue -reducing changes
in the reporting year. These changes
consist of two categories:
(a) Tax and other increases in
revenue. The recipient government must
identify and consider covered changes
in policy that the recipient government
predicts will have the effect of
increasing general revenue in a given
reporting year. Recipient governments
should use the same approach to
identify and value covered changes that
increase tax revenue as applied to
covered changes that reduce tax
revenue. For the reasons discussed
above, Treasury is adopting these
aspects of identifying and valuing
covered changes without change.
(b) Covered spending cuts. A recipient
government also may cut spending in
certain areas to pay for covered changes
that reduce tax revenue, up to the
amount of the recipient government's
net reduction in total spending as
described below. These changes must be
reductions in government outlays in an
area where the recipient government has
not spent SLFRF funds. To better align
with existing reporting and accounting,
the interim final rule considers the
department, agency, or authority from
which spending has been cut and
whether the recipient government has
spent SLFRF funds on that same
department, agency, or authority. If the
recipient government has not spent
SLFRF funds in a department, agency,
or authority, the full amount of the
reduction in spending counts as a
covered spending cut, up to the
recipient government's net reduction in
total spending. If they have spent SLFRF
funds in such department, agency, or
authority, the SLFRF funds generally
would be deemed to have replaced the
amount of spending cut and only
reductions in spending above the
amount of SLFRF funds spent on the
department, agency, or authority would
count. This approach —allowing only
spending reductions in areas where the
recipient government has not spent
SLFRF funds to be used as an offset for
a reduction in net tax revenue —aims to
prevent recipient governments from
using SLFRF funds to supplant state or
territory funding in the eligible use

4428 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations areas, and then using those state or
territory funds to offset tax cuts. Such
an approach helps ensure that SLFRF
funds are not used to "indirectly" offset
revenue reductions due to covered
changes.

Department, Agency, or Authority
Public Comment: Several commenters
supported the interim final rule's
approach to considering spending cuts
at the department, agency, or authority
level, on the basis that this approach is
supported by the statutory language
prohibiting SLFRF funds from being
used to "directly or indirectly" offset a
reduction in net tax revenue. On the
other hand, some commenters argued
that the methodology for identifying
offsetting spending cuts was too
restrictive; specifically, that
measurement at the agency or
department -level may not adequately
account for the size and various
programs that could occur in one agency
or department. One commenter argued
that recipient governments should
instead be permitted to consider
spending cuts on a more granular sub-
unit of a department but noted that this
additional flexibility would come at the
cost of transparency and clarity.

Treasury Comment: Treasury
recognizes that some recipients may
vary in their budgeting processes, with
some budgeting on a department level
and others budgeting at more or less
granular sub -units of government.

Relying on spending at a department,
agency, or authority level allows
recipient governments to report how
SLFRF funds have been spent using
reporting units already incorporated
into their budgeting process.

Spending Cuts Baseline
Under the interim final rule, to
calculate the amount of spending cuts
that are available to offset a reduction in
tax revenue, the recipient government
must first consider whether there has
been a reduction in total net spending,
excluding SLFRF funds (net reduction
in total spending). This approach
ensures that reported spending cuts
actually create fiscal space, rather than
simply offset other spending increases.

A net reduction in total spending is
measured as the difference between
total spending in each reporting year,
excluding SLFRF funds spent, relative
to total spending for the recipient's
fiscal year ending in 2019, adjusted for
inflation. Measuring reductions in
spending relative to 2019 reflects the
fact that the fiscal space created by a
spending cut persists so long as
spending remains below its original
level, even if it does not decline further,
relative to the same amount of revenue.

Public Comment: Several commenters
expressed concern regarding the
measurement of spending cuts relative
to the recipient's FY 2019, for example
arguing that the choice did not take into
account increases in spending in 2020.

As one commenter noted, the fiscal year
2020 required extraordinary
intervention by recipient governments
and the ongoing public health
emergency continues to require
extraordinary intervention.

Treasury Response: FY 2019 provides
a reasonable and relatively generous
baseline for considering spending
because it is the last full fiscal year prior
to the COVID-19 public health
emergency and governments'
extraordinary efforts to address the
impact of the pandemic. This approach
also aligns with the FY 2019 baseline for
measuring revenue loss. Measuring
spending cuts from year to year would,
by contrast, not recognize any available
funds to offset revenue reductions
unless spending continued to decline,
failing to reflect the actual availability of
funds created by a persistent change and
limiting the discretion of states and
territories.

For the reasons discussed above,
Treasury is adopting the approach taken
in the interim final rule without change.
(5) Identification of amounts subject
to recoupment. If a recipient
government (i) reports covered changes
that reduce tax revenue (Step 1); (ii) to
a degree greater than the de minimis
(Step 2); (iii) has experienced a
reduction in net tax revenue (Step 3);
and (iv) lacks sufficient revenue from
other, permissible sources to pay for the
entirety of the reduction (Step 4), then
the recipient government will be
considered to have used SLFRF funds to
offset a reduction in net tax revenue, up
to the amount that revenue has actually
declined. That is, the maximum value of
the reduction revenue due to covered
changes that a recipient government
must cover is capped at the difference
between the baseline and actual tax
revenue.363 In the event that the
baseline is above actual tax revenue but
the difference between them is less than
the sum of revenue reducing changes
that are not paid for with other,
permissible sources, organic revenue
growth has implicitly offset a portion of
the reduction. The revenue reduction
cap implements this approach for
363 This cap is applied in section 35.8(c) of the
final rule, calculating the amount of funds used in
violation of the tax offset provision.
permitting organic revenue growth to
cover the cost of tax cuts.

Finally, a recipient government may
request reconsideration of any amounts
identified in a notice from Treasury as
subject to recoupment under this
framework. Comments and responses to
the recoupment process are discussed in
section Remediation and Recoupment of
this Supplemental Information.

3. Reporting
To facilitate the implementation of
the framework above, and in addition to
reporting required on eligible uses,
recipient governments are required to
report certain information. The interim
final rule indicated that Treasury would
provide additional guidance at a later
date and that, on an annual basis, it
expected each recipient government
would be required to provide the
following information:
• Actual net tax revenue for the
reporting year;
• Each revenue -reducing change
made to date during the covered period
and the in -year value of each change;
• Each revenue -raising change made
to date during the covered period and
the in -year value of each change; and
• Each covered spending cut made to
date during the covered period, the in -
year value of each cut, and
documentation demonstrating that each
spending cut is covered as prescribed
under the interim final rule.

Since the adoption of the interim final
rule, Treasury has provided guidance on
reporting regarding eligible uses and has
required recipient governments to
indicate whether they have made
covered changes and the value of such
changes.364
Reporting Burden
Public Comment: Some commenters
argued that the framework for
identifying and reporting impermissible
offsets was burdensome and that the
burdens should be accounted for under
Executive Order 13132 (Federalism,
August 4, 1999).

Treasury Response: Taking into
consideration comments received
regarding burden, Treasury is
considering a tiered approach to
reporting on the offset provision.

Specifically, under this approach, a
recipient would only be required to
report information to the extent needed
to determine whether SLFRF funds had
been used to offset a reduction in net tax
revenue. For example, a recipient
government would be required to report
364 See Reporting Guidance, Section C.11,
available at https://home.treasury.gov/system/files/
13 6/SLFRF-Com pli an ce-an d -R e p orting-
Guidance.pdf.

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4429
information regarding permissible
offsets only if it had also reported
covered changes that were in excess of
the de minimis and had reported a net
reduction in tax revenue. Treasury will
provide additional guidance and
instructions on the reporting
requirements at a later date.

As discussed in section Regulatory
Analyses of this Supplemental
Information, Treasury maintains that the
final rule does not have federalism
implications within the meaning of
Executive Order 13132 (Federalism,
August 4, 1999). In the ARPA, Congress
requires states and territories to repay
the Secretary for amounts used in
violation of the prohibition on using
SLFRF funds to offset reductions in net
tax revenue, and it authorizes the
Secretary to issue regulations to carry
out this limitation and other
requirements of the statute. Section 6(b)
of Executive Order 13132 contemplates
that certain regulations will be required
by statute, as is the case with the
interim final rule and the final rule, in
which case section 6(b)(2)(B)'s
requirement to include a federalism
summary impact statement in the
Supplementary Information to the
regulation does not apply.

Notwithstanding the above, Treasury
has engaged in efforts to consult and
work cooperatively with affected state,
local, and Tribal government officials
and associations in the process of
developing the interim final rule.

Reporting Transparency
Public Comment: Several commenters
argued that information supporting the
net tax offset calculation should be
publicly available. Some of these
commenters requested that reporting be
made available in a machine-readable
format, and others advocated that
recipient governments disclose this
information on their local budget
agency's website. These commenters
argued that making information
regarding tax changes publicly available
would increase transparency and
accountability. Further, several
commenters suggested that Treasury
provide a mechanism for citizens to
register their concerns about particular
tax actions.

Treasury Response: As discussed in
other sections, reporting requirements
promote transparency and
accountability for the general public and
constituents of recipient governments to
understand how state, local, and Tribal
governments have used SLFRF funds.

Since the publication of the interim
final rule, Treasury issued
supplementary reporting guidance in
the Compliance and Reporting Guidance
and in the User Guide: Treasury's Portal
for Recipient Reporting (User Guide),
which addresses the particular content
and form of required reporting. Treasury
will continue to issue updated guidance
prior to each reporting period clarifying
any modifications to requested report
content and will continue to consider
how reporting can best support
transparency and accountability while
minimizing recipient administrative
burden. Further, as discussed in the
section Remediation and Recoupment,
Treasury may address potential
violations of this final rule based on
both information submitted from
recipients, either through quarterly
reports or self -reporting, and from other
sources of information (e.g., information
submitted from the public).

2. Deposit Into Pension Funds
Background: Subsection 602(c)(2)(B)
of the Social Security Act provides that
"kilo State or territory may use funds
made available under this section for
deposit into any pension fund."
Similarly, subsection 603(c)(2) of the
Social Security Act provides that "[n]o
metropolitan city, nonentitlement unit
of local government, or county may use
funds made available under this section
for deposit into any pension fund."
For purposes of this restriction on
pension deposits, the interim final rule
defined deposit to mean "an
extraordinary payment of an accrued,
unfunded liability." The interim final
rule also specified that a deposit does
not include routine contributions made
as part of a payroll obligation, such as
the normal cost component of a pension
contribution or the component that
consists of amortization of unfunded
liabilities calculated by reference to the
employer's payroll costs. The interim
final rule applied the restriction on
pension deposits to all recipients.

Public Comment: Several commenters
observed that the statutory restriction on
deposits into pension funds does not
apply to Tribal governments.

Treasury Response: In response,
Treasury is clarifying in the final rule
that the pension restriction does not
apply to Tribal governments.

Public Comment: Treasury also
received a comment expressing concern
that the interim final rule permitted
recipients to make a larger than usual
pension contribution, so long as the
timing of that contribution aligns with
the historical timing of contributions.

Treasury Response: The interim final
rule prohibited the use of SLFRF funds
from the ARPA to make extraordinary
payments, and the SUPPLEMENTARY
INFORMATION to the interim final rule
said that a payment would be an
extraordinary payment if it reduces a
liability incurred prior to the start of the
COVID-19 public health emergency and
occurs outside the recipient's regular
timing for making the payment. At the
same time, however, as suggested by the
comment Treasury received, a payment
made at the regular time for pension
contributions may very well be an
extraordinary payment, for example, if it
is larger than a regular payment would
have been. Such a payment would be a
restricted use.

Public Comment: Other commenters
asked which pension contributions are
permitted.

Treasury Response: To be an eligible
use of SLFRF funds, a use must (1) be
eligible under one of the eligible use
categories and (2) not contravene any of
the applicable restrictions on uses of
funds. Some pension contributions may
be eligible because they both fit within
an eligible use category and do not
contravene the restriction on deposits
into pension funds (i.e., they are not an
extraordinary payment of an accrued,
unfunded liability). For example,
payroll and covered benefits for public
health and safety staff responding to
COVID-19 are an eligible use of funds
to respond to the public health and
negative economic impacts of the
pandemic; routine pension
contributions as part of an employee's
regular covered benefits are permissible
under that eligible use category.

B. Other Restrictions on Use of Funds

1. Debt Service and Replenishing
Financial Reserves
The SUPPLEMENTARY INFORMATION to
the interim final rule provided that debt
service is not an eligible use of funds
either to respond to the public health
emergency or its negative economic
impacts or as a provision of government
services to the extent of revenue loss.365
The interim final rule also provided that
replenishing financial reserves (e.g.,
rainy day funds) is not an eligible use
of funds either to respond to the public
health emergency or its negative
economic impacts or as a provision of
365 "[G]overnment services would not include
interest or principal on any outstanding debt
instrument, including, for example, short-term
revenue or tax anticipation notes, or fees or
issuance costs associated with the issuance of new
debt. For the same reasons, government services
would not include satisfaction of any obligation
arising under or pursuant to a settlement agreement,
judgment, consent decree, or judicially confirmed
debt restructuring in a judicial, administrative, or
regulatory proceeding, except if the judgment or
settlement required the provision of government
services." 86 FR 26796-97 (May 17, 2021).

4430 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations government services to the extent of
revenue loss.366
As explained in greater detail below,
Treasury, in the final rule, has retained
these restrictions and is clarifying that
these restrictions on the use of SLFRF
funds apply to all eligible use
categories.

Public Comments
Several commenters suggested that
debt service and reserve replenishment
should qualify as the provision of a
government service and be an eligible
use of funds, up to the amount of
revenue loss due to the pandemic. Many
commenters indicated that they had
been forced to borrow money or dip into
reserve funds to continue providing
government services during the public
health emergency and that using SLFRF
funds for resulting debt service or
reserve replenishment costs should
therefore be considered a government
service.

Many comments from Tribal
governments noted that their
governments depend on revenue from
Tribal enterprises to pay government
debts and provide services. The
comments suggest that it should be an
eligible use of SLFRF to replace lost
revenue from these enterprises that
would typically be used to pay debt
service costs. Other commenters argued
that paying the interest or principal on
debt should in some cases be considered
provision of government services and an
eligible use of funds as such
expenditures facilitate the provision of
government services.

Some commenters argued that debt
costs or reserve drawdowns during the
public health emergency constitute a
negative economic impact to recipient
governments, and thus debt service or
reserve replenishment should be an
eligible use to respond to that negative
economic impact. For example, several
commenters suggested that there should
be a specific carve -out allowing the use
of SLFRF funds for debt service on debt
incurred for government services after
January 27, 2020, the start of the public
health emergency, or short-term debt
incurred for this purpose. Others
suggested that recipient governments
should be able to service debt, up to the
amount of debt incurred in direct
response to the pandemic. These
commenters generally reasoned that the
cost of responding to the public health
emergency and its negative economic
impacts prior to APRA's passage
ass "In addition, replenishing financial reserves
(e.g., rainy day or other reserve funds) would not
be considered provision of a government service,
since such expenses do not directly relate to the
provision of government services."
constitutes a negative economic impact
of the pandemic.

Some commenters argued that the
specific impacts of the pandemic on the
travel, tourism, and hospitality sector
had affected their ability to meet debt
service costs. For example, some
commenters explained that specific tax
streams (e.g., hotel room taxes) or
revenue sources (e.g., hospitality
generally) are tied to specific debt
instruments and that these revenue
sources had declined during the public
health emergency; commenters argued
that this constitutes a negative economic
impact that SLFRF funds should be
permitted to address.

Finally, some commenters questioned
why servicing debt incurred after March
3, 2021 for an otherwise eligible project
(e.g., a broadband infrastructure project)
would not be an eligible use of funds.

On the other hand, many commenters
expressed support for the interim final
rule's prohibition on use of funds for
debt service and reserve replenishment.

These commenters largely argued that
SLFRF funds should be used to provide
current services to communities in
response to the public health emergency
and that use of funds for debt service or
reserve replenishment represented,
respectively, payment for past costs or
savings for potential future costs. In
addition to the prohibition on debt
service and reserve replenishment, some
commentors suggested that the final rule
should also prevent funds from being
used for state UI trust fund
replenishment or for paying off debt
owed through UI trust funds. One
commenter argued that Treasury should
further restrict recipient governments,
for example by preventing recipients
from making cuts to an allowable budget
item, filling the budget gap with SLFRF
funds, and then using the savings from
the initial cut for debt service or reserve
replenishment.

Treasury Response
The final rule maintains the
restriction on the use of funds for debt
service or reserve replenishment for the
reasons described below and clarifies
that this restriction applies to all eligible
use categories.

First, debt service and reserve
replenishment costs do not constitute
the provision of services to constituents.

As noted in the interim final rule,
financing expenses —such as issuance of
debt or payment of debt service —do not
provide services or aid to citizens.

Similarly, contributions to rainy day
funds and similar financial reserves
constitute savings for future spending
needs. As such, these expenses do not
respond to the current and ongoing
public health and negative economic
impacts of the pandemic, nor do they
provide a government service.

Second, payments from the SLFRF are
intended to be used prospectively (see
section Timeline for Use of SLFRF
Funds). The interim final rule provided
that funds may be used for costs
incurred beginning on March 3, 2021,
which Treasury has maintained in the
final rule. Use of funds for debt service
on indebtedness issued prior to March
3, 2021 necessarily entails using funds
for costs incurred during prior time
periods, rather than the present
response to the public health emergency
and its negative economic impacts or to
provide government services.

Third, SLFRF funds provide
recipients with substantial latitude to
use funds to support the diverse needs
in their communities. With SLFRF
resources available, recipients have less
need to incur debt for otherwise -eligible
SLFRF uses.

Finally, given the strong performance
of overall revenues and low municipal
bond yields, state and local
governments generally do not face high
levels of fiscal stress. Limits on debt
service or replenishment of reserves
would not have a substantial impact on
recipients' ability to provide services.

The ratio of state and local debt -to -GDP,
which spiked briefly during the
pandemic, has recovered to its pre -
pandemic level and remains well below
levels seen during the Great
Recession.367

2. Settlements and Judgments
The interim final rule also provided
that satisfaction of any obligation arising
under or pursuant to a settlement
agreement, judgment, consent decree, or
judicially confirmed debt restructuring
in a judicial, administrative, or
regulatory proceeding would not be an
eligible use of funds to respond to the
public health and negative economic
impacts of the pandemic or as a
government service provided under the
revenue loss eligible use category.

However, if the judgment or settlement
requires the recipient to provide
services that are otherwise eligible
under an SLFRF eligible use category,
specifically if the settlement or
judgment requires the recipient to
provide services to respond to the
COVID-19 public health emergency or
its negative economic impacts or to
provide government services, then those
costs are eligible uses of SLFRF funds.
367 Table Z.1 of the Financial Accounts of the
United States, Board of Governors of the Federal
Reserve System, and Table 1.1.5 of National Income
and Product Accounts, Bureau of Economic
Analysis.

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4431 In other words, satisfaction of a
settlement or judgment itself is not itself
an eligible use of funds, unless the
settlement requires the recipient to
provide services or incur other costs
that are eligible uses of SLFRF funds.

In the final rule, Treasury is
maintaining the interim final rule
approach and clarifying that it applies
to all eligible use categories and any use
of funds under the SLFRF program.

3. General Restrictions
In addition to the above restrictions,
there are three general restrictions that
apply to SLFRF funds. These
restrictions, which reflect existing laws
and regulations, the Award Terms and
Conditions, and application of the
ARPA statute, applied under the interim
final rule, and they continue to apply
under the final rule.

A primary purpose of the SLFRF in
the ARPA is to support efforts to stop
the spread of COVID-19.368 As
discussed above, recipients of SLFRF
funds are required to comply with the
Award Terms and Conditions
established for the use of such funds.

The interim final rule and final rule
implement this objective by, in part,
providing that recipients may use
SLFRF funds for COVID-19 mitigation
and prevention.369 See section Public
Health in Public Health and Negative
Economic Impacts.

The CDC has provided
recommendations and guidelines to
help mitigate and prevent COVID-19
and has identified vaccines and masks
as two of the best tools to prevent the
spread of COVID-19. The interim final
rule and final rule help support
recipients in stopping the spread of
COVID-19 through these
recommendations and guidelines.

Consistent with the purpose of the
ARPA and as implemented through the
interim final rule and final rule, a
recipient may not use SLFRF funds for
a program, service, or capital
expenditure that includes a term or
condition that undermines efforts to
stop the spread of COVID-19. A
program or service that imposes
conditions on participation or
acceptance of the service that would
undermine efforts to stop the spread of
COVID-19 or discourage compliance
with recommendations and guidelines
in CDC guidance for stopping the spread
of COVID-19 is not a permissible use of
SLFRF funds.

In other words, recipients may not use
funds for a program that undermines
368 See Sec. 602(a)(1); 603(a)(1); 602(c)(1);
603(c)(1).
369 See 35.6(b); Coronavirus State and Local Fiscal
Recovery Funds, 86 FR at 26786.
practices included in the CDC's
guidelines and recommendations for
stopping the spread of COVID-19. This
includes programs that impose a
condition to discourage compliance
with practices in line with CDC
guidance (e.g., paying off fines to
businesses incurred for violation of
COVID-19 vaccination or safety
requirements), as well as programs that
require households, businesses,
nonprofits, or other entities not to use
practices in line with CDC guidance as
a condition of receiving funds (e.g.,
requiring that businesses abstain from
requiring mask use or employee
vaccination as a condition of receiving
SLFRF funds).

Second, a recipient may not use
SLFRF funds in violation of the conflict
of interest requirements contained in
the Award Terms and Conditions or the
Office of Management and Budget's
Uniform Guidance, including any self -
dealing or violation of ethics rules.

Recipients are required to establish
policies and procedures to manage
potential conflicts of interest.37o
Treasury may provide further guidance
on the types of activities or conflicts
that the recipient's policies and
procedures must cover.

Lastly, recipients should also be
cognizant that federal, state, and local
laws and regulations, outside of SLFRF
program requirements, may apply.

Recipients may not use revenue loss
funds, for instance, to violate other
background laws that limit the scope of
activities that may be conducted as
"government services," including other
state and federal laws. State and local
procurement, contracting, and conflicts -
of -interest laws and regulations may
include applicable requirements,
including, for example, required
procurement processes for contractor
selection or competitive price setting.

Furthermore, recipients are also
required to comply with other federal,
state, and local background laws,
including environmental laws 371 and
federal civil rights and
nondiscrimination requirements, which
include prohibitions on discrimination
on the basis of race, color, national
origin, sex, (including sexual orientation
399 Specifically, the Award Terms and Conditions
provide that "[r]ecipient understands and agrees it
must maintain a conflict of interest policy
consistent with 2 CFR 200.318(c), and that such
conflict -of -interest policy is applicable to each
activity funded under this award. Recipients and
subrecipients must disclose in writing to Treasury
or the pass -through agency, as appropriate, any
potential conflict of interest affecting the awarded
funds in accordance with 2 CFR 200.112."
3n An exception is statutes that do not apply
unless explicitly stated, including, e.g., the National Environmental Policy Act and the Davis -Bacon Act.
and gender identity), religion, disability,
or age, or familial status (having
children under the age of 18).

IV. Program Administration Provisions
The interim final rule included
several sections that described the
processes and requirements for
administering the program on an
ongoing basis, specifically: Distribution
of funds, transfer of funds, use of funds
for program administration, reporting on
the use of funds, and remediation and
recoupment of funds used for ineligible
purposes.

To enhance clarity, this
SUPPLEMENTARY INFORMATION for the
final rule organizes these issues into one
section on Program Administration
Provisions. Recipients should also
consult Treasury's Compliance and
Reporting Guidance for additional
information on program administration
processes and requirements, including
the applicability of the Uniform
Guidance.

A. Payments in Tranches to Local
Governments and Certain States
Section 602(b)(6)(A)(ii) of the Social
Security Act authorizes the Secretary to
withhold payment of up to 50 percent
of the amount allocated to each state
and territory for a period of up to 12
months from the date on which the state
or territory provides its statutorily -
required certification to the Secretary.

The Social Security Act requires any
such withholding be based on the
unemployment rate in the state or
territory as of the date of the
certification.

Under the interim final rule, Treasury
provided that it would withhold 50
percent of the amount allocated from
any state that had an unemployment
rate less than two percentage points
above its unemployment rate in
February 2020 as of the date the state
submitted its initial certification for
payment of funds pursuant to section
602(d)(1) of the Social Security Act.

Based on data available at the time of
the issuance of the interim final rule,
this threshold was expected to result in
a majority of states being paid in two
tranches. Treasury did not split the
payments of any territories.

Public Comment: One commenter
asked Treasury to allow a state to
request release of the portion of the
state's second tranche payment after the
state could demonstrate that it had
allocated the entirety of the first
tranche, a need to continue ongoing
programs, and a desire to avoid
borrowing costs. Another commenter
asked Treasury to clarify whether states
that received half their funding in the

4432 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations first payment would receive their
second half payment within 12 months.

Similarly, some recipients requested
clarification on whether they could
obligate second tranche funds before
receipt or use second tranche funds for
costs incurred prior to receipt.

Treasury Response: The final rule
maintains the approach in the interim
final rule with two modifications. As
described in the interim final rule,
splitting payments for most states
provides consistency with payments to
local governments and encourages states
to adapt their use of funds to
developments that arise in the course of
the economic recovery. Moreover,
SLFRF funds may be used for costs
incurred during the period of
performance. Recipients may use their
jurisdiction's budgeting and
procurement practices and laws to
determine how and when second
tranche funds may be obligated.

The final rule makes two adjustments
for operational purposes. First, the final
rule provides that Treasury expects to
make all second tranche payments to
states available beginning 12 months
from the date that funding was first
made available by Treasury (May 10,
2021) regardless of when each
individual state submitted its initial
certification. This should increase
clarity and consistency on the timing of
second tranche payments for both states
and Treasury. Second, also to ease
recipient states' administrative burden,
the final rule strikes a requirement from
the interim final rule that states must
certify for their second tranche
payments and file all required reports at
least 30 days prior to the date on which
their second payment is made available.

The final rule simply requires that states
certify for their second tranche payment
and file all required reports before
receiving their second tranche payment,
with no 30 day wait period required.

B. Payments to Nonentitlement Units of
Local Government (NEUs) and Units of
Local Government (UGLGs) Within Non-
UGLG Counties
The interim final rule established
requirements related to distributions of
SLFRF funds by states and territories to
NEUs and UGLGs within non-UGLG
counties. Specifically, the interim final
rule provided that the total distribution
to an NEU cannot exceed 75 percent of
the most recent budget for the NEU (the
75 percent budget cap); a requirement
set forth in section 603(b)(2)(C)(iii) of
the Social Security Act. The interim
final rule SUPPLEMENTARY INFORMATION
defined the NEU's budget for purposes
of calculating the 75 percent budget cap
as the NEU's "most recent annual total
operating budget, including its general
fund and other funds, as of January 27,
2020." The interim final rule further
provided that states and territories must
permit NEUs without formal budgets as
of January 27, 2020 to self -certify their
most recent annual expenditures as of
January 27, 2020 for the purpose of
calculating the 75 percent budget cap.

Further, the interim final rule
prohibited states and territories from
placing additional conditions or
requirements on distributions to NEUs
beyond those required by the statute,
the interim final rule, or Treasury's
guidance and from offsetting any debt
owed by such NEUs against such
distributions.

Commenters predominantly focused
on the definition of an NEU's budget for
purposes of calculating the 75 percent
budget cap, NEU allocations and
eligibility, and the prohibition on states
and territories imposing additional
conditions or requirements in the NEU
distribution process.

Definition of NEU Budget
Public Comment: Commenters
suggested that Treasury provide greater
clarification on the definition of an
NEU's "most recent budget" for
purposes of the 75 percent budget cap
calculation. Treasury provided updated
guidance on its interpretation of the 75
percent budget cap on June 30, 2021,
and a commenter suggested that
Treasury incorporate such updated
interpretation into the SUPPLEMENTARY
INFORMATION of the final rule.

Treasury Response: Consistent with
the Update on Interpretation for the 75
Percent Budget Cap Calculation
published on June 30, 2021,372 the
SUPPLEMENTARY INFORMATION of the final
rule defines an NEU's budget for
purposes of calculating the 75 percent
budget cap as its total annual budget,
including both operating and capital
expenditure budgets, in effect as of
January 27, 2020. The guidance also
gives states and territories flexibility to
provide further guidance to their NEUs
to operationalize the 75 percent budget
cap. Given the variance in local
financial accounting, this updated
definition will better facilitate states'
and territories' distribution of SLFRF
funds to NEUs.

Allocations and Eligibility
Public Comment: Many commenters
provided feedback on specific allocation
calculations and eligibility of local
governments for NEU funding.
372 Treasury's Update on Interpretation for the 75
Percent Budget Cap Calculation can be found at:
https://home.treasury.gov/system/files/136/NEU-
Up d a te-75-Percen t -B u dget-Ca p. p d f.

Commenters addressed how a locality
was classified as an NEU or
metropolitan city, deviations between
Treasury's allocation calculations and
earlier estimates from other sources,
treatment of unincorporated areas,
sources for population data, and
Treasury's allocation of NEU funding to
states and territories based on the
population of a state and territory
outside of its metropolitan cities. Two
commenters proposed that Treasury
provide an appeal process for localities
that were not identified on the List of
Local Governments used by states and
territories as part of the process in
which a state or territory determines the
eligibility of an NEU in accordance with
Treasury guidance, or for Minor Civil
Divisions (MCDs) that were denied
funding as part of a facts -and -
circumstances test undertaken by a
weak-MCD state.

Treasury Response: Neither the
interim final rule nor the final rule
addresses eligibility or allocations
issues, and comments on these topics
are outside the scope of this rulemaking.

These questions are addressed in other
Treasury guidance, including the
Guidance on Distribution of Funds to
Non -entitlement Units of Local
Government and Non -entitlement Unit
of Local Government Definitional and
Data Methodology guidance documents
available on Treasury's website.373
Because Treasury interpreted the
definition of an NEU 374 in accordance
with the statute and established an NEU
distribution process in May 2021, the
final rule does not incorporate an
appeals process regarding the
definitions or the facts -and -
circumstances test used for eligibility
determinations.

Prohibition on Additional Conditions or
Requirements in the NEU Distribution
Process
Public Comment: One commenter
expressed support for Treasury's
prohibition on states and territories
373 The Guidance on Distribution of Funds to
Nonentitlement Units of Local Government can be
found at this link: https://home.treasury.gov/
system/files/136/NEU Guidance.pdf. The
Nonentitlement Unit of Local Government
Definitional and Data Methodology can be found at
this link: https://home.treasury.gov/system/files/
136/NEU Methodology.pdf.
374 Treasury has interpreted NEU to generally
include both incorporated places and MCDs with
active functioning governments, subject to the state
determining, in the case of weak-MCD States, that
a weak MCD has the legal and operational capacity
to accept SLFRF funds and provides a broad range
of services that would constitute eligible uses under
ARPA. More details can be found in the
Nonentitlement Unit of Local Government
Definitional and Data Methodology, available at
https://home.treasmy.gov/system/files/136/NEU_
Methodology.pdf.

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4433 placing additional conditions or
requirements on distributions to NEUs.

This prohibition restricts states and
territories from imposing limitations on
NEUs' use of SLFRF funds based on an
NEU's proposed spending plan or other
policies, offsetting any debt owed by an
NEU against the NEU's distribution, or
providing funding on a reimbursement
model. In particular, the commenter
noted that a reimbursement model
would lead to inequities in accessing
SLFRF funds.

Treasury Response: The final rule
maintains and finalizes the prohibition
on states and territories placing
additional conditions or requirements
on distributions to NEUs as well as to
any UGLGs within counties that are
non-UGLGs. Such conditions or
requirements may contravene the
statutory requirement that states and
territories make distributions based on
population and within the statutorily
defined timeframe.

Other Provisions
Treasury did not receive substantive
comments on the requirement that states
and territories permit NEUs without
formal budgets as of January 27, 2020 to
self -certify their most recent annual
expenditures as of January 27, 2020 for
the purpose of calculating the 75
percent budget cap, or Treasury's
interpretation of the 75 percent budget
cap applying only to a consolidated
government's NEU allocation under
section 603(b)(2) but not to a
consolidated government's county
allocation under section 603(b)(3).

Further, Treasury did not receive
substantive comments on the interim
final rule's allowance that states and
territories be able to use SLFRF funds
under section 602(c)(1)(A) to fund
expenses related to administering
payments to NEUs and units of general
local government. As such, the final rule
maintains these provisions as written in
the interim final rule without
modification.

Treasury received some comments
that are not addressed because they are
beyond the scope of the NEU provision
of the interim final rule or not
authorized by the statute, including
comments related to state accounting
practices, re -allocations of NEU
allocations that exceed the 75 percent
budget cap, and concerns around
eligible uses under SLFRF that small
local governments may find particularly
salient.

C. Timeline for Use of SLFRF Funds
The interim final rule provided that
"[a] recipient may only use funds to
cover costs incurred during the period
beginning March 3, 2021 and ending
December 31, 2024." The interim final
rule also provides that the period of
performance will run until December
31, 2026, which will provide recipients
an additional two years during which
they may expend funds for costs
incurred (i.e., obligated).

As explained in more detail below, in
the final rule Treasury is maintaining
these time periods. Treasury will retain
March 3, 2021 as the first date when
costs may be incurred, to provide for
forward -looking or prospective use of
funds and to align with the start date of
the "covered period" as such term is
used in section 602(c)(2)(A). The
deadline for costs to be incurred —
which the final rule clarifies means
obligated —December 31, 2024, is
specified in the ARPA statute, and
Treasury will retain December 31, 2026
as the end of the period of performance
to provide a reasonable amount of time
for recipients to liquidate obligations
incurred by the statutory deadline.

Public Comments. Some commenters
expressed concerns about costs incurred
before March 3, 2021 not being covered
and recommended the "start date" be
changed to January 2020 to coincide
with the declaration of the public health
emergency. These commenters argued
that recipient governments began
incurring costs to respond to COVID-19
and its economic impacts in January
2020 and that prior federal fiscal relief,
such as relief provided in the
Coronavirus Aid, Relief, and Economic
Security Act, did not fully compensate
recipient governments for these costs.

These commenters recommended that
costs incurred before March 3, 2021 that
otherwise fit within eligible use
categories for SLFRF should be
permissible uses of funds.

Some commenters asked Treasury to
clarify whether local governments are
subject to the same covered period as
states and territories beginning March 3,
2021. Commenters noted that section
603(g) of the Social Security Act does
not contain the same definition of
"covered period" as section 602(g)(1) of
the Social Security Act, which
references a statutory provision that
only applies to states and territories.

Many commenters requested that the
deadline for costs to be incurred and the
period of performance be extended due
to the longer timeline for completing
water and sewer projects. One
commenter requested that recipients be
able to split projects into different
phases so that funds could be expended
on larger, longer term projects (e.g., by
obligating funds on one portion of the
project by the statutory deadline). One
commenter recommended that the
period of performance be extended for
at least two additional years beyond the
expenditure deadline set forth in the
interim final rule, i.e., until December
31, 2028. One commenter wrote that the
final rule should allow for extended
projects (e.g., over a time horizon of
more than ten years) for recipients
working to develop long-term water
supplies to prepare for extreme drought.

Treasury Response. In the final rule,
Treasury is maintaining March 3, 2021
as the date when recipients may begin
to incur costs using SLFRF funds. As
described in the interim final rule, use
of SLFRF funds is forward looking and
the eligible use categories provided by
statute are all prospective in nature.

While recipients may identify and
respond to negative economic impacts
that occurred during 2020, the costs
incurred to respond to these impacts
remain prospective. Further, Treasury
considers the beginning of the covered
period for purposes of determining
compliance with section 602(c)(2)(A) to
be a relevant reference point for this
purpose that provides some flexibility
for recipients that began incurring costs
in the anticipation of enactment of the
ARPA or in advance of the issuance of
the interim final rule and receipt of
payment.

Finally, establishing an earlier start
date would permit governments to use
funds received in 2021 to satisfy
obligations incurred in 2020. This use
raises a substantial risk of SLFRF funds
being used to supplant other recipient
funds previously used to pay for such
2020 obligations, freeing funds for
recipients to use for any purpose rather
than eligible uses of SLFRF funds under
the ARPA. Permitting such usage would
undermine the provisions setting forth
permissible and impermissible uses in
the statute. Therefore, a reading of the
statute permitting use of funds prior to
March 3, 2021 would be inconsistent
with the statutory structure.

In the final rule, Treasury is also
maintaining the deadlines by which
funds must be obligated (i.e., December
31, 2024) and by which such obligations
must be liquidated (i.e., December 31,
2026). The December 31, 2024 deadline
by which eligible costs must be incurred
is established by statute. Treasury is
finalizing its interpretation of
"incurred" to be equivalent to the
definition of "obligation," based on the
definition used for purposes of the
Uniform Guidance. Treasury is also
maintaining the period of performance,
which will run through December 31,
2026, and provides the deadline by
which recipients must expend obligated
funds. Most recipients received SLFRF
funds in the spring and summer of 2021,

4434 Federal Register / Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations meaning that they have over three years
to obligate and over five years to expend
funds. This provides a sufficient amount
of time for recipients to plan and
execute projects.

D. Transfers of Funds
Under section 602(c)(3) of the Social
Security Act, a state, territory, or Tribal
government may transfer SLFRF funds
to a "private nonprofit organization . . .
a Tribal organization . . . a public
benefit corporation involved in the
transportation of passengers or cargo, or
a special-purpose unit of state or local
government." Similarly, section
603(c)(3) authorizes a local government
to transfer SLFRF funds to the same
entities (other than Tribal
organizations). Separately, section
603(c)(4) authorizes a local government
to transfer SLFRF funds to the state in
which it is located.

Entities Eligible for a Transfer Under
Sections 602(c)(3) and 603(c)(3)
Regarding transfers permitted under
sections 602(c)(3) and 603(c)(3) of the
Act, the interim final rule
Supplementary Information clarified
that the lists of transferees in these
sections are not exclusive and that state,
local, territorial, and Tribal governments
may transfer funds to other constituent
units of government or private entities
beyond those specified in the statute.

Public Comment: Several commenters
supported Treasury's interpretation of
eligible transferees in sections 602(c)(3)
and 603(c)(3) as nonexclusive. However,
many commenters asked for greater
clarity as to whether specific entities not
listed in Treasury's examples of eligible
subrecipients, such as nonprofits and
Tribal governments, were eligible
transferees. One commenter also asked
whether a recipient may transfer SLFRF
funds to a higher level of government,
such as a locality to the county in which
it is located.

Treasury Response: The final rule
clarifies that, in addition to the entities
enumerated in sections 602(c)(3) and
603(c)(3), recipients may transfer SLFRF
funds to any entity to carry out as a
subrecipient an eligible use of funds by
the transferor, as long as they comply
with the Award Terms and Conditions
and other applicable requirements,
including the Uniform Guidance at 2
CFR 200.331-200.333. Eligible
subrecipients include, but are not
limited to, other units of government
(including Tribal governments),
nonprofits and other civil society
organizations, and private entities.

Further, the final rule clarifies that
transfers may be made to both
constituent or non -constituent units of
government. For example, county A
may transfer SLFRF funds to county B
as long as county B abides by the use
restrictions applicable to county A and
the transfer would constitute an eligible
use of the funds by county A. County A
must receive a benefit proportionate to
the amount transferred.

As detailed in the interim final rule
Supplementary Information, once
transfers are received, the transferee
must abide by the restrictions on use
applicable to the transferor under the
ARPA and other applicable law,
regulations, and program guidance.

Further, the transferor remains
responsible for monitoring and
overseeing the subrecipient's use of
SLFRF funds and other activities related
to the award to ensure that the
subrecipient complies with the statutory
and regulatory requirements and the
Award Terms and Conditions.

Recipients also remain responsible for
reporting to Treasury on their
subrecipients' use of payments from the
SLFRF for the duration of the award.

Pooling Funds
Public Comment: Several commenters
asked for clarification about whether
they may pool SLFRF funds for a project
with other recipients, including when
doing so involves a transfer to another
entity, such as a regional organization or
government that undertakes projects on
behalf of a number of local
governments. Commenters also asked
for clarification on the oversight and
reporting obligations that would result
from such transfers.

Treasury Response: Consistent with
guidance issued following the interim
final rule,375 the final rule clarifies that
recipients may pool SLFRF funds for
projects, provided that the project is
itself an eligible use of SLFRF funds for
each recipient that is contributing to the
pool of funds and that recipients are
able to track the use of funds in line
with the reporting and compliance
requirements of the SLFRF. In general,
when pooling funds for regional
projects, recipients may expend funds
directly on the project or transfer funds
to another government or other entity
that is undertaking the project on behalf
of multiple recipients. To the extent
recipients undertake regional projects
via transfer to another organization or
government, recipients would need to
comply with the rules on transfers
specified in the final rule
SUPPLEMENTARY INFORMATION. A
376 Coronavirus State and Local Fiscal Recovery
Funds, Frequently Asked Questions, as of July 19,
2021; https://home.treasury.gov/system/files/136/
SLFRPFAQ. pd f.
recipient may transfer funds to a
government outside its boundaries (e.g.,
county transfers to a neighboring
county), provided that the transferor can
document that the transfer constitutes
an eligible expense of the transferor
government and that its jurisdiction
receives a benefit proportionate to the
amount transferred.

Blending and Braiding of Funds
Treasury is clarifying in the final rule
that, consistent with further guidance
issued by Treasury following the
interim final rule,376 recipients may
fund a project with both SLFRF funds
and other sources of funding, provided
that the costs are eligible costs under
each source program and are compliant
with all other related statutory and
regulatory requirements and policies.

The recipient must comply with
applicable reporting requirements for all
sources of funds supporting the SLFRF
projects and with any requirements and
restrictions on the use of funds from the
supplemental funding sources and the
SLFRF program. Specifically,
• All funds provided under the
SLFRF program must be used for
projects, investments, or services that
are eligible under the SLFRF program.

SLFRF funds may not be used to fund
an activity that is not, in its entirety, an
eligible use under the SLFRF program.

For example:
o SLFRF funds may be used in
conjunction with other sources of funds
to make an investment in water
infrastructure that is eligible under
section 602 or 603 of the Social Security
Act and the final rule.
o SLFRF funds could not be used to
fund the entirety of a water
infrastructure project that was partially,
although not entirely, an eligible use
under Treasury's final rule. However,
the recipient could use SLFRF funds
only for a smaller component project
that does constitute an eligible use,
while using other funds for the
remaining portions of the larger planned
water infrastructure project that do not
constitute an eligible use. In this case,
the "project" for SLFRF purposes under
this program would be only the eligible
use component of the larger project.
• In addition, because SLFRF funds
must be obligated by December 31,
2024, and recipients must expend all
funds under the award no later than
December 31, 2026, recipients must be
able to, at a minimum, determine and
report to Treasury on the amount of
SLFRF funds obligated and expended
and when such funds were obligated
and expended.
376 See FAQ 4.10. Id.

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4435
Scope of a 603(c)(4) Transfer
Unlike in the case of a transfer under
sections 602(c)(3) or 603(c)(3), the
interim final rule SUPPLEMENTARY
INFORMATION specified that transfers
from a local government to the state
under section 603(c)(4) will result in a
cancellation or termination of the award
on the part of the transferor local
government and a modification of the
award to the transferee state.

Public Comment: Two commenters
suggested that Treasury expand section
603(c)(4) beyond transfers from
localities to the state to include transfers
from counties to their constituent local
governments, which would incentivize
counties to augment funds to address
the needs of local governments. These
commenters noted that counties are
disincentivized to make transfers under
section 603(c)(3), as is currently
allowed, as such transfers would require
that counties provide oversight and
monitoring over its subrecipients.

Treasury Response: Section 603(c)(4),
by its terms, applies only to transfers
from local governments to states.

Accordingly, the final rule must
maintain the interim final rule's
limitation of section 603(c)(4) transfers
as applicable only to transfers from local
governments to states. Expansions of
section 603(c)(4) transfer authority
beyond transfers from local
governments to states were not
explicitly authorized by Congress. As
such, transfers under section 603(c)(4)
may only be made by local governments
to the state in which they are located.

Congress enumerated two separate
transfer provisions for local
governments —section 603(c)(3) and
section 603(c)(4) —that use different
language and were intended to operate
differently. Section 603(c)(4) contains
prefatory language ("Notwithstanding
paragraph (1)"—a reference to the
eligible SLFRF uses) that section
603(c)(3) does not. In other words,
section 603(c)(4) transfers are not
required to constitute an eligible use of
the funds from the perspective of the
transferor local government, but section
603(c)(3) transfers are required to
constitute an eligible use. A transfer to
accomplish an eligible use fits within
the recipient-subrecipient framework.

Further, treating section 603(c)(3)
transfers as leading to a cancellation of
the award for the transferor local
government would result in scenarios
that are inconsistent with the statutory
language. An award cancellation
pursuant to a section 603(c)(3) transfer
would result in either (1) non-
governmental entities becoming award
recipients under the program, which
would contravene the purpose of SLFRF
or (2) transfers to governmental and
non -governmental entities being treated
in a distinct and inconsistent manner.

That is, section 603(c)(3) transfers to
governmental entities would lead to
award cancellation but section 603(c)(3)
transfers to non -governmental entities
would lead to a recipient-subrecipient
relationship. Therefore, in the final rule,
Treasury maintains its distinct
treatment of a section 603(c)(3) transfer
and section 603(c)(4) transfer.

The final rule clarifies that a transfer
under section 603(c)(4) will result in a
modification, termination, or
cancellation of the award on the part of
the transferor local government and a
modification of the award to the
transferee state or territory. As detailed
in the SUPPLEMENTARY INFORMATION to
the interim final rule, the transferor
must provide notice of the transfer to
Treasury in a format specified by
Treasury. Until the local government
provides such notice and Treasury
provides confirmation of its acceptance
of the notice, the local government will
remain responsible for ensuring that the
SLFRF award is being used in
accordance with the Award Terms and
Conditions, section 602 or 603 of the
Social Security Act, the final rule, and
program guidance including reporting
on such uses of the award funds to
Treasury.

A state that receives a transfer from a
local government under section
603(c)(4) will be bound, by statute, by
all of the use restrictions set forth in
section 602(c) with respect to the use of
those SLFRF funds, including the
prohibitions on use of such SLFRF
funds to offset certain reductions in
taxes or to make deposits into pension
funds. The state will be responsible as
the prime recipient for the use and
reporting on any funds transferred
under section 603(c)(4) by the local
government. Such transferred funds will
be subject to the Award Terms and
Conditions previously accepted by the
state in connection with its SLFRF
award.

Subrecipient Transfers
Public Comment: Commenters sought
clarification as to how funds may be
transferred from a recipient to another
entity. For instance, one commenter
requested that recipients be able to
advance funds to subrecipients as
opposed to reimbursing subrecipients
for expenses incurred.

Treasury Response: Treasury did not
specify in the interim final rule whether
recipients may advance funds to
subrecipients. This omission was not
intended to prevent recipients from
advancing funds to subrecipients,
consistent with the various methods
permitted under the Uniform Guidance.

Given the broad flexibility that
recipients have in selecting eligible uses
and the broad variety of potential
subrecipients, Treasury believes that
specifying a single method of
advancement or reimbursement would
add unnecessary administrative
difficulty to program administration.

Recipients may determine the optimal
payment structure for the transfer of
funds (e.g., advance payments,
reimbursement basis, etc.) from
recipients to subrecipients. Ultimately,
recipients must comply with the eligible
use requirements and any other
applicable laws or requirements and are
responsible for the actions of their
subrecipients.

E. Administrative Expenses
The interim final rule permitted,
under the heading "[e]xpenses to
improve efficacy of public health or
economic relief programs," use of funds
for "[a]dministrative costs associated
with the recipient's COVID-19 public
health emergency assistance programs,
including services responding to the
COVID-19 public health emergency or
its negative economic impacts, that are
not federally funded."
Following release of the interim final
rule, Treasury issued Compliance and
Reporting Guidance that provided that
"recipients may use funds for
administering the SLFRF program,
including costs of consultants to
support effective management and
oversight, including consultation for
ensuring compliance with legal,
regulatory, and other requirements.

Further, costs must be reasonable and
allocable as outlined in 2 CFR 200.404
and 2 CFR 200.405. Pursuant to the
SLFRF Award Terms and Conditions,
recipients are permitted to charge both
direct and indirect costs to their SLFRF
award as administrative costs. Direct
costs are those that are identified
specifically as costs of implementing the
SLFRF program objectives, such as
contract support, materials, and
supplies for a project. Indirect costs are
general overhead costs of an
organization where a portion of such
costs are [sic] allocable to the SLFRF
award such as the cost of facilities or
administrative functions like a director's
office." 377 Several commenters
377 U.S. Department of the Treasury, Recipient
Compliance and Reporting Responsibilities, as of
November 5, 2021; https://home.treasury.gov/
policy-issues/coronavirus/assistance for-state-local-
and-tribal-governments/state-and-local fiscal -
Continued

4436 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations requested clarity on which
administrative expenses are permissible
uses of funds and how recipients should
structure administrative costs.

In the final rule, Treasury is clarifying
that direct and indirect administrative
expenses are permissible uses of SLFRF
funds and are a separate eligible use
category from "[e]xpenses to improve
efficacy of public health or economic
relief programs," which refers to efforts
to improve the effectiveness of public
health and economic programs through
use of data, evidence, and targeted
consumer outreach. For details on
permissible direct and indirect
administrative costs, recipients should
refer to Treasury's Compliance and
Reporting Guidance.378 Costs incurred
for the same purpose in like
circumstances must be treated
consistently as either direct or indirect
costs.

F. Treatment of Loans
The interim final rule allowed
recipients to use SLFRF funds to make
loans for uses that are otherwise eligible
(for example, for small business
assistance). Subsequent guidance
clarified how recipients must track and
dispose of program income from loans,
consistent with the statutory
requirements for the timing of SLFRF
expenditures.

SLFRF funds must be used to cover
"costs incurred" by the recipient
between March 3, 2021 and December
31, 2024. The interim final rule
provided that SLFRF funds must be
obligated by December 31, 2024 and
expended by December 31, 2026. In
using SLFRF funds to make loans,
recipients must be able to determine the
amount of funds used to make a loan
and must comply with restrictions on
the timing of the use of funds and with
restrictions in the Uniform Guidance.

When SLFRF funds are used as the
principal for loans, there is an
expectation that a significant share of
the loaned funds will be repaid. Thus,
recipients may not simply consider the
full amount of loaned funds to be
permanently expended and must
appropriately account for the return of
loaned funds.

For loans that mature or are forgiven
on or before December 31, 2026, the
recipient must account for the use of
funds on a cash flow basis, consistent
with Treasury's guidance regarding
loans made by recipients using
payments from the Coronavirus Relief
recovery funds/recipient-compliance-and-reporting-
responsibilities.
378 Id.

Fund.379 Recipients may use SLFRF
funds to fund the principal of the loan
and in that case must track repayment
of principal and interest (i.e., "program
income," as defined under 2 CFR 200).

When the loan is made, recipients must
report the principal of the loan as an
expense.

Repayment of principal may be re-
used only for eligible uses and is subject
to restrictions on the timing of the use
of funds. Interest payments received
prior to the end of the period of
performance will be considered an
addition to the total award and may be
used for any purpose that is an eligible
use of funds under the statute and final
rule. Recipients are not subject to
restrictions under 2 CFR 200.307(e)(1)
with respect to such payments.

For loans with maturities longer than
December 31, 2026, the recipient must
estimate the cost to the recipient of
extending the loan over the life of the
loan. In other words, at origination, the
recipient must measure the projected
cost of the loan and may use SLFRF
funds for the projected cost of the loan.

Recipients have two options for
estimating this amount: They may
estimate the subsidy cost (i.e., net
present value of estimated cash flows)
or the discounted cash flow under
current expected credit losses (i.e.,
CECL method). See further guidance
issued by Treasury for further
explanation.380
Public Comment: Many commenters
asked for further clarification on the
treatment of loans and the calculation of
"costs incurred." Some commenters
requested that grants made for eligible
activities prior to December 31, 2024 to
a revolving loan fund, an economic
development corporation, a land bank,
or a similar facility should be
considered obligated and expended at
the time of the grant. This would allow
funds to be expended by the grantee
beyond the covered period and for
funds returned to the grantee to be re-
invested in further uses outside of the
covered period.

Treasury Response: The final rule
maintains the treatment of loans from
the interim final rule and subsequent
guidance, as discussed above. This
approach is consistent with the
statutory requirement that funds be used
for costs incurred for eligible purposes
by December 31, 2024 and is consistent
379 Coronavirus Relief Fund for States, Tribal
Governments, and Certain Eligible Local
Governments, 86 FR at 4192.
389 See FAQ 4.11. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
h ome. treasury.gov/system/files/136/SLFRPFAQ. p d f.
with standard accounting practices and
the Uniform Guidance.

G. Use of Funds for Match or Cost -Share
Requirements
As a general matter and as referenced
in the SUPPLEMENTARY INFORMATION to
the interim final rule, funds provided
under one federal program may not be
used by a recipient to meet the non-
federal match or cost -share
requirements of another federal
program.

However, Treasury has since
determined that, consistent with this
general principle and the requirements
of the Uniform Guidance at 2 CFR
200.306(b)(5), the funds available under
sections 602(c)(1)(C) and 603(c)(1)(C) of
the Social Security Act for the provision
of government services, up to the
amount of the recipient's reduction in
revenue due to the public health
emergency, generally may be used to
meet the non-federal cost -share or
matching requirements of other federal
programs. Federal funds that constitute
revenue sharing to state and local
governments may generally be used to
meet non-federal match
requirements.381 The broad eligible uses
of the SLFRF funds available under
sections 602(c)(1)(C) and 603(c)(1)(C) of
the Social Security Act, combined with
the purpose of these provisions (which
is to provide general fiscal assistance to
governments facing revenue losses due
to the public health emergency),
demonstrate that these funds are
revenue sharing. They thus should
generally be permitted to be used to
meet the non-federal match and cost -
share requirements of other federal
programs. As such, the SLFRF funds
available for the provision of
government services, up to the amount
of the recipient's reduction in revenue
due to the public health emergency,
may be used to meet the non-federal
match requirements of the Drinking
Water State Revolving Fund and Clean
Water State Revolving Fund programs
administered by the EPA, for example.

Pursuant to 2 CFR 200.306(b) of the
Uniform Guidance, if funds are legally
available to meet the match or cost -
share requirements of an agency's
federal program, such awarding agency
is required to accept such funds for the
purpose of that program's match or cost -
share requirements except in the
circumstances enumerated in that
section. The Office of Management and
Budget has authority under 2 CFR
381 See U.S. Government Accountability Office,
Principles of Federal Appropriations Law, Third
Edition, Volume II, p. 10-99, GAO-06-382SP
(February 2006), https://www.gao.gov/assets/gao-
06-382sp. pd f.

Federal Register / Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4437 200.102 of the Uniform Guidance to
issue waivers of this requirement on
request of the relevant awarding agency.

Analogous requirements and waiver
authorities may be present in other
regulations. If a recipient seeks to use
SLFRF funds to satisfy match or cost -
share requirements for a federal grant
program, it should first confirm with the
relevant awarding agency that no waiver
has been granted for that program, that
no other circumstances enumerated
under 2 CFR 200.306(b) would limit the
use of SLFRF funds to meet the match
or cost -share requirement, and that there
is no other statutory or regulatory
impediment to using the SLFRF funds
for the match or cost -share requirement.

Note that SLFRF funds may not be used
as the non-federal share for purposes of
a state's Medicaid and CHIP programs
because the Office of Management and
Budget has approved a waiver as
requested by the Centers for Medicare &
Medicaid Services pursuant to 2 CFR
200.102 of the Uniform Guidance and
related regulations.

SLFRF funds beyond those that are
available under sections 602(c)(1)(C) or
603(c)(1)(C) of the Social Security Act
for the provision of government services
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. For
example, as discussed in other sections
of this final rule, section 40909 of the
Infrastructure Investment and Jobs Act
provides that SLFRF funds may be used
to meet the non-federal match
requirements of any authorized Bureau
of Reclamation project, and section
60102 of the Infrastructure Investment
and Jobs Act provides that the SLFRF
may be used to meet the non-federal
match requirements of the broadband
infrastructure program authorized under
that section (see sections Water and
Sewer Infrastructure and Broadband
Infrastructure).

H. Reporting
The interim final rule established
Treasury's authority to collect
information from recipients through
requested reports and any additional
requests for information. The interim
final rule also provided Treasury
flexibility to extend or accelerate
reporting deadlines and to modify
requested content for the Interim
Report, Project and Expenditure reports,
and Recovery Plan Performance reports.

The SUPPLEMENTARY INFORMATION of
the interim final rule provided initial
guidance on the reporting requirements
for the SLFRF funds. States (defined to
include the District of Columbia),
territories, metropolitan cities, counties,
and Tribal governments were required
to submit one interim report and
quarterly Project and Expenditure
reports thereafter. Non -entitlement units
of local government were not required
to submit an interim report. States,
territories, and metropolitan cities and
counties with a population greater than
250,000 residents were also required to
submit an annual Recovery Plan
Performance report to Treasury. The
Supplementary Information of the
interim final rule provided guidance on
the deadlines and content required for
each type of report.

Public Comment: Treasury received
many comments on the content and
specific data elements required of
program reporting. Some commenters
expressed enthusiasm for including
particular details in reporting to
promote transparency. Other
commenters requested that Treasury
streamline reporting requirements to
avoid imposing undue administrative
burdens and compliance costs. Many
commenters requested further
clarification on or amendments to
particular elements of reporting content.

Some commenters requested that
reports and specific reporting elements
be public, including a request for a
public website with a number of
programmatic data metrics about the use
of SLFRF funds. Some commenters
sought clarification and guidance for
using the reporting portal, which allows
recipients to upload the required
information, or requested user
modifications to the portal. Finally,
some commenters requested that
Treasury provide example materials and
reporting metrics to aid recipient
understanding.

Treasury Response: Since the
publication of the interim final rule,
Treasury issued supplementary
reporting guidance in the Compliance
and Reporting Guidance and in the User
Guide: Treasury's Portal for Recipient
Reporting (User Guide).382 Treasury has
addressed many of these comments in
the Compliance and Reporting Guidance
and User Guide and will continue to
issue updated guidance prior to each
reporting period clarifying any
modifications to requested report
content. Treasury notes that the interim
final rule did not address the specific
content and data elements required in
reporting, the reporting portal or
submission process, and the specific
382 U.S. Department of the Treasury, Recipient
Compliance and Reporting Responsibilities, as of
November 5, 2021; https://home.treasury.gov/
policy-issues/corona viru s/assistance- for-state-local- and-tribal-governments/state-and-local-fiscal-
recoveryfunds/recipient-compliance-and-reporting-
responsibilities.
form of reporting (e.g., example
templates, machine readability);
comments on these topics are outside
the scope of the final rule and, as noted,
are addressed instead in Compliance
and Reporting Guidance.

Reporting Deadlines
Public Comment: Treasury received
comments requesting various changes to
reporting deadlines to ease compliance
burdens. For example, Treasury
received several comments requesting
that Treasury delay early reporting
deadlines for various reasons, including
to align with the timeline for issuing a
final rule and to allow for more time for
recipients to determine SLFRF
allocations. Commenters also requested
changes to the immediacy of reporting,
for example requesting that Treasury
allow expenses to be reported with a lag
instead of the quarter in which they
were accrued or that reports be due 90
days after period close instead of 30
days after the close of a reporting
period. Some commenters requested
changes to the reporting frequency, for
example to report biannually rather than
quarterly.

Treasury Response: Treasury has
clarified reporting deadlines in the
Compliance and Reporting guidance.383
Treasury is retaining the reporting
deadline of 30 days after the close of the
reporting period to ensure timely
accounting of the use of SLFRF funds;
this timeline also aligns with practices
in many other federal programs. The
final rule maintains Treasury's
discretion to extend or delay reporting
deadlines.

Administrative Costs for Reporting and
Compliance
Public Comment: Many commenters
sought clarification about whether
various administrative costs related to
reporting and compliance were eligible
uses of funds and asked for clarification
on the limits of such use.

Treasury Response: Treasury notes
that administrative costs are generally
allowable uses of SLFRF funds,
including for reporting. For additional
information on administrative expenses,
please see section Administrative
Expenses under Program
Administration Provisions.

Uniform Guidance
Public Comment: The SUPPLEMENTARY
INFORMATION of the interim final rule
clarified that SLFRF funds were
generally subject to the provisions of the
Uniform Administrative Requirements,
Cost Principles, and Audit
383 Id.

4438 Federal Register / Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations Requirements for Federal Awards (2
CFR part 200) (the Uniform Guidance),
including the cost principles and
restrictions on general provisions for
selected items of cost. Treasury received
many comments requesting clarification
about or modifications to the
applicability of the Uniform Guidance
on various issues.

For example, one commenter
requested that Treasury remove
requirements that expenditures of funds
be made in conformance with the
Uniform Guidance, particularly in case
of expenditures made during period
from March 3, 2021 to the release of the
interim final rule, while other
comments requested that Treasury raise
the single -audit threshold from
$750,000 to $5 million. Commenters
sought clarification on items such as:

The applicability of the Uniform
Guidance for funds that are used for the
provision of government services, the
applicability of particular sections of the
cost principles provided in subpart E of
the Uniform Guidance, the applicability
of the procurement provisions of the
Uniform Guidance, and requirements
for subrecipient reporting.

Treasury Response: Recipients of
SLFRF funds are subject to the
provisions of the Uniform Guidance (2
CFR part 200) from the date of award to
the end of the period of performance on
December 31, 2026 unless otherwise
specified in this rule or program -
specific guidance. Costs must follow the
requirements in 2 CFR 200 Subpart E,
Cost Principles, including procurement
standards. Recipients that receive an
aggregate amount of federal financial
assistance in a given fiscal year that
exceeds the Single Audit threshold are
subject to the requirements in 2 CFR 200
Subpart F, Audit Requirements, unless
otherwise specified in program -specific
guidance.

SLFRF funds transferred to
subrecipients are also subject to
reporting and Uniform Guidance
requirements. Additional information
about the definition of subrecipients is
available in the section Distinguishing
Subrecipients versus Beneficiaries.

Recipients should refer to the
Assistance Listing for details on the
specific provisions of the Uniform
Guidance that do not apply to this
program. The Assistance Listing is
available on SAM.gov. Additional
changes to compliance and reporting
guidelines, including any clarifications
on Uniform Guidance requirements,
will be addressed in Compliance and
Reporting Guidance and the User
Guide.384
384 Id.

I. Remediation and Recoupment
Sections 602(e) and 603(e) of the
Social Security Act provide the
Secretary with the power to recoup
"funds used in violation" of the Social
Security Act. The interim final rule
implemented these provisions by
establishing a process for recoupment.

Treasury may identify funds used in
violation of the Social Security Act
based on information submitted by
recipients, including as part of reporting
requirements, as well as information
from other sources.385 If a potential
violation is identified, Treasury will
provide the recipient an initial written
notice of the amount subject to
recoupment along with an explanation
of such amounts. A recipient then has
60 calendar days following receipt of a
recoupment notice to submit a request
for reconsideration containing any
information it believes supports its use
of funds. Within 60 calendar days of
receipt of the request for
reconsideration, the interim final rule
provided that a recipient will receive a
final notice of the Secretary's decision
to affirm, withdraw, or modify the
recoupment notice. If the recipient did
not submit a request for reconsideration,
the initial notice of recoupment would
be deemed a final notice. A recipient
would then be required to repay any
amounts subject to recoupment within
120 calendar days of either the initial
recoupment notice, if the recipient does
not request reconsideration, or the final
recoupment notice, if the recipient does
request reconsideration.

Public Comments
Treasury received several comments
on the process for recoupment. For
instance, some commenters, including
many Tribal governments, requested
additional time to file a request for
reconsideration and submit repayment
to ensure that small entities have the
time necessary to carry out any
logistical steps and consult with
counsel. Treasury was also asked to
align its recoupment process with that
of the Office of the Inspector General
and other departmental administrative
processes to resolve findings, agency
decisions, and related timelines. One
commenter asked if the 120 -calendar -
day time limit for repayment was based
on the initial notice, rather than a final
decision issued by the Secretary.

Several commenters expressed concern
regarding the recoupment process,
arguing that consideration of "all
relevant facts and circumstances"
provided Treasury with too much
385 Treasury will also consider the tax offset
provision on an annual basis.
authority and created ambiguity. Other
commenters urged Treasury to establish
a robust enforcement and compliance
program and process and advocated for
the creation of a whistleblower
mechanism or public complaint process
to allow public and private entities to
report suspected misuses of funds.

Finally, some commenters requested
clarification regarding the process after
a violation is identified and becomes
final. One commenter also asked to
allow recipients to amend reports
deemed to contain ineligible expenses
and inform recipients how the agency
intends to resolve instances where a use
was later deemed unacceptable. Another
commenter asked if recouped funds
could be released back to the recipient.

Commenters also expressed concern
about Treasury's authority to recoup
funds used in violation of the tax offset
provision. Some commenters requested
additional clarity around when tax cuts
would trigger Treasury's recoupment
authority and the duration of Treasury's
authority to seek recoupment of such
funds.

Treasury Response
The final rule largely preserves the
process established in the interim final
rule but includes several adjustments to
clarify certain elements.

Like the interim final rule, the final
rule provides that, after an initial
determination is made that a recipient
has used SLFRF funds in violation of
the law, a recipient may submit a
request for reconsideration concerning
any amounts identified in a notice
provided by Treasury. If a recipient
chooses to seek reconsideration of the
initial notice, the recipient must submit
a request for reconsideration as
provided under the final rule. If a
recipient does not request
reconsideration, the initial notice that
the recipient received will be deemed
the final notice.386 Treasury has
clarified that a recipient must invoke
and exhaust the procedures available
under section 35.10 of the final rule
prior to seeking judicial review of a
recoupment decision. Consistent with
Section 602(b)(6)(A)(ii)(III) of the Social
Security Act, if a state or territory is
required to repay funds pursuant to the
Secretary's recoupment authority, the
Secretary may reduce the amount
payable to the state or territory in a
second tranche payment by the amount
that the state or territory would be
required to repay as recoupment.

In the final rule, Treasury has
clarified that, if it identifies a potential
386 Funds subject to recoupment cannot later be
returned.

Federal Register / Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4439 violation,387 it may request additional
information from a recipient before
initiating the recoupment process and,
where necessary, provide written notice
to the recipient along with an
explanation of such amounts potentially
subject to recoupment. Furthermore,
Treasury has also made clear that it
retains the ability to expedite or extend
timelines in any adjudication or pre -
adjudication process pursuant to section

35.4(b) of the final rule, although the
general timelines set forth in the interim
final rule are maintained in the final
rule.

This process is intended to provide
the recipient with an adequate
opportunity to present additional
information regarding its uses of funds
and provides flexibility for recipients to
determine the information relevant to
the particular facts and circumstances. It
is also flexible enough to align with
other adjudication procedures in other
ARPA recovery programs administered
by the Office of Recovery Programs at
Treasury. As discussed above, the initial
notice will provide recipients with an
explanation of the identified potential
violation in order to provide recipients
with a meaningful opportunity to
respond. Such initial notice will
generally include information regarding
the specific use of SLFRF funds and the
source of such information.388 This
process also will allow the Secretary to
take into consideration the information
provided by recipients, along with other
relevant information, to ensure SLFRF
funds are used in a manner consistent
with the Social Security Act.

Finally, Treasury expects to work
with recipients to support the use of
SLFRF funds consistent with the law.

For example, Treasury may request
additional information from a recipient
before initiating the recoupment
process. In addition, Treasury may
pursue other forms of remediation and
monitoring in conjunction with, or as an
alternative to, recoupment.389 These
efforts may include working with
recipients to identify and substitute
permissible uses of SLFRF funds or
amending uses of SLFRF funds to
comply with applicable restrictions.

In response to comments regarding
the amount of time provided to respond
to an initial notice, the final rule
clarifies that Treasury retains the ability
388 Treasury may address potential violations
based on information submitted from recipients,
either through quarterly reports or self -reported
information, and from other sources of information
as Treasury deems necessary and appropriate (e.g.,
press, information submitted from the public).
389 Treasury intends to work with recipients to
support the use of SLFRF funds consistent with the
law.
to expedite or extend timelines in any
adjudication or pre -adjudication process
pursuant to section 35.4(b) of the final
rule, although the general timelines set
forth in the interim final rule are
maintained in the final rule.

V. Regulatory Analyses
Executive Orders 12866 and 13563
Regulatory Impact Assessment
This final rule is a "significant
regulatory action" under section 3(f) of
Executive Order 12866 for the purposes
of Executive Orders 12866 and 13563
because it is likely to have an annual
effect on the economy of $100 million
or more.

As explained below, this regulation
meets a substantial need: ensuring that
recipients —states, territories, Tribal
governments, and local governments —
of SLFRF funds fully understand the
requirements and parameters of the
program as set forth in the statute and
deploy funds in a manner that best
reflects Congress' intent to provide
necessary relief to recipient
governments adversely impacted by the
COVID-19 public health emergency.

Furthermore, as required by Executive
Orders 12866 and 13563, Treasury has
weighed the costs and benefits of this
final rule and varying alternatives and
has reasonably determined that the
benefits of the final rule to recipients
and their communities far outweigh any
costs.

The rule has been reviewed by the
Office of Management and Budget
(OMB) in accordance with Executive
Order 12866.

Executive Orders 12866 and 13563
Under Executive Order 12866, OMB
must determine whether this regulatory
action is "significant," and therefore,
subject to the requirements of the
Executive Order and subject to review
by OMB. Section 3(f) of Executive Order
12866 defines a significant regulatory
action as an action likely to result in a
rule that may, among other things, have
an annual effect on the economy of $100
million or more. This rule is likely to
have an annual effect on the economy
of $100 million or more, and therefore,
it is subject to review by OMB under
section 3(f) of Executive Order 12866.

Treasury has also reviewed these
regulations under Executive Order
13563, which supplements and
explicitly reaffirms the principles,
structures, and definitions governing
regulatory review established in
Executive Order 12866. To the extent
permitted by law, section 1(b) of
Executive Order 13563 requires that an
agency: (1) Propose or adopt regulations
only upon a reasoned determination
that their benefits justify their costs
(recognizing that some benefits and
costs are difficult to quantify); (2) tailor
its regulations to impose the least
burden on society, consistent with
obtaining regulatory objectives taking
into account, among other things, and to
the extent practicable, the costs of
cumulative regulations; (3) select, in
choosing among alternative regulatory
approaches, those approaches that
maximize net benefits (including
potential economic, environmental,
public health and safety, and other
advantages; distributive impacts; and
equity); (4) to the extent feasible, specify
performance objectives, rather than the
behavior or manner of compliance a
regulated entity must adopt; and (5)
identify and assess available alternatives
to direct regulation, including providing
economic incentives —such as user fees
or marketable permits —to encourage the
desired behavior, or providing
information that enables the public to
make choices. Executive Order 13563
also requires an agency "to use the best
available techniques to quantify
anticipated present and future benefits
and costs as accurately as possible."
OMB's Office of Information and
Regulatory Affairs (OIRA) has
emphasized that these techniques may
include "identifying changing future
compliance costs that might result from
technological innovation or anticipated
behavioral changes."
Based on the analysis that follows and
the reasons stated elsewhere in this
document, Treasury believes that this
final rule is consistent with the
principles set forth in Executive Orders
12866 and 13563. This Regulatory
Impact Analysis discusses the need for
regulatory action, the potential benefits,
and the potential costs. Treasury has
assessed the potential costs and
benefits, both quantitative and
qualitative, of this regulatory action, and
is issuing this final rule only on a
reasoned determination that the benefits
exceed the costs. In choosing among
alternative regulatory approaches,
Treasury selected those approaches that
would maximize net benefits.

Need for Regulatory Action
This final rule implements the $350
billion SLFRF program of the ARPA,
which Congress passed to help states,
territories, Tribal governments, and
localities respond to the ongoing
COVID-19 public health emergency and
its economic impacts. As the agency
charged with execution of these
programs, Treasury has concluded that
this final rule is needed to ensure that
recipients of SLFRF funds fully

4440 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations understand the requirements and
parameters of the program as set forth in
the statute and deploy funds in a
manner that best reflects Congress'
mandate for targeted fiscal relief. This
final rule governs the use of $350 billion
in grant funds from the federal
government to states, territories, Tribal
governments, and localities, generating
a significant macroeconomic effect on
the U.S. economy. Treasury has sought
to implement the program in ways that
maximize its potential benefits while
minimizing its costs. It has done so by:
aiming to target relief in key areas
according to the congressional mandate;
offering clarity to states, territories,
Tribal governments, and localities while
maintaining their flexibility to respond
to local needs; and limiting
administrative burdens.

Analysis of Benefits
Relative to a pre -statutory baseline,
the SLFRF funds provide a combined
$350 billion to state, local, and Tribal
governments for fiscal relief and support
for costs incurred responding to the
COVID-19 pandemic. Treasury believes
that this transfer will generate
substantial additional economic
activity, although given the flexibility
accorded to recipients in the use of
funds, it is not possible to precisely
estimate the extent to which this will
occur and the timing with which it will
occur. Economic research has
demonstrated that state fiscal relief is an
efficient and effective way to mitigate
declines in jobs and output during an
economic downturn.39a Absent such
fiscal relief, fiscal austerity among state,
local, and Tribal governments could
exert a prolonged drag on the overall
economic recovery, as occurred
following the 2007-2009 recession.391
This final rule provides benefits
across several areas by implementing
the four eligible use categories, as
defined in statute: strengthening the
response to the COVID-19 public health
emergency and its negative economic
impacts; replacing lost revenue to ease
fiscal pressure on state, local, and Tribal
governments that might otherwise lead
to harmful cutbacks in employment or
government services; providing
premium pay to essential workers; and
making necessary investments in water,
sewer, and broadband infrastructure.

These benefits are achieved in the
final rule through a broadly flexible
399 See, e.g., Gabriel Chodorow-Reich et al., Does
state Fiscal Relief During Recessions Increase
Employment? Evidence from the American
Recovery and Reinvestment Act, 4 American
Economic Journal 118-145 (2012) http://dx.doi.org/

10.1257/po1.4.3.118.
391 See, e.g., Fitzpatrick, supra note 278.
approach that sets clear guidelines on
eligible uses of SLFRF funds and
provides state, local, and Tribal
government officials discretion within
those eligible uses to direct SLFRF
funds to areas of greatest need within
their jurisdiction. While preserving
recipients' overall flexibility, the final
rule includes several provisions that
implement statutory requirements and
will help support use of SLFRF funds to
achieve the intended benefits.

Preserving flexibility for recipients not
only serves an important public policy
goal by allowing them to meet
particularized and diverse needs of their
local communities but also enhances the
economic benefits of the final rule by
allowing recipients to choose eligible
uses of funds that provide the highest
utility in their jurisdictions.

In implementing the ARPA, Treasury
has also prioritized supporting
underserved communities that have
been disproportionately impacted by the
pandemic. The SLFRF program as
implemented by the final rule provides
even greater flexibility to recipients for
uses of funds in underserved
communities, recognizing that pre-
existing health and economic disparities
in these communities amplified the
impact of the pandemic there. In
general, investments in improving
health outcomes and economic
opportunities provide high economic
returns, so this approach is likely to
achieve substantial near -term economic
and public health benefits, in addition
to the longer -term benefits arising from
the allowable investments in water,
sewer, and broadband infrastructure.

The remainder of this section clarifies
how Treasury's approach to key
provisions in the final rule will
contribute to greater realization of
benefits from the program.

Public Health and Negative Economic
Impacts
The eligible use category for
responding to the public health and
negative economic impacts of the
pandemic covers a wide range of
eligible uses of funds. Treasury
addresses several key uses of funds in
this analysis, as well as ways that
Treasury has structured this eligible use
to minimize recipient administrative
burden while also maintaining targeting
of the funding to entities that
experienced negative impacts from the
pandemic.

Government Employment: In order to
bolster the government's ability to
effectively administer services, the final
rule allows for a broader set of eligible
uses to restore and support public sector
employment relative to the interim final
rule. In particular, eligible uses include
hiring up to a pre -pandemic baseline
that is adjusted for historic
underinvestment in the public sector by
allowing funds to be used to pay for
payroll and covered benefits associated
with the recipient increasing its number
of employees up to 7.5 percent above its
pre -pandemic baseline. Eligible uses
also include providing additional funds
for employees who experienced pay
cuts or were furloughed, avoiding
layoffs, providing worker retention
incentives, and paying for ancillary
administrative costs related to hiring.

Treasury believes this expanded
approach, relative to the interim final
rule, provides useful flexibility to
recipients, which may increase a state or
local government's ability to effectively
deliver services to its residents. While
the interim final rule already explicitly
permitted using funds to restore
recipients' workforces up to pre -
pandemic levels, the final rule's
inclusion of an upward adjustment
factor recognizes that, as the population
or economy of a jurisdiction grows over
time, more workers are generally needed
to effectively meet responsibilities. It
also provides recipients greater room to
employ funds toward building back the
public sector workforce after years of
chronic underinvestment since the
Great Recession. Treasury arrived at the

7.5 percent adjustment factor through an
analysis of data from the Bureau of
Labor Statistics on state and local
government employment and data from
the Census Bureau on population to
estimate the extent of underinvestment
in the public sector since the onset of
the Great Recession. While Treasury
considered a range of methodologies
and point estimates to set the
adjustment factor, a 7.5 percent factor
errs on the side of recipient flexibility.

Treasury believes this adjustment
enhances recipients' ability to identify
and meet the particularized needs of
their communities. Treasury also
believes that the additional enumerated
eligible uses for supporting the
workforce provide recipients several
means to help retain current workers,
decreasing turnover costs.

Identifying Eligible Populations
Treasury has provided several
methods for recipients to identify
households, populations, and
communities eligible for services that
respond to the public health and
negative economic impacts of the
pandemic. In general, these methods
seek to provide recipients options to
identify eligible populations with
minimal administrative burden, while
also maintaining targeting of the funds

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4441 to entities impacted by the pandemic.

Recipients also retain flexibility to
identify and serve other populations
and entities that experienced pandemic
impacts, ensuring that recipients can
meet the particularized needs of their
local communities.

Defining Low and Moderate Income:

To streamline the provision of funds
relating to negative economic impacts
resulting from the pandemic, Treasury
has created an eligibility standard
making it easier for recipients to provide
assistance to low- and moderate -income
populations without needing to identify
and document a specific negative
economic impact. Populations falling
under the definition of low income are
presumed to have been
disproportionately impacted by the
pandemic, while those falling under the
definition of moderate income are
presumed to have been impacted by the
pandemic. In addition, the final rule
recognizes categorical eligibility for
certain enumerated programs and
populations if a recipient chooses to
implement categorical eligibility when
identifying impacted and
disproportionately impacted
populations. Treasury considered
several options for eligibility standards
that would reduce administrative
burdens for recipients when
determining who qualifies as low and
moderate income.

One option involved defining a
household as low income or moderate
income based only on FPG thresholds
and could use levels lower than those
selected. This option involved setting
uniform thresholds throughout the
country.

A second option took a broader
approach, defining a household as low
income if it has (i) income at or below
185 percent of the FPG for the size of
its household or (ii) income at or below
40 percent of the AMI for its county and
size of household. The option defined a
household as moderate income if it has
(i) income at or below 300 percent of the
FPG for the size of its household or (ii)
income at or below 65 percent of the
AMI for its county and size of
household. The combination of an FPG
floor with AMI allows for a regional
adjustment in areas with substantially
higher costs and incomes. Finally,
Treasury also considered a range of FPG
and AMI thresholds above and below
these levels.

Treasury chose the second option.

Treasury believes that the higher FPG
floor will ease administrative burdens
by making more households
presumptively eligible for funds meant
to address negative economic impacts in
a targeted manner. With respect to the
low-income cutoff, 185 percent of the
FPG for a family of four is $49,025,
which is approximately the wage
earnings for a two -earner household
where both earners receive the median
wage in occupations, such as waiters
and waitresses and hotel clerks, that
were heavily impacted by COVID-19.

As such, this cutoff is likely to include
more workers in industries heavily
impacted by COVID-19, who may be
most likely to face disproportionate
impacts of the pandemic, than a lower
threshold.392 With respect to the
moderate -income cutoff, many
households with incomes between 200
percent and 300 percent of the FPG
struggle with a lack of economic
security, suggesting that 300 percent of
the FPG was an appropriate cutoff for
moderate income.

Treasury also considered relatively
higher thresholds for both an FPG and
AMI approach; however, increasing
income thresholds for presumed
eligibility increases the likelihood that
higher -income workers, who generally
experienced fewer economic impacts
from the pandemic, would become
presumed eligible for responsive
services. Providing services to
households that did not experience a
negative economic impact, or
experienced a relatively minimal
impact, would provide much less
benefit than serving households that
experienced more severe impacts,
diluting the benefits of the SLFRF
funds.

In all, Treasury anticipates that these
selected thresholds, combined with the
regional adjustment, will allow
resources to be targeted toward
individuals and households with the
greatest need while also reducing
administrative burdens on recipients.

Disproportionately Impacted
Populations: In the interim final rule,
Treasury enumerated a broader set of
eligible uses for disproportionately
impacted communities, in recognition
of the pre-existing health, economic,
and social disparities that contributed to
disproportionate pandemic impacts in
certain communities and that
addressing root causes of those
disparities constitutes responding to the
public health and negative economic
impacts of the pandemic. To identify
these communities and reduce
administrative burden, Treasury
allowed recipients to presume that
certain populations —those in QCTs and
those being served by Tribal
392 See U.S. Bureau of Labor Statistics,
Occupational Employment and Wage Estimates,
https://www.bls.gov/oes/current/oes_nat.htm (last
visited November 9, 2021).
governments —were disproportionately
impacted. In the final rule, to further
decrease administrative burden and
enhance recipient flexibility, Treasury is
allowing recipients to also presume that
low-income households were
disproportionately impacted. Treasury
anticipates that adding low-income
households as a presumed eligible
population will maintain targeting of
funds to populations and communities
most likely to have experienced severe
pandemic impacts, while providing a
more flexible approach for recipients.

Identifying Impacted Classes: In the
final rule, Treasury reiterated its stance
in the interim final rule allowing
recipients to designate a class of
households or other entities as impacted
or disproportionately impacted and
provide responsive services. After
designating a class, recipients can serve
a household or entity by simply
identifying that the household or entity
is a member of the class. Relative to
restricting services to only presumed
eligible populations identified by
Treasury, this decision provides vital
administrative flexibility for recipients
that may identify particular impacted
classes in the context of their
jurisdiction. Treasury anticipates that
SLFRF funds will be targeted to
impacted or disproportionately
impacted communities, as recipients
must demonstrate that the designated
class experienced negative economic
impacts or meaningfully more severe
negative economic impacts. This
approach maintains the requirement
that entities served have to have
experienced a negative economic
impact, while simultaneously
minimizing any administrative costs
associated with meeting this
requirement.

Additional Enumerated Uses
The interim final rule enumerated
eligible uses of SLFRF funds to serve
both impacted and disproportionately
impacted communities. For example,
enumerated eligible uses to serve
impacted communities included food
assistance; rent, mortgage, or utility
assistance; and counselling and legal aid
to prevent eviction or homelessness.

Examples of enumerated eligible uses to
serve disproportionately impacted
communities included remediation of
lead paint or other lead hazards and
housing vouchers and assistance
relocating to neighborhoods with higher
levels of economic opportunity. In the
final rule, Treasury had the option to
retain, expand, or reduce enumerated
eligible uses, or shift use eligibility
between disproportionately impacted
and impacted communities. Many

4442 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 /Rules and Regulations public comments suggested potential
expansions of uses, including shifting
enumerated eligible uses for
disproportionately impacted
communities to serve a broader
population of impacted communities.

Taking these comments into account,
Treasury generally took this approach,
in anticipation that the benefits of the
program will increase while recipient
administrative costs in identifying and
justifying non -enumerated uses of funds
will decrease.

Specifically, Treasury added
enumerated eligible uses for impacted
populations including paid sick,
medical, or family leave; health
insurance subsidies; and services for the
unbanked and underbanked, on the
basis that impacts of the pandemic that
were broadly experienced by many
communities would be addressed by
these uses. Treasury also shifted some
eligible uses, formerly restricted only to
disproportionately impacted
communities, to impacted communities.

These uses included community
violence intervention, assistance
accessing or applying to public benefits
and services, affordable housing
development, and services to promote
healthy childhood environments like
childcare and early learning. These uses
were shifted on the basis that the
associated impacts of the pandemic
were experienced by a broader
population, and responses are,
accordingly, eligible to benefit a broader
population.

Additionally, the final rule clarified
that investments in parks and other
public outdoor recreation spaces are
enumerated eligible uses for
disproportionately impacted
communities. In including these uses,
Treasury took into account evidence on
the social determinants of health, or the
ways that social context, like the
neighborhood built environment,
impacts health outcomes. By taking a
more holistic approach to public health,
the final rule allows recipients to
respond more broadly to factors that
contributed to the pandemic's health
impacts and more fully mitigate those
health impacts.

To balance administrative flexibility
with a maintenance of focus on impacts
of the pandemic, Treasury considered,
but did not include, other proposed
enumerated uses that did not respond to
the impacts of the pandemic or
responded to impacts that were not
experienced generally across the
country by many jurisdictions and
populations. For example, Treasury did
not include pollution remediation
broadly, a proposed enumerated eligible
use for disproportionately impacted
communities, on the basis that
associated projects would only respond
to disproportionate impacts of the
pandemic depending on the specific
issue addressed. In sum, Treasury
expanded enumerated eligible uses
while retaining a focus on broadly
experienced impacts of the pandemic.

Treasury anticipates that this will give
recipients further flexibility to presume
eligibility and respond to pandemic
impacts without increasing
administrative burden.

Capital Expenditures: In the interim
final rule, Treasury permitted funds to
be used for a limited number of capital
expenditures mostly related to the
COVID-19 public health response. This
decision granted recipients some
discretion to use SLFRF funds to
address COVID-19 prevention and
mitigation through certain investments
in equipment, real property, and
facilities, which Treasury recognized as
critical components of the public health
response. In the final rule, Treasury
considered maintaining the provisions
in the interim final rule or expanding
allowable capital expenditures to
provide recipients greater flexibility to
pursue other capital investments that
are responsive to the public health
emergency and its negative economic
impacts. While expanding allowable
capital expenditures may increase the
risk that recipients will undertake large
expenditures that do not sufficiently
address intended harms, or address
harms in a less cost-efficient manner
than an alternative investment (e.g., a
program or service), expanding
allowable capital expenditures would
likely help fill critical gaps in
recipients' response to the pandemic
and provide equipment and facilities
that generate benefits beyond SLFRF's
period of performance. To preserve
flexibility while mitigating risks, the
final rule allows recipients to undertake
an expanded set of capital expenditures
while requiring additional written
justifications for projects with an
expected total cost at or over $1 million.

Treasury believes this approach
balances the implementation of
appropriate risk -based compliance
requirements and the provision of
administrative convenience for smaller
capital expenditures, while generally
allowing recipients the flexibility to
undertake a greater variety of responsive
capital expenditures.

Revenue Loss
Revenue Loss Formula: In this final
rule, Treasury's approach to revenue
loss allows recipients to compute the
extent of reduction in revenue by
comparing actual revenue to a
counterfactual trend representing what
could have plausibly been expected to
occur in the absence of the pandemic.

The counterfactual trend begins with
the last full fiscal year prior to the
public health emergency (as required by
statute) and projects forward with an
annualized growth adjustment. Treasury
has made several adjustments in the
final rule to decrease administrative
burden, reducing costs for recipients,
while still accurately capturing
reductions in revenue due to the
pandemic.

Under the interim final rule, Treasury
specified that recipients calculate
revenue loss on a calendar year basis. In
this final rule, Treasury is providing
recipients the option to calculate
revenue loss on a calendar year or fiscal
year basis, which will allow recipients
the administrative flexibility to
minimize administrative burdens based
on the data available to them.

Treasury's decision to incorporate a
growth adjustment into the calculation
of revenue loss ensures that the formula
more fully captures revenue shortfalls
relative to recipients' pre -pandemic
expectations. Recipients will have the
opportunity to calculate revenue loss at
several points throughout the program,
recognizing that some recipients may
experience revenue effects with a lag.

This option to re -calculate revenue loss
on an ongoing basis is intended to result
in more support for recipients to avoid
harmful cutbacks in future years. In
calculating revenue loss, recipients will
look at general revenue in the aggregate,
rather than on a source -by -source basis,
given that recipients may have
experienced offsetting changes in
revenues across sources. The final rule
also provides for removing the impact of
tax increasing or decreasing changes,
which affect the amount of revenue
collected but are not "due to" the
pandemic, from the calculation of
revenue loss due to the public health
emergency. Both of these components of
Treasury's approach provide a more
accurate representation of the effect of
the pandemic on overall revenues.

Revenue Loss Standard Allowance: In
addition to largely preserving the
formula to calculate revenue loss from
the interim final rule, Treasury also
added an alternative "standard
allowance" option for the revenue loss
calculation to this final rule. Treasury's
decision to elect to allow a fixed amount
of loss that can be used to fund
"government services" allows recipients
the flexibility to use minimal
administrative capacity on the
calculation if desired. The decision also
benefits recipients by allowing them to
avoid expending administrative

Federal Register / Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4443 resources to determine how unique
variations in revenue interact with the
revenue loss formula.

Premium Pay
Per the ARPA statute, recipients have
broad latitude to designate critical
infrastructure sectors and make grants to
third -party employers for the purpose of
providing premium pay. While the final
rule provides significant flexibility to
implement the statutory requirement
that premium pay respond to essential
workers, it requires recipients give
written justification in the case that
premium pay would increase a worker's
annual pay above a certain threshold or
is awarded to an individual whose
annual pay is already above that
threshold. To set this threshold,
Treasury analyzed data from the Bureau
of Labor Statistics to determine a level
that would not require further
justification for premium pay to the vast
majority of essential workers, while
requiring higher scrutiny for provision
of premium pay to higher earners who,
even without premium pay, would
likely have greater personal financial
resources to cope with the effects of the
pandemic. Alternatively, a recipient
need not submit written justification to
Treasury if the worker receiving
premium pay is eligible for overtime
under the FLSA. Treasury believes this
alternative, which is an addition to the
final rule, will give recipients more
flexibility and will simplify application
of the final rule as employers, public
and private, are already legally required
to determine whether an employee is
eligible for overtime pay under the
FLSA. Treasury believes the threshold
and overtime eligibility provision in the
final rule strike the appropriate balance
between preserving flexibility and
helping encourage use of these
resources to help those in greatest need.

The final rule also requires that workers
eligible for premium pay have regular
in -person interactions or regular
physical handling of items that were
also handled by others. This
requirement will help encourage use of
financial resources for those who have
endured the heightened risk of
performing essential work.

Water and Sewer Infrastructure
In the interim final rule, Treasury
aligned eligible uses of funds for water
and sewer infrastructure to those
projects eligible to receive financial
assistance through the DWSRF and
CWSRF administered by the EPA.

The benefits of this approach
included giving recipients an existing
list that would provide them clarity as
well as flexibility in identifying eligible
projects, particularly given the broad
range of projects eligible under the
CWSRF and DWSRF. The approach also
ensured that projects would conform to
vetted project types from a widely used
program. Treasury received comments
from recipients requesting additional
project categories to be considered
eligible, indicating a potential cost to
maintaining alignment with the CWSRF
and DWSRF.

For the final rule, Treasury has
expanded eligibility to include several
additional project types beyond those
covered by the CWSRF and DWSRF.

Treasury believes that expanded
eligibility will benefit recipients by
allowing them additional flexibility to
pursue beneficial projects, including
project categories that support the
provision of drinking water and the
removal, management, and treatment of
wastewater and stormwater: Additional
stormwater management projects,
private well infrastructure, additional
projects that address lead in water, and
certain dam and reservoir rehabilitation
projects undertaken to address the
provision of drinking water. A potential
cost of this approach is that uses beyond
the CSWRF and DWSRF may have less
public guidance available to understand
project eligibilities. However, Treasury
anticipates that this eligibility
expansion will provide a net benefit to
recipients by allowing them to pursue
projects relevant to their goals that were
ineligible under the interim final rule.

The expansion to allow private well
infrastructure may also affect the
distributional impact of SLFRF. Private
wells disproportionately serve rural
Americans, including low-income
households, and expanding eligibility to
include this use may allow SLFRF funds
to benefit such households. While
distributional impacts are uncertain,
Treasury believes that the potential for
benefits to accrue to rural and low-
income households makes it important
to clarify that these types of projects are
eligible.

Broadband Infrastructure
In the final rule, Treasury expands
eligible areas for broadband investment
by requiring that recipients invest in
projects designed to provide service to
households and businesses with an
identified need for additional
broadband investment, including
increasing access to high-speed
broadband, increasing the affordability
of broadband services, and improving
the reliability of broadband service.393
393 Further, the final rule encourages, but does not
require, that recipients pursue broadband
infrastructure projects in locations not currently
Treasury considered multiple
alternatives when selecting this
standard. The threshold for the interim
final rule allowed benefits to accrue in
a more targeted manner to the
approximately 9 percent of the country
with access to speeds under the 25/3
Mbps threshold.394 However, since
SLFRF funds are distributed to tens of
thousands of governments across the
country with a variety of broadband
needs, Treasury believes that allowing
recipients greater flexibility to
determine locations to serve in their
jurisdictions —including considering
affordability and competition barriers —
will lead to greater long-term public
benefit. Further, given that many federal
broadband grant programs are focused
solely on unserved and underserved
areas, Treasury believes that the final
rule's flexibility enables these funds to
fill an important role in the overall
federal broadband landscape.

In the final rule, Treasury also
requires that broadband projects must
meet a standard of reliably delivering at
least 100 Mbps download speeds and
upload speeds, or in cases where it is
not practicable to do so, reliably
delivering at least 100 Mbps download
speed and between at least 20 Mbps and
100 Mbps upload speed while being
scalable to 100 Mbps upload and
download speeds. Treasury expects that
this threshold will yield long-term
benefits and allow networks to meet
both pandemic -related and future needs.

The Federal Communications
Commission (FCC) estimates that
currently a household with two to three
remote learners using the internet
simultaneously needs a connection
supporting 100 Mbps download
speeds.395 While a lower threshold may
have resulted in lower near -term costs
to build, it would have potentially
constrained future utility from the
infrastructure by producing
infrastructure that would more
quickly —potentially in the near -term —
become obsolete and no longer meet
household needs, potentially requiring
sooner replacement and generally
decreasing the return on investment. As
served by a wireline connection that reliably
delivers at least 100 Mbps of download speed and
20 Mbps of upload speed.
394 Data from the Federal Communications
Commission shows that as of June 2020, 9.07
percent of the U.S. population had no available
cable or fiber broadband providers providing greater
than 25 Mbps download speeds and 3 Mbps upload
speeds. Federal Communications Commission,
Fixed Broadband Deployment, https://
broadbandmap.fcc.gov/#/ (last visited May 9, 2021).
395 See Federal Communications Commission,
Broadband Speed Guide, available at https://
www.fcc.gov/consumers/guides/broadband-speed-
guide (last visited October 28, 2021).

4444 Federal Register / Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations such, projects meeting a lower threshold
could not be considered "necessary"
investments in broadband
infrastructure, so Treasury has retained
the threshold from the interim final
rule.

Further, the final rule adds a
requirement that recipients address the
affordability needs of low-income
consumers in accessing broadband
networks funded by SLFRF, either by
requiring service providers that provide
service to households to either
participate in the FCC's Affordable
Connectivity Program (ACP), or a broad -
based affordability program with
commensurate benefits. Treasury
believes that this requirement will
increase the number of customers that
are able to take advantage of broadband
infrastructure funded by SLFRF,
increasing the effectiveness of funds in
connecting households and businesses
to high-speed internet that is critical to
work, health, and education. There is a
potential that this requirement may
marginally increase project costs for
recipients and providers, but this
impact is uncertain, given the varying
business models and pricing structures
of broadband projects and providers.

Labor Standards
In this Supplementary Information for
the final rule, Treasury encourages
recipients to ensure that capital
expenditures to respond to the public
health and negative economic impacts
of the pandemic and water, sewer, and
broadband projects use strong labor
standards, including, for example,
project labor agreements and
community benefits agreements that
offer wages at or above the prevailing
rate and include local hire provisions.

Treasury believes that its
encouragement of labor standards
carries benefits because it will ensure
that workers have access to strong
employment opportunities associated
with infrastructure projects, which will
in turn aid the economic recovery.

Treasury believes that infrastructure
projects may also benefit from stronger
labor standards due to the potential of
these standards to ensure a stronger
skilled labor supply and minimize labor
disputes and workplace injuries, which
can result in costly disruptions to
projects. Treasury assesses that these
benefits will increase the economy and
efficiency of infrastructure projects
undertaken through SLFRF and will
outweigh the potential for a marginal
increase in labor costs.

Splitting Payments to Recipients
Treasury is required by statute to
deliver funds to local governments in
two payments separated by at least
twelve months, and the interim final
rule provided for split payments to a
majority of states as well. As discussed
above, splitting payments ensures that
recipients can adapt spending plans to
evolving economic conditions and that
at least some of the economic benefits
will be realized in 2022 or later.

However, consistent with authorities
granted to Treasury in the statute,
Treasury recognizes that a subset of
states with significant remaining
elevation in the unemployment rate
could face heightened additional near
term needs to aid unemployed workers
and stimulate the recovery. Therefore,
for a subset of state governments,
Treasury has provided funds in one
payment. Treasury believes that this
approach strikes an appropriate balance
between the general reasons to provide
funds in two payments and the
heightened additional near -term needs
in specific states. As discussed above,
Treasury set a threshold based on
historical analysis of unemployment
rates in recessions.

Reaching Underserved Communities
Finally, the final rule aims to promote
and streamline the provision of
assistance to individuals and
communities in greatest need,
particularly communities that have been
historically underserved and have
experienced disproportionate impacts of
the COVID-19 crisis. Targeting relief is
in line with Executive Order 13985,
"Advancing Racial Equity and Support
for Underserved Communities Through
the Federal Government," which laid
out an Administration -wide priority to
support "equity for all, including people
of color and others who have been
historically underserved, marginalized,
and adversely affected by persistent
poverty and inequality." To this end,
the final rule enumerates a list of
services that may be provided using
SLFRF funds in disproportionately
impacted communities, including low-
income areas, to address the more
severe impacts of the pandemic in these
communities; establishes the
characteristics of essential workers
eligible for premium pay and
encouragement to serve workers based
on financial need; provides that
recipients may use SLFRF funds to
restore state and local workforces,
where women and people of color are
disproportionately represented; and
requires that broadband infrastructure
projects participate in programs to
support affordability of broadband
service. Collectively, these provisions
will promote use of resources to
facilitate the provision of assistance to
individuals and communities with the
greatest need.

Analysis of Costs
This regulatory action will generate
administrative costs relative to a pre -
statutory baseline. This includes,
chiefly, costs required to administer
SLFRF funds, oversee subrecipients and
beneficiaries, and file periodic reports
with Treasury. It also requires states to
allocate SLFRF funds to nonentitlement
units, which are smaller units of local
government that are statutorily required
to receive their funds through states.

Treasury expects that the administrative
burden associated with this program
will be moderate for a grant program of
its size. Treasury expects that many
recipients receive direct or indirect
funding from federal government
programs and that many have
familiarity with how to administer and
report on federal funds or grant funding
provided by other entities. In particular,
states, territories, and large localities
will have received funds from the
Coronavirus Relief Fund (CRF) and
Treasury expects them to rely heavily
on established processes developed
through that program or other prior
grant funding, mitigating burden on
these governments. Treasury has
enhanced the level of recipient
reporting as compared to the CRF,
incorporating feedback from the
Government Accountability Office and
others that additions would improve the
oversight of recipients' use of funds. To
balance the oversight benefits with the
costs of added reporting burdens,
Treasury has incorporated other
mechanisms to mitigate burden. For
example, Treasury is "tiering" reporting
requirements so that recipients that
receive relatively lesser amounts of
SLFRF funds are required to submit less
frequent reports than recipients
receiving greater amounts of funds.

Treasury is noting administrative costs
as a generally allowable use of SLFRF
funds, which defrays administrative
expenses to recipients that may be
needed to comply with reporting
requirements. Treasury has also
provided options for recipients to use
eligibility thresholds they are already
familiar with during administration of
SLFRF funds, which will enable
recipients to avoid the costs of setting
up new programs and reporting
mechanisms to meet reporting and
compliance requirements. For example,
Treasury has permitted recipients to use
"categorical eligibility" when delivering
assistance to particular groups, such as
impacted or disproportionately
impacted households.

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 /Rules and Regulations 4445
In making implementation choices,
Treasury has hosted numerous
consultations with a diverse range of
direct recipients —states, cities,
counties, and Tribal governments —
along with various communities across
the United States, including those that
are underserved. Furthermore, Treasury
has made clear in guidance that SLFRF
funds may be used to cover certain
expenses related to administering
programs established using SLFRF
funds.396
Executive Order 13132
Executive Order 13132 (entitled
Federalism) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state, local, and Tribal governments, and
is not required by statute, or preempts
state law, unless the agency meets the
consultation and funding requirements
of section 6 of the Executive Order. This
final rule does not have federalism
implications within the meaning of the
Executive Order and does not impose
substantial, direct compliance costs on
state, local, and Tribal governments or
preempt state law within the meaning of
the Executive Order. The compliance
costs are imposed on state, local, and
Tribal governments by sections 602 and
603 of the Social Security Act, as
enacted by the ARPA. Notwithstanding
the above, Treasury has engaged in
efforts to consult and work
cooperatively with affected state, local,
and Tribal government officials and
associations in the process of
developing the interim final rule and
this final rule. Pursuant to the
requirements set forth in section 8(a) of
Executive Order 13132, Treasury
certifies that it has complied with the
requirements of Executive Order 13132.

Administrative Procedure Act
The Administrative Procedure Act
(APA), 5 U.S.C. 551 et seq., generally
requires public notice and an
opportunity for comment before a rule
becomes effective. However, the APA
provides that the requirements of 5
U.S.C. 553 do not apply "to the extent
that there is involved . . . a matter
relating to agency . . . grants." The
APA also provides an exception to
ordinary notice -and -comment
procedures "when the agency for good
cause finds (and incorporates the
finding and a brief statement of reasons
therefor in the rules issued) that notice
and public procedure thereon are
impracticable, unnecessary, or contrary
to the public interest." 5 U.S.C.
553(b)(B). The interim final rule was
issued without prior notice and
comment procedures because it
implemented statutory conditions on
the eligible uses of SLFRF funds, and
addressed the payment of those funds,
the reporting on uses of funds, and
potential consequences of ineligible
uses to help address the economic and
public health emergency. See the
SUPPLEMENTARY INFORMATION section of
the May 17, 2021 interim final rule for
the applicability of the requirements of
5 U.S.C. 553. In addition, under the
exception discussed in that section for
matters relating to agency grants, the
requirements of 5 U.S.C. 553 also do not
apply to this final rule. After careful
consideration of the comments received,
this final rule adopts the May 17, 2021
interim final rule with the revisions
discussed in this SUPPLEMENTARY
INFORMATION.

Congressional Review Act
The Administrator of OIRA has
determined that this is a major rule for
purposes of Subtitle E of the Small
Business Regulatory Enforcement and
Fairness Act of 1996 (also known as the
Congressional Review Act or CRA) (5
U.S.C. 804(2) et seq.). Under the CRA,
a major rule generally may take effect no
earlier than 60 days after the rule is
published in the Federal Register. 5
U.S.C. 801(a)(3).

Paperwork Reduction Act
The information collections
associated with the SLFRF program
have been reviewed and approved by
OMB pursuant to the Paperwork
Reduction Act (44 U.S.C. Chapter 35)
(PRA) and assigned control number
1505-0271. Under the PRA, an agency
may not conduct or sponsor, and a
respondent is not required to respond
to, an information collection unless it
displays a valid OMB control number.

Estimates of hourly burden under this
program are set forth in the table below.

Reporting
Number
respondents per
p
Number
responses

respondent
Total
responses
p
Hours per
response
p
Total
burden
in hours
Cost to
respondents
($48.80 per
hour*)
Recipient Payment Form
5,050
1 5,050
.25 (15 minutes) ....
1,262.5
$61,610
Acceptance of Award Terms
5,050
1 5,050
.25 (15 minutes) ....
1,262.5
61,610
Title VI Assurances
5,050
1 5,050
.50 (30 minutes) ....
2,525
123,220
Tribal Employment Information Form
584
1 584
.75 (45 minutes) ....
438
21,374
Request for Extension Form
96 1
96 1
96 4,685
Annual Recovery Plan Performance Report
430
1 430
100
43,000
2,098,400
NEU Distribution Template
55 2
110
10 1,100
53,680
Non-UGLG Distribution Template
55 2
110
5 550
26,840
Transfer Forms
1,500
1 1,500
1 1,500
73,200
Project and Expenditure Report
37,000
1 37,000
5 185,000
9,028,000
Total
54,870
54,980
236,735
11,552,619
`Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Accountants and Auditors, on the internet at https:// www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm (visited March 28, 2020). Base wage of $33.89/hour increased by 44 per- cent to account for fully loaded employer cost of employee compensation (benefits, etc.) for a fully loaded wage rate of $48.80.

Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA)
generally requires that when an agency
issues a proposed rule, or a final rule
pursuant to section 553(b) of the
396 See Coronavirus State and Local Fiscal
Recovery Funds, Frequently Asked Questions, 10.2,
Administrative Procedure Act or
another law, the agency must prepare a
regulatory flexibility analysis that meets
the requirements of the RFA and
as of July 19, 2021; https://home.treasury.gov/
system/files/136/SLFRPFAQ. pd f.
publish such analysis in the Federal
Register. 5 U.S.C. 603, 604.

Rules that are exempt from notice and
comment under the APA or any other
law are also exempt from the RFA

4446 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations requirements, including the requirement
to conduct a regulatory flexibility
analysis, when among other things the
agency for good cause finds that notice
and public procedure are impracticable,
unnecessary, or contrary to the public
interest. Because this rule is exempt
from the notice and comment
requirements of the APA, Treasury is
not required to conduct a regulatory
flexibility analysis.

Rule Text
List of Subjects in 31 CFR Part 35
Executive compensation, State and
Local Governments, Tribal
Governments, Public health emergency.

For the reasons stated in the
preamble, the United States Department
of the Treasury amends 31 CFR part 35
as follows:

PART 35 —PANDEMIC RELIEF

PROGRAMS
• 1. Revise Subpart A to read as follows:

Subpart A—Coronavirus State and
Local Fiscal Recovery Funds
Sec.

35.1 Purpose.

35.2 Applicability.

35.3 Definitions.

35.4 Reservation of authority, reporting.

35.5 Use of funds.

35.6 Eligible uses.

35.7 Pensions.

35.8 Tax.

35.9. Compliance with applicable laws.

35.10. Recoupment.

35.11 Payments to States.

35.12. Distributions to nonentitlement units
of local government and units of general
local government.

Authority: 42 U.S.C. 802(f); 42 U.S.C.
803(f).
§35.1 Purpose.

This part implements section 9901 of
the American Rescue Plan Act (Subtitle
M of Title IX of Pub. L. 117-2), which
amends Title VI of the Social Security
Act (42 U.S.C. 801 et seq.) by adding
sections 602 and 603 to establish the
Coronavirus State Fiscal Recovery Fund
and Coronavirus Local Fiscal Recovery
Fund.
§35.2 Applicability.

This part applies to states, territories,
Tribal governments, metropolitan cities,
nonentitlement units of local
government, counties, and units of
general local government that accept a
payment or transfer of funds made
under section 602 or 603 of the Social
Security Act.
§35.3 Definitions.

Baseline means tax revenue of the
recipient for its fiscal year ending in
2019, adjusted for inflation in each
reporting year using the Bureau of
Economic Analysis's Implicit Price
Deflator for the gross domestic product
of the United States.

Capital expenditures has the same
meaning given in 2 CFR 200.1.

County means a county, parish, or
other equivalent county division (as
defined by the Census Bureau).

Covered benefits include, but are not
limited to, the 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).

Covered change means a change in
law, regulation, or administrative
interpretation that reduces any tax (by
providing for a reduction in a rate, a
rebate, a deduction, a credit, or
otherwise) or delays the imposition of
any tax or tax increase. A change in law
includes any final legislative or
regulatory action, a new or changed
administrative interpretation, and the
phase -in or taking effect of any statute
or rule if the phase -in or taking effect
was not prescribed prior to the start of
the covered period.

Covered period means, with respect to
a state or territory, the period that:
(1) Begins on March 3, 2021; and
(2) Ends on the last day of the fiscal
year of such State or territory in which
all funds received by the State or
territory from a payment made under
section 602 or 603 of the Social Security
Act have been expended or returned to,
or recovered by, the Secretary.

COVID-19 means the Coronavirus
Disease 2019.

COVID-19 public health emergency
means the period beginning on January
27, 2020 and lasting until the
termination of the national emergency
concerning the COVID-19 outbreak
declared pursuant to the National
Emergencies Act (50 U.S.C. 1601 et
seq.).

Deposit means an extraordinary
payment of an accrued, unfunded
liability. The term deposit does not refer
to routine contributions made by an
employer to pension funds as part of the
employer's obligations related to
payroll, such as either a pension
contribution consisting of a normal cost
component related to current employees
or a component addressing the
amortization of unfunded liabilities
calculated by reference to the
employer's payroll costs.

Eligible employer means an employer
of an eligible worker who performs
essential work.

Eligible workers means workers
needed to maintain continuity of
operations of essential critical
infrastructure sectors, including health
care; emergency response; sanitation,
disinfection, and cleaning work;
maintenance work; grocery stores,
restaurants, food production, and food
delivery; pharmacy; biomedical
research; behavioral health work;
medical testing and diagnostics; home -
and community -based health care or
assistance with activities of daily living;
family or childcare; social services
work; public health work; vital services
to Tribes; any work performed by an
employee of a State, local, or Tribal
government; educational work, school
nutrition work, and other work required
to operate a school facility; laundry
work; elections work; solid waste or
hazardous materials management,
response, and cleanup work; work
requiring physical interaction with
patients; dental care work;
transportation and warehousing; work at
hotel and commercial lodging facilities
that are used for COVID-19 mitigation
and containment; work in a mortuary;
and work in critical clinical research,
development, and testing necessary for
COVID-19 response.
(1) With respect to a recipient that is
a metropolitan city, nonentitlement unit
of local government, or county, workers
in any additional non-public sectors as
each chief executive officer of such
recipient may designate as critical to
protect the health and well-being of the
residents of their metropolitan city,
nonentitlement unit of local
government, or county; or
(2) With respect to a State, territory,
or Tribal government, workers in any
additional non-public sectors as each
Governor of a State or territory, or each
Tribal government, may designate as
critical to protect the health and well-
being of the residents of their State,
territory, or Tribal government.

Essential work means work that:
(1) Is not performed while
teleworking from a residence; and
(2) Involves:
(i) Regular in -person interactions with
patients, the public, or coworkers of the
individual that is performing the work;
or
(ii) Regular physical handling of items
that were handled by, or are to be
handled by patients, the public, or
coworkers of the individual that is
performing the work.

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4447
Funds means, with respect to a
recipient, amounts provided to the
recipient pursuant to a payment made
under section 602(b) or 603(b) of the
Social Security Act or transferred to the
recipient pursuant to section 603(c)(4)
of the Social Security Act.

General revenue means money that is
received from tax revenue, current
charges, and miscellaneous general
revenue, excluding refunds and other
correcting transactions and proceeds
from issuance of debt or the sale of
investments, agency or private trust
transactions, and intergovernmental
transfers from the Federal Government,
including transfers made pursuant to
section 9901 of the American Rescue
Plan Act. General revenue also includes
revenue from liquor stores that are
owned and operated by state and local
governments. General revenue does not
include revenues from utilities, except
recipients may choose to include
revenue from utilities that are part of
their own government as general
revenue provided the recipient does so
consistently over the remainder of the
period of performance. Revenue from
Tribal business enterprises must be
included in general revenue.

Intergovernmental transfers means
money received from other
governments, including grants and
shared taxes.

Low-income household means a
household with:
(1) Income at or below 185 percent of
the Federal Poverty Guidelines for the
size of its household based on the
poverty guidelines published most
recently by the Department of Health
and Human Services; or
(2) Income at or below 40 percent of
the Area Median Income for its county
and size of household based on data
published most recently by the
Department of Housing and Urban
Development.

Micro -business means a small
business that has five or fewer
employees, one or more of whom owns
the small business.

Moderate -income household means a
household with:
(1) Income at or below 300 percent of
the Federal Poverty Guidelines for the
size of its household based on poverty
guidelines published most recently by
the Department of Health and Human
Services; or
(2) Income at or below 65 percent of
the Area Median Income for its county
and size of household based on data
published most recently by the
Department of Housing and Urban
Development.

Metropolitan city has the meaning
given that term in section 102(a)(4) of
the Housing and Community
Development Act of 1974 (42 U.S.C.
5302(a)(4)) and includes cities that
relinquish or defer their status as a
metropolitan city for purposes of
receiving allocations under section 106
of such Act (42 U.S.C. 5306) for fiscal
year 2021.

Net reduction in total spending is
measured as the State or territory's total
spending for a given reporting year
excluding its spending of funds,
subtracted from its total spending for its
fiscal year ending in 2019, adjusted for
inflation using the Bureau of Economic
Analysis's Implicit Price Deflator for the
gross domestic product of the United
States for that reporting year.

Nonentitlement unit of local
government means a "city," as that term
is defined in section 102(a)(5) of the
Housing and Community Development
Act of 1974 (42 U.S.C. 5302(a)(5)), that
is not a metropolitan city.

Nonprofit means a nonprofit
organization that is exempt from Federal
income taxation and that is described in
section 501(c)(3) or 501(c)(19) of the
Internal Revenue Code.

Obligation means an order placed for
property and services and entering into
contracts, subawards, and similar
transactions that require payment.

Pension fund means a defined benefit
plan and does not include a defined
contribution plan.

Period of performance means the time
period described in § 35.5 during which
a recipient may obligate and expend
funds in accordance with sections
602(c)(1) and 603(c)(1) of the Social
Security Act and this subpart.

Premium pay means an amount of up
to $13 per hour that is paid to an
eligible worker, in addition to wages or
remuneration the eligible worker
otherwise receives, for all work
performed by the eligible worker during
the COVID-19 public health emergency.

Such amount may not exceed $25,000 in
total over the period of performance
with respect to any single eligible
worker. Premium pay may be awarded
to non -hourly and part-time eligible
workers performing essential work.

Premium pay will be considered to be
in addition to wages or remuneration
the eligible worker otherwise receives if,
as measured on an hourly rate, the
premium pay is:
(1) With regard to work that the
eligible worker previously performed,
pay and remuneration equal to the sum
of all wages and remuneration
previously received plus up to $13 per
hour with no reduction, substitution,
offset, or other diminishment of the
eligible worker's previous, current, or
prospective wages or remuneration; or
(2) With regard to work that the
eligible worker continues to perform,
pay of up to $13 per hour that is in
addition to the eligible worker's regular
rate of wages or remuneration, with no
reduction, substitution, offset, or other
diminishment of the worker's current
and prospective wages or remuneration.

Qualified census tract has the same
meaning given in 26 U.S.C.
42(d)(5)(B)(ii)(I).

Recipient means a State, territory,
Tribal government, metropolitan city,
nonentitlement unit of local
government, county, or unit of general
local government that receives a
payment made under section 602(b) or
603(b) of the Social Security Act or
transfer pursuant to section 603(c)(4) of
the Social Security Act.

Reporting year means a single year or
partial year within the covered period,
aligned to the current fiscal year of the
State or territory during the covered
period.

Secretary means the Secretary of the
Treasury.

State means each of the 50 States and
the District of Columbia.

Small business means a business
concern or other organization that:
(1) Has no more than 500 employees
or, if applicable, the size standard in
number of employees established by the
Administrator of the Small Business
Administration for the industry in
which the business concern or
organization operates, and
(2) Is a small business concern as
defined in section 3 of the Small
Business Act (15 U.S.C. 632).

Tax revenue means revenue received
from a compulsory contribution that is
exacted by a government for public
purposes excluding refunds and
corrections and, for purposes of § 35.8,
intergovernmental transfers. Tax
revenue does not include payments for
a special privilege granted or service
rendered, employee or employer
assessments and contributions to
finance retirement and social insurance
trust systems, or special assessments to
pay for capital improvements.

Territory means the Commonwealth
of Puerto Rico, the United States Virgin
Islands, Guam, the Commonwealth of
the Northern Mariana Islands, or
American Samoa.

Title I eligible schools means schools
eligible to receive services under section
1113 of Title I, Part A of the Elementary
and Secondary Education Act of 1965,
as amended (20 U.S.C. 6313), including
schools served under section
1113(b)(1)(C) of that Act.

Tribal enterprise means a business
concern:

4448 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 /Rules and Regulations (1) That is wholly owned by one or
more Tribal governments, or by a
corporation that is wholly owned by one
or more Tribal governments; or
(2) That is owned in part by one or
more Tribal governments, or by a
corporation that is wholly owned by one
or more Tribal governments, if all other
owners are either United States citizens
or small business concerns, as these
terms are used and consistent with the
definitions in 15 U.S.C. 657a(b)(2)(D).

Tribal government means the
recognized governing body of any
Indian or Alaska Native Tribe, band,
nation, pueblo, village, community,
component band, or component
reservation, individually identified
(including parenthetically) in the list
published on January 29, 2021, pursuant
to section 104 of the Federally
Recognized Indian Tribe List Act of
1994 (25 U.S.C. 5131).

Unemployment rate means the U-3
unemployment rate provided by the
Bureau of Labor Statistics as part of the
Local Area Unemployment Statistics
program, measured as total
unemployment as a percentage of the
civilian labor force.

Unemployment trust fund means an
unemployment trust fund established
under section 904 of the Social Security
Act (42 U.S.C. 1104).

Unit of general local government has
the meaning given to that term in
section 102(a)(1) of the Housing and
Community Development Act of 1974
(42 U.S.C. 5302(a)(1)).
§35.4 Reservation of authority, reporting.
(a) Reservation of authority. Nothing
in this part shall limit the authority of
the Secretary to take action to enforce
conditions or violations of law,
including actions necessary to prevent
evasions of this subpart.
(b) Extensions or accelerations of
timing. The Secretary may extend or
accelerate any deadline or compliance
date of this part, including reporting
requirements that implement this
subpart, if the Secretary determines that
such extension or acceleration is
appropriate. In determining whether an
extension or acceleration is appropriate,
the Secretary will consider the period of
time that would be extended or
accelerated and how the modified
timeline would facilitate compliance
with this subpart.
(c) Reporting and requests for other
information. During the period of
performance, recipients shall provide to
the Secretary periodic reports providing
detailed accounting of the uses of funds,
modifications to a State or Territory's
tax revenue sources, and such other
information as the Secretary may
require for the administration of this
section. In addition to regular reporting
requirements, the Secretary may request
other additional information as may be
necessary or appropriate, including as
may be necessary to prevent evasions of
the requirements of this subpart. False
statements or claims made to the
Secretary may result in criminal, civil,
or administrative sanctions, including
fines, imprisonment, civil damages and
penalties, debarment from participating
in Federal awards or contracts, and/or
any other remedy available by law.
§35.5 Use of funds.
(a) In general. A recipient may only
use funds to cover costs incurred during
the period beginning March 3, 2021, and
ending December 31, 2024, for one or
more of the purposes enumerated in
sections 602(c)(1) and 603(c)(1) of the
Social Security Act, as applicable,
including those enumerated in § 35.6,
subject to the restrictions set forth in
sections 602(c)(2) and 603(c)(2) of the
Social Security Act, as applicable.
(b) Costs incurred. A cost shall be
considered to have been incurred for
purposes of paragraph (a) of this section
if the recipient has incurred an
obligation with respect to such cost by
December 31, 2024.
(c) Return of funds. A recipient must
return any funds not obligated by
December 31, 2024. A recipient must
also return funds obligated by December
31, 2024 but not expended by December
31, 2026.
§35.6 Eligible uses.
(a) In general. Subject to §§35.7 and

35.8, a recipient may use funds for one
or more of the purposes described in
paragraphs (b) through (f) of this
section.
(b) Responding to the public health
emergency or its negative economic
impacts. A recipient may use funds to
respond to the public health emergency
or its negative economic impacts if the
use meets the criteria provided in
paragraph (b)(1) of this section or is
enumerated in paragraph (b)(3) of this
section; provided that, in the case of a
use of funds for a capital expenditure
under paragraphs (b)(1) or (b)(3) of this
section, the use of funds must also meet
the criteria provided in paragraph (b)(4)
of this section. Treasury may also
articulate additional eligible programs,
services, or capital expenditures from
time to time that satisfy the eligibility
criteria of this paragraph (b), which
shall be eligible under this paragraph
(b).
(1) Identifying eligible responses to
the public health emergency or its
negative economic impacts. (i) A
program, service, or capital expenditure
is eligible under this paragraph (b)(1) if
a recipient identifies a harm or impact
to a beneficiary or class of beneficiaries
caused or exacerbated by the public
health emergency or its negative
economic impacts and the program,
service, or capital expenditure responds
to such harm.
(ii) A program, service, or capital
expenditure responds to a harm or
impact experienced by an identified
beneficiary or class of beneficiaries if it
is reasonably designed to benefit the
beneficiary or class of beneficiaries that
experienced the harm or impact and is
related and reasonably proportional to
the extent and type of harm or impact
experienced.
(2) Identified harms: Presumptions of
impacted and disproportionately
impacted beneficiaries. A recipient may
rely on the following presumptions to
identify beneficiaries presumptively
impacted or disproportionately
impacted by the public health
emergency or its negative economic
impacts for the purpose of providing a
response under paragraph (b)(1) or (b)(3)
of this section:
(i) Households or populations that
experienced unemployment;
experienced increased food or housing
insecurity; qualify for the Children's
Health Insurance Program (42 U.S.C.
1397aa et seq.), Childcare Subsidies
through the Child Care and
Development Fund Program (42 U.S.C.
9857 et seq. and 42 U.S.C. 618), or
Medicaid (42 U.S.C. 1396 et seq.); if
funds are to be used for affordable
housing programs, qualify for the
National Housing Trust Fund (12 U.S.C.
4568) or the Home Investment
Partnerships Program (42 U.S.C. 12721
et seq.); if funds are to be used to
address impacts of lost instructional
time for students in kindergarten
through twelfth grade, any student who
did not have access to in -person
instruction for a significant period of
time; and low- and moderate -income
households and populations are
presumed to be impacted by the public
health emergency or its negative
economic impacts;
(ii) The general public is presumed to
be impacted by the public health
emergency for the purposes of providing
the uses set forth in subparagraphs
(b)(3)(i)(A) and (b)(3)(i)(C); and
(iii) The following households,
communities, small businesses, and
nonprofit organizations are presumed to
be disproportionately impacted by the
public health emergency or its negative
economic impacts:
(A) Households and populations
residing in a qualified census tract;

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 /Rules and Regulations 4449
households and populations receiving
services provided by Tribal
governments; households and
populations residing in the territories;
households and populations receiving
services provided by territorial
governments; low-income households
and populations; households that
qualify for Temporary Assistance for
Needy Families (42 U.S.C. 601 et seq.),
the Supplemental Nutrition Assistance
Program (7 U.S.C. 2011 et seq.), Free
and Reduced Price School Lunch and/
or Breakfast programs (42 U.S.C. 1751 et
seq. and 42 U.S.C. 1773), Medicare Part
D Low-income Subsidies (42 U.S.C.
1395w-114), Supplemental Security
Income (42 U.S.C. 1381 et seq.), Head
Start (42 U.S.C. 9831 et seq.), Early Head
Start (42 U.S.C. 9831 et seq.), the
Special Supplemental Nutrition
Program for Women, Infants, and
Children (42 U.S.C. 1786), Section 8
Vouchers (42 U.S.C. 1437f), the Low -
Income Home Energy Assistance
Program (42 U.S.C. 8621 et seq.), Pell
Grants (20 U.S.C. 1070a), and, if SLFRF
funds are to be used for services to
address educational disparities, Title I
eligible schools;
(B) Small businesses operating in a
qualified census tract, operated by
Tribal governments or on Tribal lands,
or operating in the territories; and
(C) Nonprofit organizations operating
in a qualified census tract, operated by
Tribal governments or on Tribal lands,
or operating in the territories.
(3) Enumerated eligible uses:

Responses presumed reasonably
proportional. A recipient may use funds
to respond to the public health
emergency or its negative economic
impacts on a beneficiary or class of
beneficiaries for one or more of the
following purposes unless such use is
grossly disproportionate to the harm
caused or exacerbated by the public
health emergency or its negative
economic impacts:
(i) Responding to the public health
impacts of the public health emergency
for purposes including:
(A) COVID-19 mitigation and
prevention in a manner that is
consistent with recommendations and
guidance from the Centers for Disease
Control and Prevention, including
vaccination programs and incentives;
testing programs; contact tracing;
isolation and quarantine; mitigation and
prevention practices in congregate
settings; acquisition and distribution of
medical equipment for prevention and
treatment of COVID-19, including
personal protective equipment; COVID-
19 prevention and treatment expenses
for public hospitals or health care
facilities, including temporary medical
facilities; establishing or enhancing
public health data systems; installation
and improvement of ventilation systems
in congregate settings, health facilities,
or other public facilities; and assistance
to small businesses, nonprofits, or
impacted industries to implement
mitigation measures;
(B) Medical expenses related to
testing and treating COVID-19 that are
provided in a manner consistent with
recommendations and guidance from
the Centers for Disease Control and
Prevention, including emergency
medical response expenses, treatment of
long-term symptoms or effects of
COVID-19, and costs to medical
providers or to individuals for testing or
treating COVID-19;
(C) Behavioral health care, including
prevention, treatment, emergency or
first -responder programs, harm
reduction, supports for long-term
recovery, and behavioral health
facilities and equipment; and
(D) Preventing and responding to
increased violence resulting from the
public health emergency, including
community violence intervention
programs, or responding to increased
gun violence resulting from the public
health emergency, including payroll and
covered benefits associated with
community policing strategies;
enforcement efforts to reduce gun
violence; and investing in technology
and equipment;
(ii) Responding to the negative
economic impacts of the public health
emergency for purposes including:
(A) Assistance to households and
individuals, including:
(1) Assistance for food; emergency
housing needs; burials, home repairs, or
weatherization; internet access or digital
literacy; cash assistance; and assistance
accessing public benefits;
(2) Paid sick, medical, or family leave
programs, or assistance to expand access
to health insurance;
(3) Childcare, early learning services,
home visiting, or assistance for child
welfare -involved families or foster
youth;
(4) Programs to address the impacts of
lost instructional time for students in
kindergarten through twelfth grade;
(5) Development, repair, and
operation of affordable housing and
services or programs to increase long-
term housing security;
(6) Financial services that facilitate
the delivery of Federal, State, or local
benefits for unbanked and underbanked
individuals;
(7) Benefits for the surviving family
members of individuals who have died
from COVID-19, including cash
assistance to surviving spouses or
dependents of individuals who died of
COVID-19;
(8) Assistance for individuals who
want and are available for work,
including those who are unemployed,
have looked for work sometime in the
past 12 months, who are employed part
time but who want and are available for
full-time work, or who are employed but
seeking a position with greater
opportunities for economic
advancement;
(9) Facilities and equipment related to
the provision of services to households
provided in subparagraphs
(b)(3)(ii)(A)(1)—(8);
(10) The following expenses related to
Unemployment Trust Funds:
(1) Contributions to a recipient
Unemployment Trust Fund and
repayment of principal amounts due on
advances received under Title XII of the
Social Security Act (42 U.S.C. 1321) up
to an amount equal to the difference
between the balance in the recipient's
Unemployment Trust Fund as of
January 27, 2020 and the balance of
such account as of May 17, 2021 plus
the principal amount outstanding as of
May 17, 2021 on any advances received
under Title XII of the Social Security
Act between January 27, 2020 and May
17, 2021; provided that if a recipient
repays principal on Title XII advances
or makes a contribution to an
Unemployment Trust Fund after April
1, 2022, such recipient shall not reduce
average weekly benefit amounts or
maximum benefit entitlements prior to
December 31, 2024; and
(ii) Any interest due on such advances
received under Title XII of the Social
Security Act (42 U.S.C. 1321); and
(11) A program, service, capital
expenditure, or other assistance that is
provided to a disproportionately
impacted household, population, or
community, including:
(i) Services to address health
disparities of the disproportionately
impacted household, population, or
community;
(ii) Housing vouchers and relocation
assistance;
(iii) Investments in communities to
promote improved health outcomes and
public safety such as parks, recreation
facilities, and programs that increase
access to healthy foods;
(iv) Capital expenditures and other
services to address vacant or abandoned
properties;
(v) Services to address educational
disparities; and
(vi) Facilities and equipment related
to the provision of these services to the
disproportionately impacted household,
population, or community.

4450 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations (B) Assistance to small businesses,
including:
(1) Programs, services, or capital
expenditures that respond to the
negative economic impacts of the
COVID-19 public health emergency,
including loans or grants to mitigate
financial hardship such as declines in
revenues or impacts of periods of
business closure, or providing technical
assistance; and
(2) A program, service, capital
expenditure, or other assistance that
responds to disproportionately
impacted small businesses, including
rehabilitation of commercial properties;
storefront and facade improvements;
technical assistance, business
incubators, and grants for start-ups or
expansion costs for small businesses;
and programs or services to support
micro -businesses;
(C) Assistance to nonprofit
organizations including programs,
services, or capital expenditures,
including loans or grants to mitigate
financial hardship such as declines in
revenues or increased costs, or technical
assistance;
(D) Assistance to tourism, travel,
hospitality, and other impacted
industries for programs, services, or
capital expenditures, including support
for payroll costs and covered benefits
for employees, compensating returning
employees, support for operations and
maintenance of existing equipment and
facilities, and technical assistance; and
(E) Expenses to support public sector
capacity and workforce, including:
(1) Payroll and covered benefit
expenses for public safety, public
health, health care, human services, and
similar employees to the extent that the
employee's time is spent mitigating or
responding to the COVID-19 public
health emergency;
(2) Payroll, covered benefit, and other
costs associated with programs or
services to support the public sector
workforce and with the recipient:
(i) Hiring or rehiring staff to fill
budgeted full-time equivalent positions
that existed on January 27, 2020 but that
were unfilled or eliminated as of March
3, 2021; or
(ii) Increasing the number of its
budgeted full-time equivalent
employees by up to the difference
between the number of its budgeted full-
time equivalent employees on January
27, 2020, multiplied by 1.075, and the
number of its budgeted full-time
equivalent employees on March 3, 2021,
TABLE 1 TO PARAGRAPH (b)(4)
provided that funds shall only be used
for additional budgeted full-time
equivalent employees above the
recipient's number of budgeted full-time
equivalent employees as of March 3,
2021;
(3) Costs to improve the design and
execution of programs responding to the
COVID-19 pandemic and to administer
or improve the efficacy of programs
addressing the public health emergency
or its negative economic impacts; and
(4) Costs associated with addressing
administrative needs of recipient
governments that were caused or
exacerbated by the pandemic.
(4) Capital expenditures. A recipient,
other than a Tribal government, must
prepare a written justification for certain
capital expenditures according to Table
1 to paragraph (b)(4) of this section.

Such written justification must include
the following elements:
(i) Describe the harm or need to be
addressed;
(ii) Explain why a capital expenditure
is appropriate; and
(iii) Compare the proposed capital
expenditure to at least two alternative
capital expenditures and demonstrate
why the proposed capital expenditure is
superior.

If a project has total expected
capital expenditures of
and the use is enumerated in (b)(3), then
and the use is not enumerated in (b)(3), then
Less than $1 million
Greater than or equal to $1 million,
but less than $10 million.
$10 million or more
No Written Justification required
Written Justification required but recipients are not
required to submit as part of regular reporting to
Treasury.

Written Justification required and recipients must
submit as part of regular reporting to Treasury.

No Written Justification required.

Written Justification required and recipients must
submit as part of regular reporting to Treasury.
(c) Providing premium pay to eligible
workers. A recipient may use funds to
provide premium pay to eligible
workers of the recipient who perform
essential work or to provide grants to
eligible employers that have eligible
workers who perform essential work,
provided that any premium pay or
grants provided under this paragraph (c)
must respond to eligible workers
performing essential work during the
COVID-19 public health emergency. A
recipient uses premium pay or grants
provided under this paragraph (c) to
respond to eligible workers performing
essential work during the COVID-19
public health emergency if:
(1) The eligible worker's total wages
and remuneration, including the
premium pay, is less than or equal to
150 percent of the greater of such
eligible worker's residing State's or
county's average annual wage for all
occupations as defined by the Bureau of
Labor Statistics' Occupational
Employment and Wage Statistics;
(2) The eligible worker is not exempt
from the Fair Labor Standards Act
overtime provisions (29 U.S.C. 207); or
(3) The recipient has submitted to the
Secretary a written justification that
explains how providing premium pay to
the eligible worker is responsive to the
eligible worker performing essential
work during the COVID-19 public
health emergency (such as a description
of the eligible workers' duties, health, or
financial risks faced due to COVID-19,
and why the recipient determined that
the premium pay was responsive
despite the worker's higher income).
(d) Providing government services. A
recipient may use funds for the
provision of government services to the
extent of the reduction in the recipient's
general revenue due to the public health
emergency, calculated according to this
paragraph (d). A recipient must make a
one-time election to calculate the
amount of the reduction in the
recipient's general revenue due to the
public health emergency according to
either paragraph (d)(1) or (d)(2) of this
section:
(1) Standard allowance. The
reduction in the recipient's general
revenue due to the public health
emergency over the period of
performance will be deemed to be ten
million dollars; or
(2) Formula. The reduction in the
recipient's general revenue due to the
public health emergency over the period
of performance equals the sum of the
reduction in revenue, calculated as of
each date identified in paragraph
(d)(2)(i) of this section and according to
the formula in paragraph (d)(2)(ii) of
this section:

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 /Rules and Regulations 4451
(i) A recipient must make a one-time
election to calculate the reduction in its
general revenue using information as of
either:
(A) December 31, 2020, December 31,
2021, December 31, 2022, and December
31, 2023; or
(B) The last day of each of the
recipient's fiscal years ending in 2020,
2021, 2022, and 2023.
(ii) A reduction in a recipient's
general revenue for each date identified
in paragraph (d)(2)(i) of this section
equals:

Max {(Base Year Revenue * (1 + Growth
Ad justment)^(nt/12)] - Actual
General Revenue; 0}
Where:
(A) Base Year Revenue is the
recipient's general revenue for the most
recent full fiscal year prior to the
COVID-19 public health emergency;
(B) Growth Adjustment is equal to the
greater of 5.2 percent (or 0.052) and the
recipient's average annual revenue
growth over the three full fiscal years
prior to the COVID-19 public health
emergency;
(C) n equals the number of months
elapsed from the end of the base year to
the calculation date;
(D) Subscript t denotes the specific
calculation date; and
(E) Actual General Revenue is a
recipient's actual general revenue
collected during the 12 -month period
ending on each calculation date
identified in paragraph (d)(2)(i) of this
section, except:
(1) For purposes of all calculation
dates on or after April 1, 2022, in the
case of any change made after January
6, 2022 to any law, regulation, or
administrative interpretation that
reduces any tax (by providing for a
reduction in a rate, a rebate, a
deduction, a credit, or otherwise) or
delays the imposition of any tax or tax
increase and that the recipient assesses
has had the effect of decreasing the
amount of tax revenue collected during
the 12 -month period ending on the
calculation date relative to the amount
of tax revenue that would have been
collected in the absence of such change,
the recipient must add to actual general
revenue the amount of such decrease in
tax revenue;
(2) For purposes of any calculation
date on or after April 1, 2022, in the
case of any change made after January
6, 2022 to any law, regulation, or
administrative interpretation that
increases any tax (by providing for an
increase in a rate, the reduction of a
rebate, a deduction, or a credit, or
otherwise) or accelerates the imposition
of any tax or tax increase and that the
recipient assesses has had the effect of
increasing the amount of tax revenue
collected during the 12 -month period
ending on the calculation date relative
to the amount of tax revenue that would
have been collected in the absence of
such change, the recipient must subtract
from actual general revenue the amount
of such increase in tax revenue;
(3) If the recipient makes a one-time
election to adjust general revenue to
reflect tax changes made during the
period beginning on January 27, 2020
and ending on January 6, 2022, for
purposes of each calculation date
identified in paragraph (d)(2)(i) of this
section:
(i) In the case of any change made
during such prior period to any law,
regulation, or administrative
interpretation that reduces any tax (by
providing for a reduction in a rate, a
rebate, a deduction, a credit, or
otherwise) or delays the imposition of
any tax or tax increase and that the
recipient assesses has had the effect of
decreasing the amount of tax revenue
collected during the 12 -month period
ending on the calculation date relative
to the amount of tax revenue that would
have been collected in the absence of
such change, the recipient must add to
actual general revenue the amount of
such decrease in tax revenue; and
(ii) In the case of any change made
during such prior period to any law,
regulation, or administrative
interpretation that increases any tax (by
providing for an increase in a rate, the
reduction of a rebate, a deduction, or a
credit, or otherwise) or accelerates the
imposition of any tax or tax increase
and that the recipient assesses has had
the effect of increasing the amount of
tax revenue collected during the 12 -
month period ending on the calculation
date relative to the amount of tax
revenue that would have been collected
in the absence of such change, the
recipient must subtract from actual
general revenue the amount of such
increase in tax revenue; and
(4) With respect to any calculation
date during the period beginning on
January 6, 2022 and ending on March
31, 2022, if the recipient makes the
election in paragraph (d)(3) of this
section, the recipient must also make
the adjustments referenced in paragraph
(d)(3) of this section with respect to any
such changes in law, regulation, or
administrative interpretation during the
period beginning on January 6, 2022 and
ending on such calculation date.
(e) Making necessary investments in
water, sewer, and broadband
infrastructure. A recipient may use
funds to make the following
investments in water, sewer, and
broadband infrastructure.
(1) Water and sewer investments-(i)
Clean Water State Revolving Fund
projects. Projects or activities of the type
that meet the eligibility requirements of
section 603(c) of the Federal Water
Pollution Control Act (33 U.S.C.
1383(c));
(ii) Additional stormwater projects.

Projects to manage, reduce, treat, or
recapture stormwater or subsurface
drainage water regardless of whether
such projects would improve water
quality if such projects would otherwise
meet the eligibility requirements of
section 603(c)(5) of the Federal Water
Pollution Control Act (33 U.S.C.
1383(c)(5));
(iii) Drinking Water State Revolving
Fund projects. Projects or activities of
the type that meet the eligibility
requirements of section 1452 of the Safe
Drinking Water Act (42 U.S.C. 300j-12)
as implemented by the regulations
adopted by the Environmental
Protection Agency (EPA) under 40 CFR

35.3520, provided that:
(A) The recipient is not required to
comply with the limitation under 40
CFR 35.3520(c)(2) to acquisitions of
land from willing sellers or the
prohibition under 40 CFR 35.3520(e)(6)
on uses of funds for certain Tribal
projects; and
(B) In the case of lead service line
replacement projects, the recipient must
replace the full length of the service line
and may not replace only a partial
portion of the service line.
(iv) Additional lead remediation and
household water quality testing. Projects
or activities to address lead in drinking
water or provide household water
quality testing that are within the scope
of the programs the EPA is authorized
to establish under sections 1459A(b)(2),
1459B(b)(1), 1464(d)(2), and 1465 of the
Safe Drinking Water Act (42 U.S.C.
300j-19a(b)(2), 300j-19b(b)(1), 300j -
24(d)(2), and 300j-25), provided that:
(A) In the case of lead service line
replacement projects, the recipient must
replace the full length of the service line
and may not replace only a partial
portion of the service line; and
(B) In the case of projects within the
scope of the program the EPA is
authorized to establish under section
1459B(b)(1) of the Safe Drinking Water
Act, the recipient may determine the
income eligibility of homeowners
served by lead service line replacement
projects in its discretion.
(v) Drinking water projects to support
increased population. Projects of the
type that meet the eligibility
requirements of 40 CFR 35.3520 other
than the requirement of subparagraph

4452 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 /Rules and Regulations (b)(1) of such regulation to address
present or prevent future violations of
health -based drinking water standards,
if the following conditions are met:
(A) The project is needed to support
increased population, with need
assessed as of the time the project is
undertaken;
(B) The project is designed to support
no more than a reasonable level of
projected increased need, whether due
to population growth or otherwise;
(C) The project is a cost-effective
means for achieving the desired level of
service; and
(D) The project is projected to
continue to provide an adequate level of
drinking water over its estimated useful
life.
(vi) Dams and reservoirs.

Rehabilitation of dams and reservoirs if
the following conditions are met:
(A) The project meets the
requirements of 40 CFR 35.3520 other
than the following requirements:
(1) The prohibition on the
rehabilitation of dams and reservoirs in
40 CFR 35.3520(e)(1) and (3); and
(2) The requirement in 40 CFR

35.3520(b)(1) that the project is needed
to address present or prevent future
violations of health -based drinking
water standards, provided that if the
dam or reservoir project does not meet
this requirement, the project must be
needed to support increased population,
with need assessed as of the time the
project is undertaken, and the project
must be projected to continue to provide
an adequate level of drinking water over
its estimated useful life;
(B) The primary purpose of the dam
or reservoir is for drinking water supply;
(C) The project is needed for the
provision of drinking water supply,
with need assessed as of the time the
project is initiated;
(D) The project is designed to support
no more than a reasonable level of
projected increased need, whether due
to population growth or otherwise; and
(E) The project is a cost-effective
means for achieving the desired level of
service.
(vii) Private wells. Rehabilitation of
private wells, testing initiatives to
identify contaminants in private wells,
and treatment activities and remediation
projects that address contamination in
private wells, if the project meets the
requirements of 40 CFR 35.3520 other
than the limitation to certain eligible
systems under 40 CFR 35.3520(a).
(2) Broadband investments—(i)
General. Broadband infrastructure if the
following conditions are met:
(A) The broadband infrastructure is
designed to provide service to
households and businesses with an
identified need, as determined by the
recipient, for such infrastructure;
(B) The broadband infrastructure is
designed to, upon completion:
(1) Reliably meet or exceed
symmetrical 100 Mbps download speed
and upload speeds; or
(2) In cases where it is not practicable,
because of the excessive cost of the
project or geography or topography of
the area to be served by the project, to
provide service reliably meeting or
exceeding symmetrical 100 Mbps
download speed and upload speeds:
(i) Reliably meet or exceed 100 Mbps
download speed and between at least 20
Mbps and 100 Mbps upload speed; and
(ii) Be scalable to a minimum of 100
Mbps download speed and 100 Mbps
upload speed; and
(C) The service provider for a
completed broadband infrastructure
investment project that provides service
to households is required, for as long as
the SLFRF-funded broadband
infrastructure is in use, by the recipient
to:
(1) Participate in the Federal
Communications Commission's
Affordable Connectivity Program (ACP)
through the lifetime of the ACP; or
(2) Otherwise provide access to a
broad -based affordability program to
low-income consumers in the proposed
service area of the broadband
infrastructure that provides benefits to
households commensurate with those
provided under the ACP through the
lifetime of the ACP.
(ii) Cybersecurity infrastructure
investments. Cybersecurity
infrastructure investments that are
designed to improve the reliability and
resiliency of new and existing
broadband infrastructure. Such
investments may include the addition or
modernization of network security
hardware and software tools designed to
strengthen cybersecurity for the end -
users of these networks.
(f) Meeting the non-federal matching
requirements for Bureau of Reclamation
projects. A recipient may use funds to
meet the non-federal matching
requirements of any authorized Bureau
of Reclamation project.
§ 35.7 Pensions.

A recipient (other than a Tribal
government) may not use funds for
deposit into any pension fund.
§ 35.8 Tax.
(a) Restriction. A State or Territory
shall not use funds to either directly or
indirectly offset a reduction in the net
tax revenue of the State or Territory
resulting from a covered change during
the covered period.
(b) Violation. Treasury will consider a
State or Territory to have used funds to
offset a reduction in net tax revenue if,
during a reporting year:
(1) Covered change. The State or
Territory has made a covered change
that, either based on a reasonable
statistical methodology to isolate the
impact of the covered change in actual
revenue or based on projections that use
reasonable assumptions and do not
incorporate the effects of
macroeconomic growth to reduce or
increase the projected impact of the
covered change, the State or Territory
assesses has had or predicts to have the
effect of reducing tax revenue relative to
current law;
(2) Exceeds the de minimis threshold.

The aggregate amount of the measured
or predicted reductions in tax revenue
caused by covered changes identified
under paragraph (b)(1) of this section, in
the aggregate, exceeds 1 percent of the
State's or Territory's baseline;
(3) Reduction in net tax revenue. The
State or Territory reports a reduction in
net tax revenue, measured as the
difference between actual tax revenue
and the State's or Territory's baseline,
each measured as of the end of the
reporting year; and
(4) Consideration of other changes.

The aggregate amount of measured or
predicted reductions in tax revenue
caused by covered changes is greater
than the sum of the following, in each
case, as calculated for the reporting
year:
(i) The aggregate amount of the
expected increases in tax revenue
caused by one or more covered changes
that, either based on a reasonable
statistical methodology to isolate the
impact of the covered change in actual
revenue or based on projections that use
reasonable assumptions and do not
incorporate the effects of
macroeconomic growth to reduce or
increase the projected impact of the
covered change, the State or Territory
assesses has had or predicts to have the
effect of increasing tax revenue; and
(ii) Reductions in spending, up to the
amount of the State's or Territory's net
reduction in total spending, that are in:
(A) Departments, agencies, or
authorities in which the State or
Territory is not using funds; and
(B) Departments, agencies, or
authorities in which the State or
Territory is using funds, in an amount
equal to the value of the spending cuts
in those departments, agencies, or
authorities, minus funds used.
(c) Amount and revenue reduction
cap. If a State or Territory is considered
to be in violation pursuant to paragraph
(b) of this section, the amount used in

Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 /Rules and Regulations 4453 violation of paragraph (a) of this section
is equal to the lesser of:
(1) The reduction in net tax revenue
of the State or Territory for the reporting
year, measured as the difference
between the State's or Territory's
baseline and its actual tax revenue, each
measured as of the end of the reporting
year; and,
(2) The aggregate amount of the
reductions in tax revenues caused by
covered changes identified in paragraph
(b)(1) of this section, minus the sum of
the amounts in identified in paragraphs
(b)(4)(i) and (ii) of this section.
§ 35.9 Compliance with applicable laws.

A recipient must comply with all
other applicable Federal statutes,
regulations, and executive orders, and a
recipient shall provide for compliance
with the American Rescue Plan Act, this
subpart, and any interpretive guidance
by other parties in any agreements it
enters into with other parties relating to
these funds.
§35.10 Recoupment.
(a) Identification of violations —(1) In
general. Any amount used in violation
of § 35.5, 35.6, or 35.7 may be identified
at any time prior to December 31, 2026.
(2) Annual reporting of amounts of
violations. On an annual basis, a
recipient that is a State or territory must
calculate and report any amounts used
in violation of § 35.8.
(b) Calculation of amounts subject to
recoupment—(1) In general. Except as
provided in paragraph (b)(2) of this
section, the Secretary will calculate any
amounts subject to recoupment
resulting from a violation of § 35.5, 35.6
or 35.7 as the amounts used in violation
of such restrictions.
(2) Violations of § 35.8. The Secretary
will calculate any amounts subject to
recoupment resulting from a violation of
§ 35.8, equal to the lesser of:
(i) The amount set forth in § 35.8(c);
and,
(ii) The amount of funds received by
such recipient.
(c) Initial notice. If the Secretary
calculates an amount subject to
recoupment under paragraph (b) of this
section, Treasury will provide the
recipient an initial written notice of the
amount subject to recoupment along
with an explanation of such amounts.
(d) Request for reconsideration.

Unless the Secretary extends or
accelerates the time period, within 60
calendar days of receipt of an initial
notice of recoupment provided under
paragraph (c) of this section, a recipient
may submit a written request to the
Secretary requesting reconsideration of
any amounts subject to recoupment
under paragraph (b) of this section. To
request reconsideration of any amounts
subject to recoupment, a recipient must
submit to the Secretary a written request
that includes:
(1) An explanation of why the
recipient believes all or some of the
amount should not be subject to
recoupment; and
(2) A discussion of supporting
reasons, along with any additional
information.
(e) Final amount subject to
recoupment. Unless the Secretary
extends or accelerates the time period,
within 60 calendar days of receipt of the
recipient's request for reconsideration
provided pursuant to paragraph (d) of
this section or the expiration of the
period for requesting reconsideration
provided under paragraph (d), the
recipient will be notified of the
Secretary's decision to affirm, withdraw,
or modify the notice of recoupment.

Such notification will include an
explanation of the decision, including
responses to the recipient's supporting
reasons and consideration of additional
information provided. A recipient must
invoke and exhaust the procedures
available under this subpart prior to
seeking judicial review of a decision
under § 35.10.
(f) Repayment of funds. Unless the
Secretary extends or accelerates the time
period, a recipient shall repay to the
Secretary any amounts subject to
recoupment in accordance with
instructions provided by the Secretary:
(1) Within 120 calendar days of
receipt of the notice of recoupment
provided under paragraph (c) of this
section, in the case of a recipient that
does not submit a request for
reconsideration in accordance with the
requirements of paragraph (d) of this
section; or
(2) Within 120 calendar days of
receipt of the Secretary's decision under
paragraph (e) of this section, in the case
of a recipient that submits a request for
reconsideration in accordance with the
requirements of paragraph (d) of this
section.
(g) Other remedial actions. Prior to
seeking recoupment or taking other
appropriate action pursuant to
paragraph (c), (d), (e), or (f) of this
section, the Secretary may notify the
recipient of potential violations and
provide the recipient an opportunity for
informal consultation and remediation.
§ 35.11 Payments to States.
(a) In general. With respect to any
State or Territory that has an
unemployment rate as of the date that
it submits an initial certification for
payment of funds pursuant to section
602(d)(1) of the Social Security Act that
is less than two percentage points above
its unemployment rate in February
2020, the Secretary will withhold 50
percent of the amount of funds allocated
under section 602(b) of the Social
Security Act to such State or territory
until at least May 10, 2022 and not more
than twelve months from the date such
initial certification is provided to the
Secretary.
(b) Payment of withheld amount. In
order to receive the amount withheld
under paragraph (a) of this section, the
State or Territory must submit to the
Secretary the following information:
(1) A certification, in the form
provided by the Secretary, that such
State or Territory requires the payment
to carry out the activities specified in
section 602(c) of the Social Security Act
and will use the payment in compliance
with section 602(c) of the Social
Security Act; and
(2) Any reports required to be filed by
that date pursuant to this part that have
not yet been filed.
§ 35.12 Distributions to nonentitlement
units of local government and units of
general local government.
(a) Nonentitlement units of local
government. Each State or Territory that
receives a payment from the Secretary
pursuant to section 603(b)(2)(B) of the
Social Security Act shall distribute the
amount of the payment to
nonentitlement units of local
government in such State or Territory in
accordance with the requirements set
forth in section 603(b)(2)(C) of the
Social Security Act and without
offsetting any debt owed by such
nonentitlement units of local
governments against such payments.
(b) Budget cap. A State or Territory
may not make a payment to a
nonentitlement unit of local government
pursuant to section 603(b)(2)(C) of the
Social Security Act and paragraph (a) of
this section in excess of the amount
equal to 75 percent of the most recent
budget for the nonentitlement unit of
local government as of January 27, 2020.

For purposes of this section 35.12, a
nonentitlement unit of local
government's most recent budget shall
mean the nonentitlement unit of local
government's total annual budget,
including both operating and capital
expenditure budgets, in effect as of
January 27, 2020. A State or Territory
shall permit a nonentitlement unit of
local government without a formal
budget as of January 27, 2020, to
provide a certification from an
authorized officer of the nonentitlement
unit of local government of its most
recent annual expenditures as of

4454 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations January 27, 2020, and a State or
Territory may rely on such certification
for purposes of complying with this
section 35.12.
(c) Units of general local government.

Each State or Territory that receives a
payment from the Secretary pursuant to
section 603(b)(3)(B)(ii) of the Social
Security Act, in the case of an amount
to be paid to a county that is not a unit
of general local government, shall
distribute the amount of the payment to
units of general local government within
such county in accordance with the
requirements set forth in section
603(b)(3)(B)(ii) of the Social Security
Act and without offsetting any debt
owed by such units of general local
government against such payments.
(d) Additional conditions. A State or
Territory may not place additional
conditions or requirements on
distributions to nonentitlement units of
local government or units of general
local government beyond those required
by section 603 of the Social Security Act
or this subpart.

Jacob Leibenluft,
Chief Recovery Officer.
[FR Doc. 2022-00292 Filed 1-26-22; 8:45 am]

BILLING CODE P

Attachment C — Uniform Administrative Requirements, Cost Principles, Federal Provisions and Audit Requirements for Federal Awards -2 CFR Part 200 et seq 2 CFR Part 200 attached hereto
12

PART 200 -UNIFORM ADMINISTRA-

TIVE REQUIREMENTS, COST PRIN-

CIPLES, AND AUDIT REQUIRE-

MENTS FOR FEDERAL AWARDS
Subpart A -Acronyms and Definitions

ACRONYMS
Sec.
200.0 Acronyms.
200.1 Definitions.
200.2 Acquisition cost.
200.3 Advance payment.
200.4 Allocation.
200.5 Audit finding.
200.6 Auditee.
200.7 Auditor.
200.8 Budget.
200.9 Central service cost allocation plan.
200.10 Catalog of Federal Domestic Assist-
ance (CFDA) number.
200.11 CFDA program title.
200.12 Capital assets.
200.13 Capital expenditures.
200.14 Claim.
200.15 Class of Federal awards.
200.16 Closeout.
200.17 Cluster of programs.
200.18 Cognizant agency for audit.
200.19 Cognizant agency for indirect costs.
200.20 Computing devices.
200.21 Compliance supplement.
200.22 Contract.
200.23 Contractor.
200.24 Cooperative agreement.
200.25 Cooperative audit resolution.
200.26 Corrective action.
200.27 Cost allocation plan.
200.28 Cost objective.
200.29 Cost sharing or matching.
200.30 Cross -cutting audit finding.
200.31 [Reserved]
200.32 Data Universal Numbering System
(DUNS) number.
200.33 Equipment.
200.34 Expenditures.
200.35 Federal agency.
200.36 Federal Audit Clearinghouse (FAC).
200.37 Federal awarding agency.
200.38 Federal award.
200.39 Federal award date.
200.40 Federal financial assistance.
200.41 Federal interest.
200.42 Federal program.
200.43 Federal share.
200.44 Final cost objective.
200.45 Fixed amount awards.
200.46 Foreign public entity.
200.47 Foreign organization.
200.48 General purpose equipment.
200.49 Generally Accepted Accounting Prin-
ciples (GAAP).
81 200.50 Generally Accepted Government Au-
diting Standards (GAGAS).
200.51 Grant agreement.
200.52 Hospital.
200.53 Improper payment.
200.54 Indian tribe (or "federally recognized
Indian tribe").
200.55 Institutions of Higher Education
(IHEs).
200.56 Indirect (facilities & administrative
(F&A)) costs.
200.57 Indirect cost rate proposal.
200.58 Information technology systems.
200.59 Intangible property.
200.60 Intermediate cost objective.
200.61 Internal controls.
200.62 Internal control over compliance re-
quirements for Federal awards.
200.63 Loan.
200.64 Local government.
200.65 Major program.
200.66 Management decision.
200.67 Micro -purchase.
200.68 Modified Total Direct Cost (MTDC).
200.69 Non -Federal entity.
200.70 Nonprofit organization.
200.71 Obligations.
200.72 Office of Management and Budget
(OMB).
200.73 Oversight agency for audit.
200.74 Pass -through entity.
200.75 Participant support costs.
200.76 Performance goal.
200.77 Period of performance.
200.78 Personal property.
200.79 Personally Identifiable Information
(PII).
200.80 Program income.
200.81 Property.
200.82 Protected Personally Identifiable In-
formation (Protected PII).
200.83 Project cost.
200.84 Questioned cost.
200.85 Real property.
200.86 Recipient.
200.87 Research and Development (R&D).
200.88 Simplified acquisition threshold.
200.89 Special purpose equipment.
200.90 State.
200.91 Student Financial Aid (SFA).
200.92 Subaward.
200.93 Subrecipient.
200.94 Supplies.
200.95 Termination.
200.96 Third -party in -kind contributions.
200.97 Unliquidated obligations.
200.98 Unobligated balance.
200.99 Voluntary committed cost sharing.

Subpart B -General Provisions
200.100 Purpose.
200.101 Applicability.

Pt. 200
200.102
200.103
200.104
200.105
200.106
200.107
200.108
200.109
200.110
200.111
200.112
200.113
Exceptions.

Authorities.

Supersession.

Effect on other issuances.

Agency implementation.

OMB responsibilities.

Inquiries.

Review date.

Effective/applicability date.

English language.

Conflict of interest.

Mandatory disclosures.

Subpart C -Pre -Federal Award Require-
ments and Contents of Federal Awards
200.200 Purpose.
200.201 Use of grant agreements (including
fixed amount awards), cooperative agree-
ments, and contracts.
200.202 Program planning and design.
200.203 Requirement to provide public no-
tice of Federal financial assistance pro-
grams.
200.204 Notices of funding opportunities.
200.205 Federal awarding agency review of
merit of proposals.
200.206 Federal awarding agency review of
risk posed by applicants.
200.207 Standard application requirements.
200.208 Specific conditions.
200.209 Certifications and representations.
200.210 Pre -award costs.
200.211 Information contained in a Federal
award.
200.212 Public access to Federal award infor-
mation.
200.213 Reporting a determination that a
non -Federal entity is not qualified for a
Federal award.
200.214 Suspension and debarment.
200.215 Never contract with the enemy.
200.216 Prohibition on certain telecommuni-
cations and video surveillance services or
equipment.

Subpart D -Post Federal Award
Requirements
200.300 Statutory and national policy re-
quirements.
200.301 Performance measurement.
200.302 Financial management.
200.303 Internal controls.
200.304 Bonds.
200.305 Federal payment.
200.306 Cost sharing or matching.
200.307 Program income.
200.308 Revision of budget and program
plans.
200.309 Modifications to period of perform-
ance.

PROPERTY STANDARDS
200.310 Insurance coverage.
200.311 Real property.
2 CFR Ch. 11 (1-1-21 Edition)
200.312 Federally -owned and exempt prop-
erty.
200.313 Equipment.
200.314 Supplies.
200.315 Intangible property.
200.316 Property trust relationship.

PROCUREMENT STANDARDS
200.317 Procurements by states.
200.318 General procurement standards.
200.319 Competition.
200.320 Methods of procurement to be fol-
lowed.
200.321 Contracting with small and minority
businesses, women's business enterprises,
and labor surplus area firms.
200.322 Domestic preferences for procure-
ments.
200.323 Procurement of recovered materials.
200.324 Contract cost and price.
200.325 Federal awarding agency or pass -
through entity review.
200.326 Bonding requirements.
200.327 Contract provisions.

PERFORMANCE AND FINANCIAL MONITORING

AND REPORTING
200.328 Financial reporting.
200.329 Monitoring and reporting program
performance.
200.330 Reporting on real property.

SUBRECIPIENT MONITORING AND MANAGEMENT
200.331 Subrecipient and contractor deter-
minations.
200.332 Requirements for pass -through enti-
ties.
200.333 Fixed amount subawards.

RECORD RETENTION AND ACCESS
200.334 Retention requirements for records.
200.335 Requests for transfer of records.
200.336 Methods for collection, trans-
mission, and storage of information.
200.337 Access to records.
200.338 Restrictions on public access to
records.

REMEDIES FOR NONCOMPLIANCE
200.339 Remedies for noncompliance.
200.340 Termination.
200.341 Notification of termination require-
ment.
200.342 Opportunities to object, hearings,
and appeals.
200.343 Effects of suspension and termi-
nation.

CLOSEOUT
200.344 Closeout.

POST -CLOSEOUT ADJUSTMENTS AND

CONTINUING RESPONSIBILITIES
200.345 Post -closeout adjustments and con-
tinuing responsibilities.
82

OMB Guidance Pt. 200

COLLECTION OF AMOUNTS DUE
200.346 Collection of amounts due.

Subpart E -Cost Principles

GENERAL PROVISIONS
200.400 Policy guide.
200.401 Application.

BASIC CONSIDERATIONS
200.402 Composition of costs.
200.403 Factors affecting allowability of
costs.
200.404 Reasonable costs.
200.405 Allocable costs.
200.406 Applicable credits.
200.407 Prior written approval (prior ap-
proval).
200.408 Limitation on allowance of costs.
200.409 Special considerations.
200.410 Collection of unallowable costs.
200.411 Adjustment of previously negotiated
indirect (F&A) cost rates containing un-
allowable costs.

DIRECT AND INDIRECT (F&A) COSTS
200.412 Classification of costs.
200.413 Direct costs.
200.414 Indirect (F&A) costs.
200.415 Required certifications.

SPECIAL CONSIDERATIONS FOR STATES, LOCAL

GOVERNMENTS AND INDIAN TRIBES
200.416 Cost allocation plans and indirect
cost proposals.
200.417 Interagency service.

SPECIAL CONSIDERATIONS FOR INSTITUTIONS OF

HIGHER EDUCATION
200.418 Costs incurred by states and local
governments.
200.419 Cost accounting standards and dis-
closure statement.

GENERAL PROVISIONS FOR SELECTED ITEMS OF
COST
200.420 Considerations for selected items of
cost.
200.421 Advertising and public relations.
200.422 Advisory councils.
200.423 Alcoholic beverages.
200.424 Alumni/ae activities.
200.425 Audit services.
200.426 Bad debts.
200.427 Bonding costs.
200.428 Collections of improper payments.
200.429 Commencement and convocation
costs.
200.430 Compensation -personal services.
200.431 Compensation -fringe benefits.
200.432 Conferences.
200.433 Contingency provisions.
200.434 Contributions and donations.
83 200.435 Defense and prosecution of criminal
and civil proceedings, claims, appeals
and patent infringements.
200.436 Depreciation.
200.437 Employee health and welfare costs.
200.438 Entertainment costs.
200.439 Equipment and other capital expend-
itures.
200.440 Exchange rates.
200.441 Fines, penalties, damages and other
settlements.
200.442 Fund raising and investment man-
agement costs.
200.443 Gains and losses on disposition of de-
preciable assets.
200.444 General costs of government.
200.445 Goods or services for personal use.
200.446 Idle facilities and idle capacity.
200.447 Insurance and indemnification.
200.448 Intellectual property.
200.449 Interest.
200.450 Lobbying.
200.451 Losses on other awards or contracts.
200.452 Maintenance and repair costs.
200.453 Materials and supplies costs, includ-
ing costs of computing devices.
200.454 Memberships, subscriptions, and pro-
fessional activity costs.
200.455 Organization costs.
200.456 Participant support costs.
200.457 Plant and security costs.
200.458 Pre -award costs.
200.459 Professional service costs.
200.460 Proposal costs.
200.461 Publication and printing costs.
200.462 Rearrangement and reconversion
costs.
200.463 Recruiting costs.
200.464 Relocation costs of employees.
200.465 Rental costs of real property and
equipment.
200.466 Scholarships and student aid costs.
200.467 Selling and marketing costs.
200.468 Specialized service facilities.
200.469 Student activity costs.
200.470 Taxes (including Value Added Tax).
200.471 Telecommunication costs and video
surveillance costs.
200.472 Termination costs.
200.473 Training and education costs.
200.474 Transportation costs.
200.475 Travel costs.
200.476 Trustees.

Subpart F -Audit Requirements

GENERAL
200.500 Purpose.

AUDITS
200.501 Audit requirements.
200.502 Basis for determining Federal
awards expended.
200.503 Relation to other audit require-
ments.
200.504 Frequency of audits.

§200.0 2 CFR Ch. 11 (1-1-21 Edition)
200.505
200.506
200.507
200.508
200.509
200.510
200.511
200.512
Sanctions.

Audit costs.

Program -specific audits.

AUDITEES
Auditee responsibilities.

Auditor selection.

Financial statements.

Audit findings follow-up.

Report submission.

FEDERAL AGENCIES
200.513 Responsibilities.

AUDITORS
200.514 Scope of audit.
200.515 Audit reporting.
200.516 Audit findings.
200.517 Audit documentation.
200.518 Major program determination.
200.519 Criteria for Federal program risk.
200.520 Criteria for a low -risk auditee.

MANAGEMENT DECISIONS
200.521 Management decision.

APPENDIX I TO PART 200 —FULL TEXT OF NO-

TICE OF FUNDING OPPORTUNITY
APPENDIX II TO PART 200 —CONTRACT PROVI-

SIONS FOR NON-FEDERAL ENTITY CON-

TRACTS UNDER FEDERAL AWARDS
APPENDIX III TO PART 200 —INDIRECT (F&A)

COSTS IDENTIFICATION AND ASSIGNMENT,

AND RATE DETERMINATION FOR INSTITU-

TIONS OF HIGHER EDUCATION (IHES)
APPENDIX IV TO PART 200 —INDIRECT (F&A)

COSTS IDENTIFICATION AND ASSIGNMENT,

AND RATE DETERMINATION FOR NONPROFIT

ORGANIZATIONS
APPENDIX V TO PART 200— STATE/LOCAL GOv-

ERNMENTWIDE CENTRAL SERVICE COST AL-

LOCATION PLANS
APPENDIX VI TO PART 200 —PUBLIC ASSIST-

ANCE COST ALLOCATION PLANS
APPENDIX VII TO PART 220 —STATES AND

LOCAL GOVERNMENT AND INDIAN TRIBE IN-

DIRECT COST PROPOSALS
APPENDIX VIII TO PART 200 —NONPROFIT OR-

GANIZATIONS EXEMPTED FROM SUBPART E
OF PART 200
APPENDIX IX TO PART 200 —HOSPITAL COST

PRINCIPLES
APPENDIX X TO PART 200 —DATA COLLECTION

FORM (FORM SF -SAC)
APPENDIX XI TO PART 200 —COMPLIANCE SUP-

PLEMENT
APPENDIX XII TO PART 200 —AWARD TERM AND

CONDITION FOR RECIPIENT INTEGRITY AND

PERFORMANCE MATTERS
AUTHORITY: 31 U.S.C. 503
SOURCE: 78 FR 78608, Dec. 26, 2013, unless
otherwise noted.
84 Subpart A —Acronyms and
Definitions

ACRONYMS
§ 200.0 Acronyms.

ACRONYM TERM
CAS Cost Accounting Standards
CFR Code of Federal Regulations
CMIA Cash Management Improve-
ment Act
COG Councils Of Governments
COSO Committee of Sponsoring Orga-
nizations of the Treadway Commis-
sion
EPA Environmental Protection Agen
cy
ERISA Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1301-
1461)
EUI Energy Usage Index
F&A Facilities and Administration
FAC Federal Audit Clearinghouse
FAIN Federal Award Identification
Number
FAPIIS Federal Awardee Perform-
ance and Integrity Information Sys-
tem
FAR Federal Acquisition Regulation
FFATA Federal Funding Account-
ability and Transparency Act of 2006
or Transparency Act —Public Law
109-282, as amended by section 6202(a)
of Public Law 110-252 (31 U.S.C. 6101)
FICA Federal Insurance Contribu-
tions Act
FOIA Freedom of Information Act
FR Federal Register
FTE Full-time equivalent
GAAP Generally Accepted Account-
ing Principles
GAGAS Generally Accepted Govern-
ment Auditing Standards
GAO Government Accountability Of-
fice
GOCO Government owned, contractor
operated
GSA General Services Administration
IBS Institutional Base Salary
IHE Institutions of Higher Education
IRC Internal Revenue Code
ISDEAA Indian Self -Determination
and Education and Assistance Act
MTC Modified Total Cost
MTDC Modified Total Direct Cost
NFE Non -Federal Entity

OMB Guidance
OMB Office of Management and Budg-
et
PII Personally Identifiable Informa-
tion
PMS Payment Management System
PRHP Post -retirement Health Plans
PTE Pass -through Entity
REUI Relative Energy Usage Index
SAM System for Award Management
SFA Student Financial Aid
SNAP Supplemental Nutrition Assist-
ance Program
SPOC Single Point of Contact
TANF Temporary Assistance for
Needy Families
TFM Treasury Financial Manual
U.S.C. United States Code
VAT Value Added Tax
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75880, Dec. 19, 2014; 80 FR 43308, July 22,
2015; 85 FR 49529, Aug. 13, 2020]
§ 200.1 Definitions.

These are the definitions for terms
used in this part. Different definitions
may be found in Federal statutes or
regulations that apply more specifi-
cally to particular programs or activi-
ties. These definitions could be supple-
mented by additional instructional in-
formation provided in governmentwide
standard information collections. For
purposes of this part, the following
definitions apply:

Acquisition cost means the cost of the
asset including the cost to ready the
asset for its intended use. Acquisition
cost for equipment, for example, means
the net invoice price of the equipment,
including the cost of any modifica-
tions, attachments, accessories, or aux-
iliary apparatus necessary to make it
usable for the purpose for which it is
acquired. Acquisition costs for soft-
ware includes those development costs
capitalized in accordance with gen-
erally accepted accounting principles
(GAAP). Ancillary charges, such as
taxes, duty, protective in transit insur-
ance, freight, and installation may be
included in or excluded from the acqui-
sition cost in accordance with the non -
Federal entity's regular accounting
practices.

Advance payment means a payment
that a Federal awarding agency or
pass -through entity makes by any ap-
propriate payment mechanism, includ-
ing a predetermined payment schedule,
85 § 200.1
before the non -Federal entity disburses
the funds for program purposes.

Allocation means the process of as-
signing a cost, or a group of costs, to
one or more cost objective(s), in rea-
sonable proportion to the benefit pro-
vided or other equitable relationship.

The process may entail assigning a
cost(s) directly to a final cost objective
or through one or more intermediate
cost objectives.

Assistance listings refers to the pub-
licly available listing of Federal assist-
ance programs managed and adminis-
tered by the General Services Adminis-
tration, formerly known as the Catalog
of Federal Domestic Assistance
(CFDA).

Assistance listing number means a
unique number assigned to identify a
Federal Assistance Listings, formerly
known as the CFDA Number.

Assistance listing program title means
the title that corresponds to the Fed-
eral Assistance Listings Number, for-
merly known as the CFDA program
title.

Audit finding means deficiencies
which the auditor is required by
§200.516(a) to report in the schedule of
findings and questioned costs.

Auditee means any non -Federal enti-
ty that expends Federal awards which
must be audited under subpart F of
this part.

Auditor means an auditor who is a
public accountant or a Federal, State,
local government, or Indian tribe audit
organization, which meets the general
standards specified for external audi-
tors in generally accepted government
auditing standards (GAGAS). The term
auditor does not include internal audi-
tors of nonprofit organizations.

Budget means the financial plan for
the Federal award that the Federal
awarding agency or pass -through enti-
ty approves during the Federal award
process or in subsequent amendments
to the Federal award. It may include
the Federal and non -Federal share or
only the Federal share, as determined
by the Federal awarding agency or
pass -through entity.

Budget period means the time inter-
val from the start date of a funded por-
tion of an award to the end date of that
funded portion during which recipients
are authorized to expend the funds

§ 200.1
awarded, including any funds carried
forward or other revisions pursuant to
§200.308.

Capital assets means:
(1) Tangible or intangible assets used
in operations having a useful life of
more than one year which are capital-
ized in accordance with GAAP. Capital
assets include:
(i) Land, buildings (facilities), equip-
ment, and intellectual property (in-
cluding software) whether acquired by
purchase, construction, manufacture,
exchange, or through a lease accounted
for as financed purchase under Govern-
ment Accounting Standards Board
(GASB) standards or a finance lease
under Financial Accounting Standards
Board (FASB) standards; and
(ii) Additions, improvements, modi-
fications, replacements, rearrange-
ments, reinstallations, renovations or
alterations to capital assets that mate-
rially increase their value or useful life
(not ordinary repairs and mainte-
nance).
(2) For purpose of this part, capital
assets do not include intangible right -
to -use assets (per GASB) and right -to -
use operating lease assets (per FASB).

For example, assets capitalized that
recognize a lessee's right to control the
use of property and/or equipment for a
period of time under a lease contract.

See also § 200.465.

Capital expenditures means expendi-
tures to acquire capital assets or ex-
penditures to make additions, improve-
ments, modifications, replacements,
rearrangements, reinstallations, ren-
ovations, or alterations to capital as-
sets that materially increase their
value or useful life.

Central service cost allocation plan
means the documentation identifying,
accumulating, and allocating or devel-
oping billing rates based on the allow-
able costs of services provided by a
State or local government or Indian
tribe on a centralized basis to its de-
partments and agencies. The costs of
these services may be allocated or
billed to users.

Claim means, depending on the con-
text, either:
(1) A written demand or written as-
sertion by one of the parties to a Fed-
eral award seeking as a matter of
right:
86 2 CFR Ch. 11 (1-1-21 Edition)
(i) The payment of money in a sum
certain;
(ii) The adjustment or interpretation
of the terms and conditions of the Fed-
eral award; or
(iii) Other relief arising under or re-
lating to a Federal award.
(2) A request for payment that is not
in dispute when submitted.

Class of Federal awards means a group
of Federal awards either awarded under
a specific program or group of pro-
grams or to a specific type of non -Fed-
eral entity or group of non -Federal en-
tities to which specific provisions or
exceptions may apply.

Closeout means the process by which
the Federal awarding agency or pass -
through entity determines that all ap-
plicable administrative actions and all
required work of the Federal award
have been completed and takes actions
as described in § 200.344.

Cluster of programs means a grouping
of closely related programs that share
common compliance requirements. The
types of clusters of programs are re-
search and development (R&D), student
financial aid (SFA), and other clusters.
"Other clusters" are as defined by OMB
in the compliance supplement or as
designated by a State for Federal
awards the State provides to its sub -
recipients that meet the definition of a
cluster of programs. When designating
an "other cluster," a State must iden-
tify the Federal awards included in the
cluster and advise the subrecipients of
compliance requirements applicable to
the cluster, consistent with § 200.332(a).

A cluster of programs must be consid-
ered as one program for determining
major programs, as described in
§ 200.518, and, with the exception of
R&D as described in §200.501(c), wheth-
er a program -specific audit may be
elected.

Cognizant agency for audit means the
Federal agency designated to carry out
the responsibilities described in
§200.513(a). The cognizant agency for
audit is not necessarily the same as the
cognizant agency for indirect costs. A
list of cognizant agencies for audit can
be found on the Federal Audit Clear-
inghouse (FAC) website.

Cognizant agency for indirect costs
means the Federal agency responsible

OMB Guidance
for reviewing, negotiating, and approv-
ing cost allocation plans or indirect
cost proposals developed under this
part on behalf of all Federal agencies.

The cognizant agency for indirect cost
is not necessarily the same as the cog-
nizant agency for audit. For assign-
ments of cognizant agencies see the
following:
(1) For Institutions of Higher Edu-
cation (IHEs): Appendix III to this
part, paragraph C.11.
(2) For nonprofit organizations: Ap-
pendix IV to this part, paragraph C.2.a.
(3) For State and local governments:

Appendix V to this part, paragraph F.1.
(4) For Indian tribes: Appendix VII to
this part, paragraph D.1.

Compliance supplement means an an-
nually updated authoritative source for
auditors that serves to identify exist-
ing important compliance require-
ments that the Federal Government
expects to be considered as part of an
audit. Auditors use it to understand
the Federal program's objectives, pro-
cedures, and compliance requirements,
as well as audit objectives and sug-
gested audit procedures for deter-
mining compliance with the relevant
Federal program.

Computing devices means machines
used to acquire, store, analyze, process,
and publish data and other information
electronically, including accessories
(or "peripherals") for printing, trans-
mitting and receiving, or storing elec-
tronic information. See also the defini-
tions of supplies and information tech-
nology systems in this section.

Contract means, for the purpose of
Federal financial assistance, a legal in-
strument by which a recipient or sub -
recipient purchases property or serv-
ices needed to carry out the project or
program under a Federal award. For
additional information on subrecipient
and contractor determinations, see
§ 200.331. See also the definition of
subaward in this section.

Contractor means an entity that re-
ceives a contract as defined in this sec-
tion.

Cooperative agreement means a legal
instrument of financial assistance be-
tween a Federal awarding agency and a
recipient or a pass -through entity and
a subrecipient that, consistent with 31
U.S.C. 6302-6305:
87 § 200.1
(1) Is used to enter into a relation-
ship the principal purpose of which is
to transfer anything of value to carry
out a public purpose authorized by a
law of the United States (see 31 U.S.C.
6101(3)); and not to acquire property or
services for the Federal Government or
pass -through entity's direct benefit or
use;
(2) Is distinguished from a grant in
that it provides for substantial involve-
ment of the Federal awarding agency
in carrying out the activity con-
templated by the Federal award.
(3) The term does not include:
(i) A cooperative research and devel-
opment agreement as defined in 15
U.S.C. 3710a; or
(ii) An agreement that provides only:
(A) Direct United States Government
cash assistance to an individual;
(B) A subsidy;
(C) A loan;
(D) A loan guarantee; or
(E) Insurance.

Cooperative audit resolution means the
use of audit follow-up techniques which
promote prompt corrective action by
improving communication, fostering
collaboration, promoting trust, and de-
veloping an understanding between the
Federal agency and the non -Federal en-
tity. This approach is based upon:
(1) A strong commitment by Federal
agency and non -Federal entity leader-
ship to program integrity;
(2) Federal agencies strengthening
partnerships and working coopera-
tively with non -Federal entities and
their auditors; and non -Federal enti-
ties and their auditors working coop-
eratively with Federal agencies;
(3) A focus on current conditions and
corrective action going forward;
(4) Federal agencies offering appro-
priate relief for past noncompliance
when audits show prompt corrective
action has occurred; and
(5) Federal agency leadership sending
a clear message that continued failure
to correct conditions identified by au-
dits which are likely to cause improper
payments, fraud, waste, or abuse is un-
acceptable and will result in sanctions.

Corrective action means action taken
by the auditee that:
(1) Corrects identified deficiencies;
(2) Produces recommended improve-
ments; or

§ 200.1
(3) Demonstrates that audit findings
are either invalid or do not warrant
auditee action.

Cost allocation plan means central
service cost allocation plan or public
assistance cost allocation plan.

Cost objective means a program, func-
tion, activity, award, organizational
subdivision, contract, or work unit for
which cost data are desired and for
which provision is made to accumulate
and measure the cost of processes,
products, jobs, capital projects, etc. A
cost objective may be a major function
of the non -Federal entity, a particular
service or project, a Federal award, or
an indirect (Facilities & Administra-
tive (F&A)) cost activity, as described
in subpart E of this part. See also the
definitions of final cost objective and in-
termediate cost objective in this section.

Cost sharing or matching means the
portion of project costs not paid by
Federal funds or contributions (unless
otherwise authorized by Federal stat-
ute). See also §200.306.

Cross -cutting audit finding means an
audit finding where the same under-
lying condition or issue affects all Fed-
eral awards (including Federal awards
of more than one Federal awarding
agency or pass -through entity).

Disallowed costs means those charges
to a Federal award that the Federal
awarding agency or pass -through enti-
ty determines to be unallowable, in ac-
cordance with the applicable Federal
statutes, regulations, or the terms and
conditions of the Federal award.

Discretionary award means an award
in which the Federal awarding agency,
in keeping with specific statutory au-
thority that enables the agency to ex-
ercise judgment ("discretion"), selects
the recipient and/or the amount of Fed-
eral funding awarded through a com-
petitive process or based on merit of
proposals. A discretionary award may
be selected on a non-competitive basis,
as appropriate.

Equipment means tangible personal
property (including information tech-
nology systems) having a useful life of
more than one year and a per -unit ac-
quisition cost which equals or exceeds
the lesser of the capitalization level es-
tablished by the non -Federal entity for
financial statement purposes, or $5,000.

See also the definitions of capital as -
88 2 CFR Ch. 11 (1-1-21 Edition)
sets, computing devices, general purpose
equipment, information technology sys-
tems, special purpose equipment, and sup-
plies in this section.

Expenditures means charges made by
a non -Federal entity to a project or
program for which a Federal award was
received.
(1) The charges may be reported on a
cash or accrual basis, as long as the
methodology is disclosed and is con-
sistently applied.
(2) For reports prepared on a cash
basis, expenditures are the sum of:
(i) Cash disbursements for direct
charges for property and services;
(ii) The amount of indirect expense
charged;
(iii) The value of third -party in -kind
contributions applied; and
(iv) The amount of cash advance pay-
ments and payments made to sub -
recipients.
(3) For reports prepared on an ac-
crual basis, expenditures are the sum
of:
(i) Cash disbursements for direct
charges for property and services;
(ii) The amount of indirect expense
incurred;
(iii) The value of third -party in -kind
contributions applied; and
(iv) The net increase or decrease in
the amounts owed by the non -Federal
entity for:
(A) Goods and other property re-
ceived;
(B) Services performed by employees,
contractors, subrecipients, and other
payees; and
(C) Programs for which no current
services or performance are required
such as annuities, insurance claims, or
other benefit payments.

Federal agency means an "agency" as
defined at 5 U.S.C. 551(1) and further
clarified by 5 U.S.C. 552(f).

Federal Audit Clearinghouse (FAC)
means the clearinghouse designated by
OMB as the repository of record where
non -Federal entities are required to
transmit the information required by
subpart F of this part.

Federal award has the meaning, de-
pending on the context, in either para-
graph (1) or (2) of this definition:
(1)(i) The Federal financial assistance
that a recipient receives directly from

OMB Guidance
a Federal awarding agency or indi-
rectly from a pass -through entity, as
described in § 200.101; or
(ii) The cost -reimbursement contract
under the Federal Acquisition Regula-
tions that a non -Federal entity re-
ceives directly from a Federal award-
ing agency or indirectly from a pass -
through entity, as described in § 200.101.
(2) The instrument setting forth the
terms and conditions. The instrument
is the grant agreement, cooperative
agreement, other agreement for assist-
ance covered in paragraph (2) of the
definition of Federal financial assistance
in this section, or the cost -reimburse-
ment contract awarded under the Fed-
eral Acquisition Regulations.
(3) Federal award does not include
other contracts that a Federal agency
uses to buy goods or services from a
contractor or a contract to operate
Federal Government owned, contractor
operated facilities (GOCOs).
(4) See also definitions of Federal fi-
nancial assistance, grant agreement,
and cooperative agreement.

Federal award date means the date
when the Federal award is signed by
the authorized official of the Federal
awarding agency.

Federal financial assistance means
(1) Assistance that non -Federal enti-
ties receive or administer in the form
of:
(i) Grants;
(ii) Cooperative agreements;
(iii) Non -cash contributions or dona-
tions of property (including donated
surplus property);
(iv) Direct appropriations;
(v) Food commodities; and
(vi) Other financial assistance (ex-
cept assistance listed in paragraph (2)
of this definition).
(2) For § 200.203 and subpart F of this
part, Federal financial assistance also in-
cludes assistance that non -Federal en-
tities receive or administer in the form
of:
(i) Loans;
(ii) Loan Guarantees;
(iii) Interest subsidies; and
(iv) Insurance.
(3) For §200.216, Federal financial as-
sistance includes assistance that non -
Federal entities receive or administer
in the form of:
(i) Grants;
89 § 200.1
(ii) Cooperative agreements;
(iii) Loans; and
(iv) Loan Guarantees.
(4) Federal financial assistance does
not include amounts received as reim-
bursement for services rendered to in-
dividuals as described in §200.502(h) and
(i).

Federal interest means, for purposes of
§ 200.330 or when used in connection
with the acquisition or improvement of
real property, equipment, or supplies
under a Federal award, the dollar
amount that is the product of the:
(1) The percentage of Federal partici-
pation in the total cost of the real
property, equipment, or supplies; and
(2) Current fair market value of the
property, improvements, or both, to
the extent the costs of acquiring or im-
proving the property were included as
project costs.

Federal program means:
(1) All Federal awards which are as-
signed a single Assistance Listings
Number.
(2) When no Assistance Listings
Number is assigned, all Federal awards
from the same agency made for the
same purpose must be combined and
considered one program.
(3) Notwithstanding paragraphs (1)
and (2) of this definition, a cluster of
programs. The types of clusters of pro-
grams are:
(i) Research and development (R&D);
(ii) Student financial aid (SFA); and
(iii) "Other clusters," as described in
the definition of cluster of programs in
this section.

Federal share means the portion of
the Federal award costs that are paid
using Federal funds.

Final cost objective means a cost ob-
jective which has allocated to it both
direct and indirect costs and, in the
non -Federal entity's accumulation sys-
tem, is one of the final accumulation
points, such as a particular award, in-
ternal project, or other direct activity
of a non -Federal entity. See also the
definitions of cost objective and inter-
mediate cost objective in this section.

Financial obligations, when ref-
erencing a recipient's or subrecipient's
use of funds under a Federal award,
means orders placed for property and
services, contracts and subawards

§ 200.1
made, and similar transactions that re-
quire payment.

Fixed amount awards means a type of
grant or cooperative agreement under
which the Federal awarding agency or
pass -through entity provides a specific
level of support without regard to ac-
tual costs incurred under the Federal
award. This type of Federal award re-
duces some of the administrative bur-
den and record -keeping requirements
for both the non -Federal entity and
Federal awarding agency or pass -
through entity. Accountability is based
primarily on performance and results.

See §§200.102(c), 200.201(b), and 200.333.

Foreign organization means an entity
that is:
(1) A public or private organization
located in a country other than the
United States and its territories that is
subject to the laws of the country in
which it is located, irrespective of the
citizenship of project staff or place of
performance;
(2) A private nongovernmental orga-
nization located in a country other
than the United States that solicits
and receives cash contributions from
the general public;
(3) A charitable organization located
in a country other than the United
States that is nonprofit and tax ex-
empt under the laws of its country of
domicile and operation, and is not a
university, college, accredited degree -
granting institution of education, pri-
vate foundation, hospital, organization
engaged exclusively in research or sci-
entific activities, church, synagogue,
mosque or other similar entities orga-
nized primarily for religious purposes;
or
(4) An organization located in a coun-
try other than the United States not
recognized as a foreign public entity.

Foreign public entity means:
(1) A foreign government or foreign
governmental entity;
(2) A public international organiza-
tion, which is an organization entitled
to enjoy privileges, exemptions, and
immunities as an international organi-
zation under the International Organi-
zations Immunities Act (22 U.S.C. 288-
288f);
(3) An entity owned (in whole or in
part) or controlled by a foreign govern-
ment; or
90 2 CFR Ch. 11 (1-1-21 Edition)
(4) Any other entity consisting whol-
ly or partially of one or more foreign
governments or foreign governmental
entities.

General purpose equipment means
equipment which is not limited to re-
search, medical, scientific or other
technical activities. Examples include
office equipment and furnishings, mod-
ular offices, telephone networks, infor-
mation technology equipment and sys-
tems, air conditioning equipment, re-
production and printing equipment,
and motor vehicles. See also the defini-
tions of equipment and special purpose
equipment in this section.

Generally accepted accounting prin-
ciples (GAAP) has the meaning specified
in accounting standards issued by the
GASB and the FASB.

Generally accepted government auditing
standards (GAGAS), also known as the
Yellow Book, means generally accepted
government auditing standards issued
by the Comptroller General of the
United States, which are applicable to
financial audits.

Grant agreement means a legal instru-
ment of financial assistance between a
Federal awarding agency or pass -
through entity and a non -Federal enti-
ty that, consistent with 31 U.S.C. 6302,
6304:
(1) Is used to enter into a relation-
ship the principal purpose of which is
to transfer anything of value to carry
out a public purpose authorized by a
law of the United States (see 31 U.S.C.
6101(3)); and not to acquire property or
services for the Federal awarding agen-
cy or pass -through entity's direct ben-
efit or use;
(2) Is distinguished from a coopera-
tive agreement in that it does not pro-
vide for substantial involvement of the
Federal awarding agency in carrying
out the activity contemplated by the
Federal award.
(3) Does not include an agreement
that provides only:
(i) Direct United States Government
cash assistance to an individual;
(ii) A subsidy;
(iii) A loan;
(vi) A loan guarantee; or
(v) Insurance.

Highest level owner means the entity
that owns or controls an immediate
owner of the offeror, or that owns or

OMB Guidance
controls one or more entities that con-
trol an immediate owner of the offeror.

No entity owns or exercises control of
the highest -level owner as defined in
the Federal Acquisition Regulations
(FAR) (48 CFR 52.204-17).

Hospital means a facility licensed as
a hospital under the law of any state or
a facility operated as a hospital by the
United States, a state, or a subdivision
of a state.

Improper payment means:
(1) Any payment that should not
have been made or that was made in an
incorrect amount under statutory, con-
tractual, administrative, or other le-
gally applicable requirements.
(i) Incorrect amounts are overpay-
ments or underpayments that are made
to eligible recipients (including inap-
propriate denials of payment or serv-
ice, any payment that does not account
for credit for applicable discounts, pay-
ments that are for an incorrect
amount, and duplicate payments). An
improper payment also includes any
payment that was made to an ineli-
gible recipient or for an ineligible good
or service, or payments for goods or
services not received (except for such
payments authorized by law).

Note 1 to paragraph (1)(i) of this defini-
tion. Applicable discounts are only
those discounts where it is both advan-
tageous and within the agency's con-
trol to claim them.
(ii) When an agency's review is un-
able to discern whether a payment was
proper as a result of insufficient or
lack of documentation, this payment
should also be considered an improper
payment. When establishing docu-
mentation requirements for payments,
agencies should ensure that all docu-
mentation requirements are necessary
and should refrain from imposing addi-
tional burdensome documentation re-
quirements.
(iii) Interest or other fees that may
result from an underpayment by an
agency are not considered an improper
payment if the interest was paid cor-
rectly. These payments are generally
separate transactions and may be nec-
essary under certain statutory, con-
tractual, administrative, or other le-
gally applicable requirements.
(iv) A "questioned cost" (as defined
in this section) should not be consid-
91 § 200.1
ered an improper payment until the
transaction has been completely re-
viewed and is confirmed to be im-
proper.
(v) The term "payment" in this defi-
nition means any disbursement or
transfer of Federal funds (including a
commitment for future payment, such
as cash, securities, loans, loan guaran-
tees, and insurance subsidies) to any
non -Federal person, non -Federal enti-
ty, or Federal employee, that is made
by a Federal agency, a Federal con-
tractor, a Federal grantee, or a govern-
mental or other organization admin-
istering a Federal program or activity.
(vi) The term "payment" includes
disbursements made pursuant to prime
contracts awarded under the Federal
Acquisition Regulation and Federal
awards subject to this part that are ex-
pended by recipients.
(2) See definition of improper pay-
ment in OMB Circular A-123 appendix
C, part I A (1) "What is an improper
payment?" Questioned costs, including
those identified in audits, are not an
improper payment until reviewed and
confirmed to be improper as defined in
OMB Circular A-123 appendix C.

Indian tribe means any Indian tribe,
band, nation, or other organized group
or community, including any Alaska
Native village or regional or village
corporation as defined in or established
pursuant to the Alaska Native Claims
Settlement Act (43 U.S.C. Chapter 33),
which is recognized as eligible for the
special programs and services provided
by the United States to Indians be-
cause of their status as Indians (25
U.S.C. 450b(e)). See annually published
Bureau of Indian Affairs list of Indian
Entities Recognized and Eligible to Re-
ceive Services.

Institutions of Higher Education (IHEs)
is defined at 20 U.S.C. 1001.

Indirect (facilities & administrative
(F&A)) costs means those costs incurred
for a common or joint purpose benefit-
ting more than one cost objective, and
not readily assignable to the cost ob-
jectives specifically benefitted, with-
out effort disproportionate to the re-
sults achieved. To facilitate equitable
distribution of indirect expenses to the
cost objectives served, it may be nec-
essary to establish a number of pools of
indirect (F&A) costs. Indirect (F&A)

§ 200.1
cost pools must be distributed to bene-
fitted cost objectives on bases that will
produce an equitable result in consider-
ation of relative benefits derived.

Indirect cost rate proposal means the
documentation prepared by a non -Fed-
eral entity to substantiate its request
for the establishment of an indirect
cost rate as described in appendices III
through VII and appendix IX to this
part.

Information technology systems means
computing devices, ancillary equip-
ment, software, firmware, and similar
procedures, services (including support
services), and related resources. See
also the definitions of computing devices
and equipment in this section.

Intangible property means property
having no physical existence, such as
trademarks, copyrights, patents and
patent applications and property, such
as loans, notes and other debt instru-
ments, lease agreements, stock and
other instruments of property owner-
ship (whether the property is tangible
or intangible).

Intermediate cost objective means a
cost objective that is used to accumu-
late indirect costs or service center
costs that are subsequently allocated
to one or more indirect cost pools or
final cost objectives. See also the defi-
nitions of cost objective and final cost ob-
jective in this section.

Internal controls for non -Federal enti-
ties means:
(1) Processes designed and imple-
mented by non -Federal entities to pro-
vide reasonable assurance regarding
the achievement of objectives in the
following categories:
(i) Effectiveness and efficiency of op-
erations;
(ii) Reliability of reporting for inter-
nal and external use; and
(iii) Compliance with applicable laws
and regulations.
(2) Federal awarding agencies are re-
quired to follow internal control com-
pliance requirements in OMB Circular
No. A-123, Management's Responsi-
bility for Enterprise Risk Management
and Internal Control.

Loan means a Federal loan or loan
guarantee received or administered by
a non -Federal entity, except as used in
the definition of program income in this
section.
92 2 CFR Ch. 11 (1-1-21 Edition)
(1) The term "direct loan" means a
disbursement of funds by the Federal
Government to a non -Federal borrower
under a contract that requires the re-
payment of such funds with or without
interest. The term includes the pur-
chase of, or participation in, a loan
made by another lender and financing
arrangements that defer payment for
more than 90 days, including the sale of
a Federal Government asset on credit
terms. The term does not include the
acquisition of a federally guaranteed
loan in satisfaction of default claims or
the price support loans of the Com-
modity Credit Corporation.
(2) The term "direct loan obligation"
means a binding agreement by a Fed-
eral awarding agency to make a direct
loan when specified conditions are ful-
filled by the borrower.
(3) The term "loan guarantee" means
any Federal Government guarantee, in-
surance, or other pledge with respect
to the payment of all or a part of the
principal or interest on any debt obli-
gation of a non -Federal borrower to a
non -Federal lender, but does not in-
clude the insurance of deposits, shares,
or other withdrawable accounts in fi-
nancial institutions.
(4) The term "loan guarantee com-
mitment" means a binding agreement
by a Federal awarding agency to make
a loan guarantee when specified condi-
tions are fulfilled by the borrower, the
lender, or any other party to the guar-
antee agreement.

Local government means any unit of
government within a state, including a:
(1) County;
(2) Borough;
(3) Municipality;
(4) City;
(5) Town;
(6) Township;
(7) Parish;
(8) Local public authority, including
any public housing agency under the
United States Housing Act of 1937;
(9) Special district;
(10) School district;
(11) Intrastate district;
(12) Council of governments, whether
or not incorporated as a nonprofit cor-
poration under State law; and
(13) Any other agency or instrumen-
tality of a multi-, regional, or intra-
State or local government.

OMB Guidance
Major program means a Federal pro-
gram determined by the auditor to be a
major program in accordance with
§ 200.518 or a program identified as a
major program by a Federal awarding
agency or pass -through entity in ac-
cordance with §200.503(e).

Management decision means the Fed-
eral awarding agency's or pass -through
entity's written determination, pro-
vided to the auditee, of the adequacy of
the auditee's proposed corrective ac-
tions to address the findings, based on
its evaluation of the audit findings and
proposed corrective actions.

Micro -purchase means a purchase of
supplies or services, the aggregate
amount of which does not exceed the
micro -purchase threshold. Micro -pur-
chases comprise a subset of a non -Fed-
eral entity's small purchases as defined
in §200.320.

Micro -purchase threshold means the
dollar amount at or below which a non -
Federal entity may purchase property
or services using micro -purchase proce-
dures (see § 200.320). Generally, the
micro -purchase threshold for procure-
ment activities administered under
Federal awards is not to exceed the
amount set by the FAR at 48 CFR part
2, subpart 2.1, unless a higher threshold
is requested by the non -Federal entity
and approved by the cognizant agency
for indirect costs.

Modified Total Direct Cost (MTDC)
means all direct salaries and wages, ap-
plicable fringe benefits, materials and
supplies, services, travel, and up to the
first $25,000 of each subaward (regard-
less of the period of performance of the
subawards under the award). MTDC ex-
cludes equipment, capital expendi-
tures, charges for patient care, rental
costs, tuition remission, scholarships
and fellowships, participant support
costs and the portion of each subaward
in excess of $25,000. Other items may
only be excluded when necessary to
avoid a serious inequity in the dis-
tribution of indirect costs, and with
the approval of the cognizant agency
for indirect costs.

Non -discretionary award means an
award made by the Federal awarding
agency to specific recipients in accord-
ance with statutory, eligibility and
compliance requirements, such that in
keeping with specific statutory author -
93 § 200.1
ity the agency has no ability to exer-
cise judgement ("discretion"). A non -
discretionary award amount could be
determined specifically or by formula.

Non -Federal entity (NFE) means a
State, local government, Indian tribe,
Institution of Higher Education (IHE),
or nonprofit organization that carries
out a Federal award as a recipient or
subrecipient.

Nonprofit organization means any cor-
poration, trust, association, coopera-
tive, or other organization, not includ-
ing IHEs, that:
(1) Is operated primarily for sci-
entific, educational, service, chari-
table, or similar purposes in the public
interest;
(2) Is not organized primarily for
profit; and
(3) Uses net proceeds to maintain,
improve, or expand the operations of
the organization.

Notice of funding opportunity means a
formal announcement of the avail-
ability of Federal funding through a fi-
nancial assistance program from a Fed-
eral awarding agency. The notice of
funding opportunity provides informa-
tion on the award, who is eligible to
apply, the evaluation criteria for selec-
tion of an awardee, required compo-
nents of an application, and how to
submit the application. The notice of
funding opportunity is any paper or
electronic issuance that an agency uses
to announce a funding opportunity,
whether it is called a "program an-
nouncement," "notice of funding avail-
ability," "broad agency announce-
ment," "research announcement,"
"solicitation," or some other term.

Office of Management and Budget
(OMB) means the Executive Office of
the President, Office of Management
and Budget.

Oversight agency for audit means the
Federal awarding agency that provides
the predominant amount of funding di-
rectly (direct funding) (as listed on the
schedule of expenditures of Federal
awards, see §200.510(b)) to a non -Fed-
eral entity unless OMB designates a
specific cognizant agency for audit.

When the direct funding represents less
than 25 percent of the total Federal ex-
penditures (as direct and sub -awards)
by the non -Federal entity, then the
Federal agency with the predominant

§ 200.1
amount of total funding is the des-
ignated cognizant agency for audit.

When there is no direct funding, the
Federal awarding agency which is the
predominant source of pass -through
funding must assume the oversight re-
sponsibilities. The duties of the over-
sight agency for audit and the process
for any reassignments are described in
§ 200.513(b).

Participant support costs means direct
costs for items such as stipends or sub-
sistence allowances, travel allowances,
and registration fees paid to or on be-
half of participants or trainees (but not
employees) in connection with con-
ferences, or training projects.

Pass -through entity (PTE) means a
non -Federal entity that provides a
subaward to a subrecipient to carry out
part of a Federal program.

Performance goal means a target level
of performance expressed as a tangible,
measurable objective, against which
actual achievement can be compared,
including a goal expressed as a quan-
titative standard, value, or rate. In
some instances (e.g., discretionary re-
search awards), this may be limited to
the requirement to submit technical
performance reports (to be evaluated in
accordance with agency policy).

Period of performance means the total
estimated time interval between the
start of an initial Federal award and
the planned end date, which may in-
clude one or more funded portions, or
budget periods. Identification of the
period of performance in the Federal
award per §200.211(b)(5) does not com-
mit the awarding agency to fund the
award beyond the currently approved
budget period.

Personal property means property
other than real property. It may be
tangible, having physical existence, or
intangible.

Personally Identifiable Information
(PII) means information that can be
used to distinguish or trace an individ-
ual's identity, either alone or when
combined with other personal or iden-
tifying information that is linked or
linkable to a specific individual. Some
information that is considered to be
PII is available in public sources such
as telephone books, public websites,
and university listings. This type of in-
formation is considered to be Public
94 2 CFR Ch. 11 (1-1-21 Edition)
PII and includes, for example, first and
last name, address, work telephone
number, email address, home telephone
number, and general educational cre-
dentials. The definition of PII is not
anchored to any single category of in-
formation or technology. Rather, it re-
quires a case -by -case assessment of the
specific risk that an individual can be
identified. Non-PII can become PII
whenever additional information is
made publicly available, in any me-
dium and from any source, that, when
combined with other available infor-
mation, could be used to identify an in-
dividual.

Program income means gross income
earned by the non -Federal entity that
is directly generated by a supported ac-
tivity or earned as a result of the Fed-
eral award during the period of per-
formance except as provided in
§200.307(f). (See the definition of period
of performance in this section.) Program
income includes but is not limited to
income from fees for services per-
formed, the use or rental or real or per-
sonal property acquired under Federal
awards, the sale of commodities or
items fabricated under a Federal
award, license fees and royalties on
patents and copyrights, and principal
and interest on loans made with Fed-
eral award funds. Interest earned on
advances of Federal funds is not pro-
gram income. Except as otherwise pro-
vided in Federal statutes, regulations,
or the terms and conditions of the Fed-
eral award, program income does not
include rebates, credits, discounts, and
interest earned on any of them. See
also §200.407. See also 35 U.S.C. 200-212
"Disposition of Rights in Educational
Awards" applies to inventions made
under Federal awards.

Project cost means total allowable
costs incurred under a Federal award
and all required cost sharing and vol-
untary committed cost sharing, includ-
ing third -party contributions.

Property means real property or per-
sonal property. See also the definitions
of real property and personal property in
this section.

Protected Personally Identifiable Infor-
mation (Protected PII) means an individ-
ual's first name or first initial and last
name in combination with any one or

OMB Guidance
more of types of information, includ-
ing, but not limited to, social security
number, passport number, credit card
numbers, clearances, bank numbers,
biometrics, date and place of birth,
mother's maiden name, criminal, med-
ical and financial records, educational
transcripts. This does not include PII
that is required by law to be disclosed.

See also the definition of Personally
Identifiable Information (PII) in this sec-
tion.

Questioned cost means a cost that is
questioned by the auditor because of an
audit finding:
(1) Which resulted from a violation or
possible violation of a statute, regula-
tion, or the terms and conditions of a
Federal award, including for funds used
to match Federal funds;
(2) Where the costs, at the time of
the audit, are not supported by ade-
quate documentation; or
(3) Where the costs incurred appear
unreasonable and do not reflect the ac-
tions a prudent person would take in
the circumstances.
(4) Questioned costs are not an im-
proper payment until reviewed and
confirmed to be improper as defined in
OMB Circular A-123 appendix C. (See
also the definition of Improper payment
in this section).

Real property means land, including
land improvements, structures and ap-
purtenances thereto, but excludes
moveable machinery and equipment.

Recipient means an entity, usually
but not limited to non -Federal entities
that receives a Federal award directly
from a Federal awarding agency. The
term recipient does not include sub -
recipients or individuals that are bene-
ficiaries of the award.

Renewal award means an award made
subsequent to an expiring Federal
award for which the start date is con-
tiguous with, or closely follows, the
end of the expiring Federal award. A
renewal award's start date will begin a
distinct period of performance.

Research and Development (R&D)
means all research activities, both
basic and applied, and all development
activities that are performed by non -
Federal entities. The term research
also includes activities involving the
training of individuals in research
techniques where such activities utilize
95 § 200.1
the same facilities as other research
and development activities and where
such activities are not included in the
instruction function. "Research" is de-
fined as a systematic study directed to-
ward fuller scientific knowledge or un-
derstanding of the subject studied.
"Development" is the systematic use
of knowledge and understanding gained
from research directed toward the pro-
duction of useful materials, devices,
systems, or methods, including design
and development of prototypes and
processes.

Simplified acquisition threshold means
the dollar amount below which a non -
Federal entity may purchase property
or services using small purchase meth-
ods (see § 200.320). Non -Federal entities
adopt small purchase procedures in
order to expedite the purchase of items
at or below the simplified acquisition
threshold. The simplified acquisition
threshold for procurement activities
administered under Federal awards is
set by the FAR at 48 CFR part 2, sub-
part 2.1. The non -Federal entity is re-
sponsible for determining an appro-
priate simplified acquisition threshold
based on internal controls, an evalua-
tion of risk, and its documented pro-
curement procedures. However, in no
circumstances can this threshold ex-
ceed the dollar value established in the
FAR (48 CFR part 2, subpart 2.1) for the
simplified acquisition threshold. Re-
cipients should determine if local gov-
ernment laws on purchasing apply.

Special purpose equipment means
equipment which is used only for re-
search, medical, scientific, or other
technical activities. Examples of spe-
cial purpose equipment include micro-
scopes, x-ray machines, surgical instru-
ments, and spectrometers. See also the
definitions of equipment and general
purpose equipment in this section.

State means any state of the United
States, the District of Columbia, the
Commonwealth of Puerto Rico, U.S.

Virgin Islands, Guam, American
Samoa, the Commonwealth of the
Northern Mariana Islands, and any
agency or instrumentality thereof ex-
clusive of local governments.

Student Financial Aid (SFA) means
Federal awards under those programs
of general student assistance, such as
those authorized by Title IV of the

§ 200.2
Higher Education Act of 1965, as
amended, (20 U.S.C. 1070-1099d), which
are administered by the U.S. Depart-
ment of Education, and similar pro-
grams provided by other Federal agen-
cies. It does not include Federal awards
under programs that provide fellow-
ships or similar Federal awards to stu-
dents on a competitive basis, or for
specified studies or research.

Subaward means an award provided
by a pass -through entity to a sub -
recipient for the subrecipient to carry
out part of a Federal award received by
the pass -through entity. It does not in-
clude payments to a contractor or pay-
ments to an individual that is a bene-
ficiary of a Federal program. A
subaward may be provided through any
form of legal agreement, including an
agreement that the pass -through enti-
ty considers a contract.

Subrecipient means an entity, usually
but not limited to non -Federal entities,
that receives a subaward from a pass -
through entity to carry out part of a
Federal award; but does not include an
individual that is a beneficiary of such
award. A subrecipient may also be a re-
cipient of other Federal awards di-
rectly from a Federal awarding agency.

Subsidiary means an entity in which
more than 50 percent of the entity is
owned or controlled directly by a par-
ent corporation or through another
subsidiary of a parent corporation.

Supplies means all tangible personal
property other than those described in
the definition of equipment in this sec-
tion. A computing device is a supply if
the acquisition cost is less than the
lesser of the capitalization level estab-
lished by the non -Federal entity for fi-
nancial statement purposes or $5,000,
regardless of the length of its useful
life. See also the definitions of com-
puting devices and equipment in this sec-
tion.

Telecommunications cost means the
cost of using communication and te-
lephony technologies such as mobile
phones, land lines, and internet.

Termination means the ending of a
Federal award, in whole or in part at
any time prior to the planned end of
period of performance. A lack of avail-
able funds is not a termination.
96 2 CFR Ch. 11 (1-1-21 Edition)
Third -party in -kind contributions
means the value of non -cash contribu-
tions (i.e., property or services) that —
(1) Benefit a federally -assisted
project or program; and
(2) Are contributed by non -Federal
third parties, without charge, to a non -
Federal entity under a Federal award.

Unliquidated financial obligations
means, for financial reports prepared
on a cash basis, financial obligations
incurred by the non -Federal entity
that have not been paid (liquidated).

For reports prepared on an accrual ex-
penditure basis, these are financial ob-
ligations incurred by the non -Federal
entity for which an expenditure has
not been recorded.

Unobligated balance means the
amount of funds under a Federal award
that the non -Federal entity has not ob-
ligated. The amount is computed by
subtracting the cumulative amount of
the non -Federal entity's unliquidated
financial obligations and expenditures
of funds under the Federal award from
the cumulative amount of the funds
that the Federal awarding agency or
pass -through entity authorized the
non -Federal entity to obligate.

Voluntary committed cost sharing
means cost sharing specifically pledged
on a voluntary basis in the proposal's
budget on the part of the non -Federal
entity and that becomes a binding re-
quirement of Federal award. See also
§200.306.
[85 FR 49529, Aug. 13, 2020]
§ 200.2 Acquisition cost.

Acquisition cost means the cost of the
asset including the cost to ready the
asset for its intended use. Acquisition
cost for equipment, for example, means
the net invoice price of the equipment,
including the cost of any modifica-
tions, attachments, accessories, or aux-
iliary apparatus necessary to make it
usable for the purpose for which it is
acquired. Acquisition costs for soft-
ware includes those development costs
capitalized in accordance with gen-
erally accepted accounting principles
(GAAP). Ancillary charges, such as
taxes, duty, protective in transit insur-
ance, freight, and installation may be
included in or excluded from the acqui-
sition cost in accordance with the non -

OMB Guidance §200.13
Federal entity's regular accounting
practices.
§ 200.3 Advance payment.

Advance payment means a payment
that a Federal awarding agency or
pass -through entity makes by any ap-
propriate payment mechanism, includ-
ing a predetermined payment schedule,
before the non -Federal entity disburses
the funds for program purposes.
§ 200.4 Allocation.

Allocation means the process of as-
signing a cost, or a group of costs, to
one or more cost objective(s), in rea-
sonable proportion to the benefit pro-
vided or other equitable relationship.

The process may entail assigning a
cost(s) directly to a final cost objective
or through one or more intermediate
cost objectives.
§ 200.5 Audit finding.

Audit finding means deficiencies
which the auditor is required by
§ 200.516 Audit findings, paragraph (a)
to report in the schedule of findings
and questioned costs.
§ 200.6 Auditee.

Auditee means any non -Federal enti-
ty that expends Federal awards which
must be audited under Subpart F —
Audit Requirements of this part.
§ 200.7 Auditor.

Auditor means an auditor who is a
public accountant or a Federal, state,
local government, or Indian tribe audit
organization, which meets the general
standards specified for external audi-
tors in generally accepted government
auditing standards (GAGAS). The term
auditor does not include internal audi-
tors of nonprofit organizations.
[79 FR 75880, Dec. 19, 2014]
§ 200.8 Budget.

Budget means the financial plan for
the project or program that the Fed-
eral awarding agency or pass -through
entity approves during the Federal
award process or in subsequent amend-
ments to the Federal award. It may in-
clude the Federal and non -Federal
share or only the Federal share, as de -
97 termined by the Federal awarding
agency or pass -through entity.
§ 200.9 Central service cost allocation
plan.

Central service cost allocation plan
means the documentation identifying,
accumulating, and allocating or devel-
oping billing rates based on the allow-
able costs of services provided by a
state, local government, or Indian tribe
on a centralized basis to its depart-
ments and agencies. The costs of these
services may be allocated or billed to
users.
§ 200.10 Catalog of Federal Domestic
Assistance (CFDA) number.

CFDA number means the number as-
signed to a Federal program in the
CFDA.
§ 200.11 CFDA program title.

CFDA program title means the title of
the program under which the Federal
award was funded in the CFDA.
§ 200.12 Capital assets.

Capital assets means tangible or in-
tangible assets used in operations hav-
ing a useful life of more than one year
which are capitalized in accordance
with GAAP. Capital assets include:
(a) Land, buildings (facilities), equip-
ment, and intellectual property (in-
cluding software) whether acquired by
purchase, construction, manufacture,
lease -purchase, exchange, or through
capital leases; and
(b) Additions, improvements, modi-
fications, replacements, rearrange-
ments, reinstallations, renovations or
alterations to capital assets that mate-
rially increase their value or useful life
(not ordinary repairs and mainte-
nance).
§ 200.13 Capital expenditures.

Capital expenditures means expendi-
tures to acquire capital assets or ex-
penditures to make additions, improve-
ments, modifications, replacements,
rearrangements, reinstallations, ren-
ovations, or alterations to capital as-
sets that materially increase their
value or useful life.

§ 200.14
§ 200.14 Claim.

Claim means, depending on the con-
text, either:
(a) A written demand or written as-
sertion by one of the parties to a Fed-
eral award seeking as a matter of
right:
(1) The payment of money in a sum
certain;
(2) The adjustment or interpretation
of the terms and conditions of the Fed-
eral award; or
(3) Other relief arising under or relat-
ing to a Federal award.
(b) A request for payment that is not
in dispute when submitted.
§ 200.15 Class of Federal awards.

Class of Federal awards means a group
of Federal awards either awarded under
a specific program or group of pro-
grams or to a specific type of non -Fed-
eral entity or group of non -Federal en-
tities to which specific provisions or
exceptions may apply.
§ 200.16 Closeout.

Closeout means the process by which
the Federal awarding agency or pass -
through entity determines that all ap-
plicable administrative actions and all
required work of the Federal award
have been completed and takes actions
as described in § 200.343 Closeout.
§ 200.17 Cluster of programs.

Cluster of programs means a grouping
of closely related programs that share
common compliance requirements. The
types of clusters of programs are re-
search and development (R&D), student
financial aid (SFA), and other clusters.
"Other clusters" are as defined by OMB
in the compliance supplement or as
designated by a state for Federal
awards the state provides to its sub -
recipients that meet the definition of a
cluster of programs. When designating
an "other cluster," a state must iden-
tify the Federal awards included in the
cluster and advise the subrecipients of
compliance requirements applicable to
the cluster, consistent with § 200.331
Requirements for pass -through enti-
ties, paragraph (a). A cluster of pro-
grams must be considered as one pro-
gram for determining major programs,
as described in §200.518 Major program
98 2 CFR Ch. 11 (1-1-21 Edition)
determination, and, with the exception
of R&D as described in § 200.501 Audit
requirements, paragraph (c), whether a
program -specific audit may be elected.
§200.18 Cognizant agency for audit.

Cognizant agency for audit means the
Federal agency designated to carry out
the responsibilities described in
§ 200.513 Responsibilities, paragraph (a).

The cognizant agency for audit is not
necessarily the same as the cognizant
agency for indirect costs. A list of cog-
nizant agencies for audit may be found
at the FAC Web site.
§ 200.19 Cognizant agency for indirect
costs.

Cognizant agency for indirect costs
means the Federal agency responsible
for reviewing, negotiating, and approv-
ing cost allocation plans or indirect
cost proposals developed under this
part on behalf of all Federal agencies.

The cognizant agency for indirect cost
is not necessarily the same as the cog-
nizant agency for audit. For assign-
ments of cognizant agencies see the
following:
(a) For IHEs: Appendix III to Part
200 —Indirect (F&A) Costs Identifica-
tion and Assignment, and Rate Deter-
mination for Institutions of Higher
Education (IHEs), paragraph C.11.
(b) For nonprofit organizations: Ap-
pendix IV to Part 200 —Indirect (F&A)
Costs Identification and Assignment,
and Rate Determination for Nonprofit
Organizations, paragraph C.2.a.
(c) For state and local governments:

Appendix V to Part 200—State/Local
Governmentwide Central Service Cost
Allocation Plans, paragraph F.1.
(d) For Indian tribes: Appendix VII to
Part 200 —States and Local Govern-
ment and Indian Tribe Indirect Cost
Proposal, paragraph D.1.
[78 FR 78608, Dec. 26, 2013, as amended at 79
FR 75880, Dec. 19, 2014; 80 FR 54407, Sept. 10,
2015]
§ 200.20 Computing devices.

Computing devices means machines
used to acquire, store, analyze, process,
and publish data and other information
electronically, including accessories
(or "peripherals") for printing, trans-
mitting and receiving, or storing elec-
tronic information. See also §§200.94

OMB Guidance
Supplies and 200.58 Information tech-
nology systems.
§ 200.21 Compliance supplement.

Compliance supplement means Appen-
dix XI to Part 200 —Compliance Supple-
ment (previously known as the Cir-
cular A-133 Compliance Supplement).
§ 200.22 Contract.

Contract means a legal instrument by
which a non -Federal entity purchases
property or services needed to carry
out the project or program under a
Federal award. The term as used in
this part does not include a legal in-
strument, even if the non -Federal enti-
ty considers it a contract, when the
substance of the transaction meets the
definition of a Federal award or
subaward (see § 200.92 Subaward).
§ 200.23 Contractor.

Contractor means an entity that re-
ceives a contract as defined in §200.22
Contract.
§200.24 Cooperative agreement.

Cooperative agreement means a legal
instrument of financial assistance be-
tween a Federal awarding agency or
pass -through entity and a non -Federal
entity that, consistent with 31 U.S.C.
6302-6305:
(a) Is used to enter into a relation-
ship the principal purpose of which is
to transfer anything of value from the
Federal awarding agency or pass -
through entity to the non -Federal enti-
ty to carry out a public purpose au-
thorized by a law of the United States
(see 31 U.S.C. 6101(3)); and not to ac-
quire property or services for the Fed-
eral Government or pass -through enti-
ty's direct benefit or use;
(b) Is distinguished from a grant in
that it provides for substantial involve-
ment between the Federal awarding
agency or pass -through entity and the
non -Federal entity in carrying out the
activity contemplated by the Federal
award.
(c) The term does not include:
(1) A cooperative research and devel-
opment agreement as defined in 15
U.S.C. 3710a; or
(2) An agreement that provides only:
(i) Direct United States Government
cash assistance to an individual;
99 § 200.28
(ii) A subsidy;
(iii) A loan;
(iv) A loan guarantee; or
(v) Insurance.
§ 200.25 Cooperative audit resolution.

Cooperative audit resolution means the
use of audit follow-up techniques which
promote prompt corrective action by
improving communication, fostering
collaboration, promoting trust, and de-
veloping an understanding between the
Federal agency and the non -Federal en-
tity. This approach is based upon:
(a) A strong commitment by Federal
agency and non -Federal entity leader-
ship to program integrity;
(b) Federal agencies strengthening
partnerships and working coopera-
tively with non -Federal entities and
their auditors; and non -Federal enti-
ties and their auditors working coop-
eratively with Federal agencies;
(c) A focus on current conditions and
corrective action going forward;
(d) Federal agencies offering appro-
priate relief for past noncompliance
when audits show prompt corrective
action has occurred; and
(e) Federal agency leadership sending
a clear message that continued failure
to correct conditions identified by au-
dits which are likely to cause improper
payments, fraud, waste, or abuse is un-
acceptable and will result in sanctions.
§ 200.26 Corrective action.

Corrective action means action taken
by the auditee that:
(a) Corrects identified deficiencies;
(b) Produces recommended improve-
ments; or
(c) Demonstrates that audit findings
are either invalid or do not warrant
auditee action.
§ 200.27 Cost allocation plan.

Cost allocation plan means central
service cost allocation plan or public
assistance cost allocation plan.
§200.28 Cost objective.

Cost objective means a program, func-
tion, activity, award, organizational
subdivision, contract, or work unit for
which cost data are desired and for
which provision is made to accumulate
and measure the cost of processes,
products, jobs, capital projects, etc. A