Beaumont City Council
May 7, 2024

4378 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations document that the individual entity is a
member of the class. Additional
information about this framework is
included in the section General
Provisions: Structure and Standards.

Further, Treasury is maintaining the
interim final rule definition of "small
business," which used the Small
Business Administration's (SBA)
definition of fewer than 500 employees,
or per the standard for that industry, as
defined by SBA. This definition
includes businesses with very few
employees, self-employed individuals,
and Tribally owned businesses.220
Finally, Treasury notes that recipients
may award SLFRF funds to many
different types of organizations,
including small businesses, to function
as a subrecipient in carrying out eligible
uses of funds on behalf of a recipient
government. In this case, a small
business need not have experienced a
negative economic impact in order to
serve as a subrecipient. See section
Distinguishing Subrecipients versus
Beneficiaries for more detailed
discussion of interactions with
subrecipients, in contrast to
beneficiaries of assistance.

Enumerated Eligible Uses for Assistance
to Small Businesses
Public Comment: Treasury received
comments requesting clarification of the
types of assistance available to small
businesses. For example, one
commenter suggested that outdoor
dining be an eligible use for SLFRF
funds as assistance to small businesses.

Other commenters asked for
clarification about how SLFRF funds
could be used to support new
businesses and start-ups.

Several commenters requested
clarification of whether and how
recipients may provide services to
business districts or downtown areas,
particularly those that exist in whole or
in part within a QCT, and requested
reduced documentation of the specific
negative economic impact for the
businesses operating within those areas.

These commenters argued in favor of
allowing redevelopment or other
support, including capital investments,
in business districts that were
2201n regard to counting employees, businesses
owned and controlled by a Tribal government are
not considered affiliates of the Tribal government
and are not considered affiliates of other businesses
owned by the Tribal government because of their
common ownership by the Tribal government or
common management, as described in 13 CFR
121.103(b)(2). This definition is consistent with the
Small Business Administration (SBA) HUBZone
definition of a "small business concern" relating to
Tribal governments as well as how Tribal
enterprises are defined for the State Small Business
Credit Initiative (SSBCI).
negatively impacted by COVID-19.

Several commenters also argued that
funds should be available to support
and grow microbusinesses, or
businesses with five or fewer
employees, which are more likely to be
owned by women and people of color.

Treasury Response: In the final rule,
Treasury is maintaining and clarifying
the enumerated eligible uses of funds
for assistance to small businesses that
are impacted or disproportionately
impacted by the pandemic.

Impacted small businesses.

Specifically, Treasury is maintaining
enumerated eligible uses from the
interim final rule for assistance to
impacted small businesses. These
include but are not limited to:
❑ Loans or grants to mitigate financial
hardship such as declines in revenues
or impacts of periods of business
closure, for example by supporting
payroll and benefits costs, costs to retain
employees, mortgage, rent, or utilities
costs, and other operating costs;
❑ Loans, grants, or in -kind assistance
to implement COVID-19 prevention or
mitigation tactics (see section Public
Health for details on these eligible uses);
and
❑ Technical assistance, counseling, or
other services to assist with business
planning needs.

Treasury acknowledges a range of
potential circumstances in which
assisting small businesses could be
responsive to the negative economic
impacts of COVID-19, including for
small businesses startups and
microbusinesses and individuals
seeking to start small or
microbusinesses. For example:

As noted above, a recipient could
assist small business startups or
microbusinesses with additional costs
associated with COVID-19 mitigation
tactics; see section Public Health for
details on these eligible uses.

A recipient could identify and
respond to a negative economic impact
of COVID-19 on new small business
startups or microbusinesses; for
example, if small business startups or
microbusinesses in a locality faced
greater difficulty accessing credit than
prior to the pandemic or faced increased
costs to starting the business due to the
pandemic or if particular small
businesses or microbusinesses had lost
expected startup capital due to the
pandemic.
❑ The interim final rule also
discussed, and the final rule maintains,
eligible uses that provide support for
individuals who have experienced a
negative economic impact from the
COVID-19 public health emergency,
including uses that provide job training
for unemployed individuals. These
initiatives also may support small
business start-ups, microbusinesses, and
individuals seeking to start small or
microbusinesses.

Disproportionately impacted small
businesses. Additionally, Treasury
agrees with commenters that
disproportionately impacted small
businesses may benefit from additional
assistance to address the sources of that
disparate impact.

As such, the final rule provides a
broader set of enumerated eligible uses
for disproportionately impacted small
businesses and/or small businesses in
disproportionately impacted business
districts. Recipients may use SLFRF
funds to assist these businesses with
certain capital investments, such as
rehabilitation of commercial properties,
storefront improvements, and facade
improvements. Recipients may also
provide disproportionately impacted
microbusinesses additional support to
operate the business, including
financial, childcare, and transportation
supports.

Recipients could also provide
technical assistance, business
incubators, and grants for start-ups or
expansion costs for disproportionately
impacted small businesses. Note that
some of these types of assistance are
similar to those eligible to respond to
small businesses that experienced a
negative economic impact ("impacted"
small businesses). However, because the
final rule presumes that some small
businesses were disproportionately
impacted, these enumerated eligible
uses can be provided to those
businesses without any specific
assessment of whether they individually
experienced negative economic impacts
or disproportionate impacts due to the
pandemic.

Cross -References: Recipients
providing assistance to small businesses
for capital expenditures (Le.,
expenditures on property, facilities, or
equipment) should also review the
section Capital Expenditures in General
Provisions: Other, which describes
eligibility standards that apply to capital
expenditures. Recipients should also
note that services to address vacant or
abandoned commercial or industrial
properties are addressed in section
Vacant or Abandoned Properties in
Assistance to Households.

Loans to Small Businesses
Public Comment: Treasury received
many comments requesting clarification
on using SLFRF funds to establish funds
that provide loans to small businesses.

For example, commenters sought
clarification of how eligible use

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4379
requirements and applicable dates for
SLFRF funds would apply to third party
organizations (like economic
development organizations) who receive
SLFRF funds in order to establish a loan
fund. In addition, commenters
requested clarification on what
requirements apply to loan programs
with available funds remaining after
December 31, 2024.

Treasury Response: SLFRF funds may
be used to make loans, including to
small businesses, provided that the loan
is an eligible use, and the cost of the
loan is tracked and reported in
accordance with Treasury's Compliance
and Reporting Guidance. Funds that are
unobligated after December 31, 2024
must be returned to Treasury. See
section Treatment of Loans for more
information about using SLFRF funds
for loan programs.
c. Assistance to Nonprofits
Background: Nonprofits have faced
significant challenges because of the
pandemic, including increased demand
for services and changing operational
needs.221 Prior to the pandemic, the
median U.S. nonprofit reported that it
had six months of cash on hand.222 This
varied by sector, however, with some
sectors like disaster relief organizations
reporting a median of 17 months cash
on hand, and others, like mental health
and crisis intervention organizations
reporting only three months.223
Evidence suggests that the pandemic
has damaged the financial health of
nonprofits, with small nonprofits,
which tend to rely more heavily on
donations than large nonprofits,
reporting relatively larger declines in
donations — 42 percent versus 29
percent, respectively. 224 Among
nonprofits that collect fees for services,
the median revenue amount collected
from such fees fell by 30 percent from
2019 to 2020, with arts organization
experiencing a 50 percent decline.225
Nonprofits also experienced significant
job losses. While employment in the
nonprofit sector has recovered from its
low point in 2020, as of November 2021,
221 See, e.g., Federal Reserve Bank of San
Francisco, Impacts of COVID-19 on Nonprofits in
the Western United States (May 2020), https://
www.frbsforg/community-development/files/
impact-of-covid.
222 Philanthropy and COVID-19: Measuring one
year of giving, Candid and the Center for Disaster
Philanthropy. (2021), https://www.issuelab.org/
resources/38039/38039.pdf.
2231d.
224 Elizabeth T. Boris et al., Nonprofit Trends and
Impacts 2021, Urban Institute (October 7, 2021),
https://www.urban.org/research/publication/
nonprofit-trends-and-impacts-2021/view/full
report.
225 id.
the sector remained 485,000 jobs below
its pre -pandemic leve1.226 In addition,
some nonprofits may have experienced
declines in volunteer staffing during the
pandemic.227
At the same time, nonprofits provide
a host of services for their communities,
including helping Americans weather
the multitude of challenges presented
by the pandemic. The ARPA and the
interim final rule recognized this
dichotomy —nonprofits as entities that
have themselves been negatively
impacted by the pandemic and as
entities that provide services that
respond to the public health and
negative economic impacts of the
pandemic on households and others
—by creating two roles for nonprofits.

First, under Sections 602(c)(1)(A) and
603(c)(1)(A), recipients may "respond to
the public health emergency or its
negative economic impacts," by, among
other activities, providing "assistance to
. . . nonprofits." The interim final rule
defined assistance to nonprofits to
include "loans, grants, in -kind
assistance, technical assistance or other
services, that responds to the negative
economic impacts of the COVID-19
public health emergency," and
"nonprofit" to mean a tax-exempt
organization under Section 501(c)(3) of
the U.S. Internal Revenue Code.228
Second, as discussed above, ARPA
and the interim final rule provided that
nonprofit organizations may also receive
funds as subrecipients of a recipient
government (i.e., a government that
received SLFRF funds); subrecipients
carry out an eligible use of SLFRF funds
on behalf of a recipient government
(e.g., a recipient government that would
like to provide food assistance to
impacted households may grant funds
to a nonprofit organization to carry out
that eligible use). Recipients generally
have wide latitude to award funds to
many types of organizations, including
nonprofit or for-profit organizations, as
subrecipients to carry out eligible uses
of funds on their behalf. For further
information on distinguishing between
beneficiaries and subrecipients, as well
as the impacts of the distinction on
reporting and other requirements, see
section Transfers of Funds and section
Distinguishing Subrecipients versus
Beneficiaries under the Public Health
228Chelsea Newhouse, COVID-19 JOBS UPDATE,
NOVEMBER 2021: Nonprofits add just 5,000 jobs in
November, Center for Civil Society Studies at Johns
Hopkins University (December 10, 2021), http://
ccss.jhu.edu/november-2021-jobs/.
227Elizabeth T. Boris et al. supra note 224 at p.

38. 228 § 35.3 Definitions.
and Negative Economic Impacts eligible
use category.229
Reorganization and Cross -References:

Under the interim final rule, assistance
to disproportionately impacted
communities was a separate, stand-
alone category. The final rule
reorganizes the disproportionate impact
analysis within the sections Assistance
to Households, Assistance to Small
Business, and Assistance to Nonprofits
to better articulate how recipients can
serve disproportionately impacted
beneficiaries in each of those categories.

As detailed above in the Public Health
subsection, in response to public
comments describing uncertainty on
which eligible use category should be
used to assess different potential uses of
funds, Treasury has re -categorized some
uses of funds in the final rule to provide
greater clarity. For discussion of
assistance to nonprofits to implement
COVID-19 mitigation and prevention
strategies, see section COVID-19
Mitigation and Prevention in Public
Health.

Recipients providing assistance via
nonprofits involving capital
expenditures (i.e., expenditures on
property, facilities, or equipment)
should also review the section Capital
Expenditures in General Provisions:

Other, which describes eligibility
standards for these expenditures.

Recipients providing assistances in the
form of loans should review the section
Treatment of Loans.

Public Comment: Eligible Assistance
to Impacted and Disproportionately
Impacted Nonprofits: A few
commenters asked Treasury to be more
explicit in the final rule that recipients
may use funds to provide relief directly
to nonprofit organizations and to
explain how nonprofits might qualify
themselves for assistance and what
expenses SLFRF funds may be used to
cover.23° Commenters requested that
Treasury note that the pandemic is
229 The ARPA also states under "Transfer
Authority" that a Recipient may transfer funds to
a private nonprofit organization such as those
defined in paragraph (17) of section 401 of the
McKinney-Vento Homeless Assistance Act (42
U.S.C. 11360(17). See 602 & 603(c)(3) of the Social
Security Act. See section Transfers of Funds for
additional information on other types of entities,
including other forms of nonprofits, that may
receive transfers.
230 While not stated specifically in the interim
final rule, the Department does not require or have
a preference as to the payment structure for
recipients that transfer funds to subrecipients (e.g.,
advance payments, reimbursement basis, etc.).

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 or beneficiaries.

4380 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations leading to a changing financial
landscape for nonprofits.

Treasury Response: Eligible
Assistance to Impacted and
Disproportionately Impacted
Nonprofits: The interim final rule
provided for, and the final rule
maintains, the ability for recipients to
provide direct assistance to nonprofits
that experienced public health or
negative economic impacts of the
pandemic. Specifically, recipients may
provide direct assistance to nonprofits if
the nonprofit has experienced a public
health or negative economic impact as
a result of the pandemic. For example,
if a nonprofit organization experienced
impacts like decreased revenues or
increased costs (e.g., through reduced
contributions or uncompensated
increases in service need), and a
recipient provides funds to address that
impact, then it is providing direct
assistance to the nonprofit as a
beneficiary under Subsection (c)(1) of
Sections 602 and 603. Direct assistance
may take the form of loans, grants, in -
kind assistance, technical assistance, or
other services that respond to the
negative economic impacts of the
COVID-19 public health emergency.

A recipient may identify a negative
economic impact experienced by a
nonprofit, or class of nonprofits, and
design and implement a response to that
negative economic impact, see section
Standards: Designating a Negative
Economic Impact. The final rule
provides a non -exhaustive list of
enumerated eligible uses for assistance
to nonprofits that are impacted or
disproportionately impacted by the
pandemic.

A recipient may also identify a class
of nonprofits that have been
disproportionately impacted by the
public health emergency and design and
implement a program that responds to
the source of that disproportionate
impact. For example, a recipient may
determine that nonprofits offering after -
school programs within its jurisdiction
were disproportionately impacted by
the pandemic due to the previous in -
person, indoors nature of the work and
the nonprofits' reliance on fees received
for services (e.g., attendance fees). The
recipient might then design an
intervention to assist those nonprofits in
adapting their programming (e.g., to
outdoor or online venues), their revenue
structure (e.g., adapting the fee for
service structure or developing expertise
in digital donation campaigns), or both.

Additional information about this
framework is included in General
Provisions: Structure and Standards. In
order to ease administrative burden, the
final rule presumes that nonprofits
operating in QCTs, operated by Tribal
governments or on Tribal Lands, or
operating in the U.S. territories were
disproportionately impacted by the
pandemic.

To summarize, a recipient may
determine that certain nonprofits were
impacted by the pandemic or were
disproportionately impacted by the
pandemic and provide responsive
services.

Public Comment: Beneficiaries and
Subrecipients: As noted elsewhere in
this final rule, Treasury received
multiple comments expressing
uncertainty on how to categorize a
particular activity in the eligible use
categories. For instance, some
commenters requested that recipients be
able to use SLFRF funds for certain
expenses incurred by nonprofits (e.g.,
unemployment charges) as a response to
a public health or negative economic
impact to that nonprofit; others asked if
nonprofits providing certain services
(e.g., social services) made them eligible
for direct assistance. Commenters also
requested that Treasury acknowledge
that engagement directly with nonprofit
organizations in low-income
communities and communities of color
may allow the recipient to better assess
economic harms in these areas.

Treasury Response: Beneficiaries and
Subrecipients: Treasury recognizes that
many nonprofits play important roles in
their communities, and some may have
experienced public health or negative
economic impacts during the pandemic.

As such, under the interim final rule
and the final rule, nonprofits may be
impacted by the pandemic and receive
assistance as a beneficiary, as described
above, and/or be a subrecipient
providing services on behalf of a
recipient.231
Specifically, the interim final rule
also allowed for, and the final rule
maintains, the ability for the recipient to
transfer, e.g., via grant or contract, funds
to nonprofit entities to carry out an
eligible use on behalf of the recipient.

Treasury notes that recipients may
award SLFRF funds to many different
types of organizations to carry out
eligible uses of funds and serve
beneficiaries on behalf of a recipient
government (e.g., assisting in a
vaccination campaign, operating a job
training program, developing affordable
housing). When a recipient provides
funds to an organization to carry out
eligible uses of funds and serve
231 Note, this response is meant to clarify the
difference between nonprofits as beneficiaries and
nonprofits as subrecipients. It is not meant to limit
the types of relationships that a recipient may enter
into with a nonprofit as permitted under the
Uniform Guidance.
beneficiaries, the organization becomes
a subrecipient. In this case, a nonprofit
need not have experienced a negative
economic impact in order to serve as a
subrecipient.

In the context of SLFRF, nonprofits of
all types may be subrecipients. Treasury
is not restricting the types of nonprofits
that can operate as subrecipients, rather
allowing recipients to decide what form
best meets the needs of their
community. Therefore, a "nonprofit"
that is acting as subrecipient could
include, but is not limited to, a
nonprofit as that term is defined in
paragraph (17) of section 401 of the
McKinney-Vento Homeless
Assistance.232 See section
Distinguishing Subrecipients versus
Beneficiaries for further information.

Additional guidance on determining
subrecipient status may be found in the
Uniform Guidance.233
Recipients may transfer funds to
subrecipients in several ways, including
advance payments and on a
reimbursement basis. 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 or beneficiaries.

As part of accepting the Award Terms
and Conditions for SLFRF, each
recipient agreed to maintain a conflict -
of -interest policy consistent with 2 CFR
200.318(c) that is applicable to all
activities funded with the SLFRF award.

Pursuant to this requirement, decisions
concerning SLFRF funds must be free of
undisclosed personal or organizational
conflicts of interest, both in fact and in
appearance. Recipients may avoid
conflicts of interest in providing
assistance to nonprofits or making
subrecipient awards by, inter alia,
making aid available to nonprofits on
generally applicable terms or utilizing a
competitive grant process, respectively.

A recipient may not use control over
SLFRF funds for their own private gain.

Furthermore, no employee, officer, or
agent may participate in the selection,
award, or administration of a contract
supported by a federal award if he or
she has a real or apparent conflict of
interest.

Public Comment: Definition of
Nonprofit: Treasury also received
several requests to expand the definition
of nonprofits so that other tax-exempt
entities (e.g., 501(c)(7)s, 501(c)(9)s,
501(c)(19)s, nonprofits with "historical
232 See sections 602(c)(3) and 603(c)(3) of the
Social Security Act. See also Section 401 of the
McKinney-Vento Homeless Assistance Act (42
U.S.C. 11360(17), which defines a "private
nonprofit organization."

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4381
significance") could be eligible for
direct assistance as beneficiaries.

Treasury Response: Definition of
Nonprofit: The final rule expands the
definition of nonprofits to mean
501(c)(3) organizations and 501(c)(19)
organizations.234 The 501(c)(3)
classification includes a wide range of
organizations with varying charitable or
public service -oriented goals (e.g.,
housing, food assistance, job training).

As discussed above, these nonprofit
organizations often experienced
hardship due to increased needs for
services combined with decreased
donations and other sources of funding.

In response to comments, Treasury has
expanded the definition of nonprofit to
include 501(c)(19) organizations, which
includes veterans' organizations, to
provide recipients more flexibility and
in alignment with the definition of
nonprofit adopted by the CARES Act,
wherein 501(c)(3)s and 501(c)(19)s were
eligible for assistance.235
Public Comment: Reporting
Requirements: One commenter asked
Treasury to clarify if nonprofits that
receive direct assistance as beneficiaries
are required to comply with guidelines
and reporting requirements.

Treasury Response: Reporting
Requirements: Nonprofits that receive
direct assistance as beneficiaries are not
subrecipients under SLFRF and are
therefore not required to comply with
SLFRF reporting requirements.

However, the recipient must comply
with SLFRF reporting requirements,
which would require reporting
obligations and expenditures for
assistance to nonprofits. The recipient
may also choose to establish other forms
of reporting or accountability as a part
of the recipient's direct assistance
program.

A nonprofit entity that receives a
transfer from a recipient is a
subrecipient. Per the Uniform Guidance,
subrecipients must adhere to the same
requirements as recipients. Therefore, a
nonprofit subrecipient may only receive
funds to carry out an eligible use of
SLFRF funds and must comply with any
reporting and compliance requirements.

Note that recipients are ultimately
responsible for reporting information to
Treasury and must collect any necessary
234 § 35.3 Definitions.
235 Treasury considered expanding the definition
of nonprofit to include 501(c)(6) organizations, as
Congress later did in the Coronavirus Response and
Consolidated Appropriations Act of 2021, but
ultimately decided to retain the original CARES Act
definition. To the extent impacted by the pandemic,
501(c)(6) organizations may be eligible to receive
funds to support eligible uses that align with their
overall purpose (e.g., tourism promotion in aid of
an impacted industry).
information from their subrecipients to
complete required reporting.
d. Aid to Impacted Industries
The interim final rule allowed for
"aid to tourism, travel, and hospitality,
and other impacted industries" that
responds to the negative economic
impacts of the COVID-19 public health
emergency. In designating other
impacted industries, Treasury specified
that recipients should consider the
"extent of the economic impact as
compared to tourism, travel, and
hospitality" and "whether impacts were
due to the COVID-19 pandemic, as
opposed to longer -term economic or
industrial trends unrelated to the
pandemic." 236 Treasury identified
declines in employment and revenue as
possible metrics to compare the
economic impact on a particular
industry relative to the tourism, travel,
and hospitality industries.

Treasury further provided that aid
should be limited to businesses,
attractions, business districts, and Tribal
development districts 237 that were
operating prior to the pandemic and
affected by required closures and other
efforts to contain the pandemic.

Examples of eligible aid include
assistance to implement COVID-19
mitigation and infection prevention
measures, aid to support safe reopening
of businesses in these industries, as well
as aid for a planned expansion or
upgrade of tourism, travel, and
hospitality facilities delayed due to the
pandemic. The interim final rule and
Treasury's subsequent Compliance and
Reporting Guidance also required
governments to publicly report
assistance provided to private -sector
businesses under this eligible use and
maintain records of their assessments to
facilitate transparency and
accountability.

Reorganization and Cross -References:

As detailed above, Treasury has re -
categorized some uses of funds in the
final rule to provide greater clarity. In
the interim final rule, aid to impacted
industries to implement COVID-19
mitigation and prevention strategies was
categorized under Aid to Impacted
Industries; the final rule addresses these
items under the section COVID-19
Mitigation and Prevention in Public
Health. Recipients should also be aware
of the difference between beneficiaries
236 Coronavirus State and Local Fiscal Recovery
Funds, 86 FR at 26795.
237For a definition of "Tribal development
districts," please see FAQ 2.9 at the following:

Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, as of July 19, 2021;
https://home.treaswy.gov/system/files/136/
SLFRPFAQ.pdf.
of assistance and subrecipients when
working with impacted industries; for
further information, see section
Distinguishing Subrecipients versus
Beneficiaries.

Designating an Impacted Industry
Public Comment: Many commenters
requested greater clarity on how to
designate "other impacted industries"
within their jurisdiction. Commenters
requested greater specificity as to the
metrics used to measure impact, with
some suggesting metrics such as the
change in the size of an industry's
workforce due to the pandemic, as well
as consideration of whether and why
employees are choosing to return to
work at slower rates in certain
industries. One commenter asked if this
meant nearly every industry was
"disproportionately impacted." Some
commenters encouraged Treasury to
focus on industries most negatively
impacted by the pandemic, including
disallowing across-the-board business
subsidies to businesses that were not
negatively impacted by the pandemic
and saw revenue or profit growth. Other
commenters asked for flexibility for
recipients to determine impacted
industries based on their local
knowledge of the economic landscape.

Treasury Response: The final rule
maintains the interim final rule's
approach of allowing recipients to
designate impacted industries outside
the travel, tourism, and hospitality
industries, and, in response to
comments, provides greater clarity as to
how recipients may designate such
impacted industries.

Sections 602(c)(1)(A) and 603(c)(1)(A)
recognize that the tourism, travel, and
hospitality industries are severely
negatively impacted by the pandemic.

Under the final rule, recipients may
provide eligible aid (described in further
detail herein) to the tourism, travel, and
hospitality industries. Treasury
considers Tribal development districts,
which are commercial centers for Tribal
hospitality, gaming, tourism, and
entertainment and can include Tribal
enterprises, as part of the tourism,
travel, and hospitality industries that
have been severely hit by the pandemic.

Therefore, Treasury reaffirms that Tribal
development districts are considered
impacted industries and recipients may
provide eligible aid to them.

To identify other industries
comparably impacted to the tourism,
travel, and hospitality industries,
recipients should undertake a two-step
process: Identifying an industry and
determining whether that industry is
comparably impacted.

4382 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations First, recipients should identify an
industry to be assessed. In identifying
this industry, the final rule provides
recipients the flexibility to define its
substantive or geographic scope.238
Recipients may identify a broad sector
that encompasses a number of sub-
industries, or they may identify a
specific sub -industry to be assessed. For
example, a recipient may identify
"personal care services" as an industry,
or they may identify a more specific
category within the "personal care
services" industry (e.g., barber shops) as
an industry. In defining the industry,
Treasury encourages recipients to define
narrow and discrete industries eligible
for aid. Recipients are not required to
follow, but may consider following,
industry classifications under the North
American Industry Classification
System (NAICS). Treasury notes that the
larger and more diverse the sector, the
more difficult it may be to demonstrate
that the larger and less specific sector is
negatively impacted in the same way
given the scale and diversity of
businesses within it.

State or territory recipients may also
define a constituent industry with
greater geographic precision than state
or territory -wide. For example, a state
may identify a particular industry in a
certain region of the state that was
negatively impacted by the pandemic,
even if the same industry in the rest of
the state did not see a meaningful
negative economic impact from the
pandemic. State recipients oversee large
and diverse industries, sometimes with
differences in economic activity
between geographic regions. Allowing
greater geographic precision allows
recipients to target aid to those that
need it most, ensuring that state
averages do not conceal hard-hit areas
in their state.

Second, to determine whether the
industry is "impacted," recipients
should compare the negative economic
impacts of the public health emergency
on the identified industry to the impacts
observed on the travel, tourism, and
hospitality industries.

1. Simplified test. An industry is
presumed to be impacted if the industry
experienced employment loss of at least
8 percent.

Specifically, a recipient should
compare the percent change in the
238 Once an industry is designated as impacted,
aid should be generally broadly available to
businesses in the industry that qualify. Recipients
should document how they defined the scope of
their industry and how they determined that the
industry was impacted. For states and territories,
this includes documenting their justification for
defining a constituent industry with greater
geographic precision than state or territory -wide.
number of employees of the recipient's
identified industry and the national
Leisure & Hospitality sector in the three
months before the pandemic's most
severe impacts began (a straight three-
month average of seasonally -adjusted
employment data from December 2019,
January 2020, and February 2020) with
the latest data as of the final rule release
(a straight three-month average of
seasonally -adjusted employment data
from September 2021, October 2021,
and November 2021).239 The national
Leisure & Hospitality sector largely
represents the national travel, tourism,
and hospitality industries enumerated
in the statute. According to the Bureau
of Labor Statistics, employment has
fallen by approximately 8 percent for
the national Leisure & Hospitality sector
when comparing the most recent three-
month period available as of the date of
adoption of the final rule to the three-
month period immediately before the
public health emergency. Therefore, if
the identified industry has suffered an
employment loss of at least 8 percent,
the final rule presumes the industry to
be an "impacted industry."
For parity and simplicity, smaller
recipients without employment data
that measure industries in their specific
jurisdiction may use data available for a
broader unit of government for this
calculation (e.g., a county may use data
from the state in which it is located; a
city may use data for the county, if
available, or state in which it is located)
solely for purposes of determining
whether a particular industry is an
impacted industry.

2. If simplified test is not met. If an
industry does not satisfy the test above
or data are unavailable, the recipient
may still designate the industry as
impacted by demonstrating the
following:
a. The recipient can show that the
totality of relevant major economic
indicators demonstrate that the industry
is experiencing comparable or worse
economic impacts as the national
tourism, travel, and hospitality
industries at the time of the publication
of the final rule, and that the impacts
were generally due to the COVID-19
public health emergency. Example
economic indicators include gross
output, GDP, net profits, employment
levels, and projected time to restore
employment back to pre -pandemic
levels. Recipients may rely on available
economic data, government research
238 National Leisure & Hospitality supersector
employment data can be found on the U.S. Bureau
of Labor Statistics website: U.S. Bureau of Labor
Statistics, Leisure and Hospitality, https://
www.bls.gov/iag/tgs/iag70.htm (last visited
December 7, 2021).
publications, research from academic
sources, and other quantitative sources
for this determination.

If quantitative data is unavailable, the
recipient can rely on qualitative data to
show that the industry is experiencing
comparable or worse economic impacts
as the national tourism, travel, and
hospitality industries, and the impacts
were generally due to the COVID-19
public health emergency. Recipients
may rely on sources like community
interviews, surveys, and research from
relevant state and local government
agencies.

As the public health emergency and
economic recovery evolves, recipients
should assess how industry impacts
shift over time. Impacted industries may
recover in a short period of time and no
longer face a negative economic impact;
in those circumstances, the recipient
should ensure that the extent and length
of aid is reasonably proportional to the
negative economic impact that is
experienced, as detailed further below
and in section General Provisions:

Structure and Standards. Recipients
may add to their list of impacted
industries by showing that the negative
economic impacts to the industry at the
time of the designation are comparable
to the negative economic impacts to the
national tourism, travel, and hospitality
sectors as of the date of the final rule
adoption, as detailed herein.

Eligible Aid
Public Comment: Commenters asked
for further clarification as to the
definition of eligible aid to an impacted
industry, with many requesting that a
broad range of aid be eligible. Examples
of aid that recipients asked to be
considered eligible include aid to
businesses to cover COVID-19
mitigation costs and planned
renovations or improvements to
tourism, travel, and hospitality
facilities, as well as marketing and in -
kind incentives to attract visitors.

Commenters also asked about the
eligibility of aid to broadly cover losses
incurred by facilities such as convention
centers and hotels due to the
pandemic's economic impact.

Commenters also asked for further
clarification about the requirements
related to private -sector reporting.

Further, some commenters asked for
clarification about eligible aid to
impacted industries owned and
operated by Tribal governments,
including for Tribal construction
projects that have been delayed due to
the pandemic's economic impacts, and
for deference to Tribal determinations of
negative economic impacts.

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4383 Treasury Response: In response to
commenters' requests for clarification
on eligible aid, the final rule requires
that aid to impacted industries,
including to Tribal development
districts, be designed to address the
harm experienced by the impacted
industry.

First, recipients should identify a
negative economic impact, i.e., an
economic harm, that is experienced by
businesses in the impacted industry.

Second, recipients should select a
response that is designed to address the
identified economic harm resulting from
or exacerbated by the public health
emergency. Responses must also be
related and reasonably proportional to
the extent and type of harm
experienced; uses that bear no relation
or are grossly disproportionate to the
type or extent of harm experienced
would not be eligible uses. Recipients
should consider the further discussion
of this standard provided in the sections
Standards: Designating a Public Health
Impact and Standards: Designating a
Negative Economic Impact.

These responses may take the form of
direct spending by recipients to promote
an industry or support for businesses
within an "impacted" industry that
experienced a negative economic impact
(e.g., through a grant program).

Examples of eligible responses include:
❑ Aid to mitigate financial hardship
due to declines in revenue or profits by
supporting payroll costs and
compensation of returning employees
for lost pay and benefits during the
COVID-19 pandemic, as well as support
of operations and maintenance of
existing equipment and facilities, such
as rent, leases, and utilities;
❑ Aid for technical assistance,
counseling, and other services to assist
with business planning needs; and
❑ Aid to implement COVID-19
mitigation and infection prevention
measures, such as vaccination or testing
programs, is broadly eligible for many
types of entities, including travel,
tourism, hospitality, and other impacted
industries. Recipients providing aid to
impacted industries for COVID-19
public health measures should review
the section Assistance to Businesses to
Implement COVID-19 Strategies in
Public Health, which describes types of
eligible uses of funds in this category.

To address the identified harms,
responses (e.g., aid through a grant
program) should be generally broadly
available to all businesses within the
impacted industry to avoid the risk of
self -dealing, preferential treatment, and
conflicts of interest.240 Treasury
encourages recipients to design aid
programs such that funds are first used
for operational expenses that are
generally recognized as ordinary and
necessary for the recipient's operation,
such as payroll, before being used on
other types of costs. As noted in the
section General Standards: Structure
and Standards, uses of funds that do not
respond to the negative economic
impacts of the pandemic, such as
excessive compensation to employees,
is ineligible.

The final rule maintains the interim
final rule's requirement that aid may
only be considered responsive to the
negative economic impacts of the
pandemic if it supports businesses,
attractions, and Tribal development
districts operating prior to the pandemic
and affected by required closures and
other efforts to contain the pandemic.

Further, to facilitate transparency and
accountability, the final rule maintains
the interim final rule's requirement that
recipients publicly report assistance
provided to private -sector businesses
under this eligible use, including
tourism, travel, hospitality, and other
impacted industries, and its connection
to negative economic impacts of the
public health emergency. Recipients
also should maintain records to support
their assessment of how businesses
receiving assistance were affected by the
negative economic impacts of the public
health emergency and how the aid
provided responds to these impacts.

Recipients providing aid to impacted
industries for capital expenditures (i.e.,
expenditures on property, facilities, or
equipment), including Tribal
governments providing aid to Tribal
development districts, should also
review the section Capital Expenditures
in General Provisions: Other, which
describes eligibility standards that are
applicable to these expenditures,
depending on the type of aid. Recipients
providing assistance in the form of loans
should review the section Treatment of
zoo As part of accepting the Award Terms and
Conditions for SLFRF, each recipient agreed to
maintain a conflict -of -interest policy consistent
with 2 CFR 200.318(c) that is applicable to all
activities funded with the SLFRF award. Pursuant
to this policy, decisions concerning SLFRF must be
free of undisclosed personal or organizational
conflicts of interest, both in fact and in appearance.

Recipients may avoid conflicts of interest in
awarding aid to impacted industries by, inter alia,
making aid available to businesses in the industry
on generally applicable terms or utilizing a
competitive grant process. A recipient may not use
control over SLFRF for their own private gain.

Furthermore, no employee, officer, or agent may
participate in the selection, award, or
administration of a contract supported by a federal
award if he or she has a real or apparent conflict
of interest.

Loans in Program Administration
Provisions.

4. General Provisions: Other
As noted above, the final rule
consolidates into a General Provisions
section several types of uses of funds; in
the interim final rule, the eligibility of
these uses of funds was discussed
within specific categories of eligible
uses for public health and negative
economic impacts. Treasury anticipates
that this re -organization will enhance
recipient clarity in assessing eligible
uses of funds. These General Provisions
apply across all uses of funds under
public health and negative economic
impacts.

Specifically, this section considers
eligible uses for:
❑ Public Sector Capacity and
Workforce, which includes several
separate and non -mutually exclusive
categories articulated in the interim
final rule: public health and safety staff;
rehiring state, local, and Tribal
government staff; expenses for
administering COVID-19 response
programs; expenses to improve the
efficacy of public health or economic
relief programs; and administrative
expenses caused or exacerbated by the
pandemic. Treasury recognizes that
these are closely related and frequently
overlapping categories. The final rule
treats them as a single purpose,
supporting public sector capacity, and
provides coordinated guidance on the
standards and presumptions that apply
to them.
❑ Capital Expenditures, which was
addressed only under Public Health in
the interim final rule. The final rule
moves this expense to General
Provisions and provides more clarity on
the eligibility of capital expenditures
across all aspects of the public health
and negative economic impacts eligible
use category.
❑ Distinguishing Subrecipients versus
Beneficiaries, which describes the
differences between these two
categories. Recipient governments
responding to the public health and
negative economic impacts of the
pandemic may provide assistance to
beneficiaries or execute an eligible use
of funds through a subrecipient; some
types of entities (e.g., nonprofits) could
fit into either category depending on the
specific purpose of the use of funds.
❑ Uses Outside the Scope of this
Category, which addresses uses of funds
that are ineligible or generally ineligible
under this eligible use category in the
interim final rule. These uses of funds
remain ineligible under the final rule,
but Treasury has re -categorized where
they are addressed, as described below.

4384 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations This section also addresses enumerated
eligible uses proposed by commenters
that Treasury has not incorporated into
the final rule.

Recipients should also note that the
Office of Management and Budget's
(OMB) Uniform Administrative
Requirements, Cost Principles, and
Audit Requirements for Federal Awards
(commonly called the "Uniform
Guidance") generally applies to SLFRF.
a. Public Sector Capacity and Workforce
Public Safety, Public Health, and
Human Services Staff
Summary of Interim Final Rule:

Under the interim final rule, funds may
be used for payroll and covered
benefits 241 for public safety, public
health, health care, human services, and
similar employees242 of a recipient
government, for the portion of the
employee's time that is spent
responding to COVID-19. For
administrative convenience, the
recipient may consider public health
and safety employees to be entirely
devoted to responding to COVID-19,
and therefore their full payroll and
covered benefits eligible to be covered,
if the employee, or his or her operating
unit or division, is "primarily
dedicated" to responding to COVID-19,
meaning that more than half of the
employee, unit, or division's time is
dedicated to responding to COVID-19.

Recipients may consider other
presumptions for assessing the extent to
which an employee, division, or
operating unit is responding to COVID-

19. Recipients must periodically
reassess their determination and
maintain records to support their
assessment, such as payroll records,
attestations from supervisors or staff, or
regular work product or
241In general, if an employee's wages and salaries
are an eligible use of SLFRF funds, recipients may
treat the employee's covered benefits as an eligible
use of SLFRF funds. For purposes of SLFRF funds,
covered benefits include costs of all types of leave
(vacation, family -related, sick, military,
bereavement, sabbatical, jury duty), employee
insurance (health, life, dental, vision), retirement
(pensions, 401(k)), unemployment benefit plans
(federal and state), workers compensation
insurance, and Federal Insurance Contributions Act
(FICA) taxes (which includes Social Security and
Medicare taxes). As described further in the section
Deposits into Pension Funds in Restrictions on Use,
that limitation on use does not apply to pension
contributions that are part of regular payroll
contributions for employees whose wages and
salaries are an eligible use of SLFRF funds.
242 Note that the interim final rule adapted prior
guidance issued for CRF that described these four
categories of employees; however, when listing the
specific occupations or types of employees in each
of these categories, the guidance collapses health
care and public health into one category titled
"public health." Therefore, the presumption
described around public health employees also
covers health care employees.
correspondence; recipients need not
track staff hours. The interim final rule
also posed a question on how long
recipients should be able to use funds
for staff responding to COVID-19 and
what other measures or presumptions
might Treasury consider to assess the
extent to which public sector staff are
engaged in COVID-19 response in an
easily administrable manner.

Treasury also provided further
guidance on the types of employees
covered by this category of eligible use,
specifically: "Public safety employees
would include police officers (including
state police officers), sheriffs and deputy
sheriffs, firefighters, emergency medical
responders, correctional and detention
officers, and those who directly support
such employees such as dispatchers and
supervisory personnel. Public health
employees 243 would include employees
involved in providing medical and other
health services to patients and
supervisory personnel, including
medical staff assigned to schools,
prisons, and other such institutions, and
other support services essential for
patient care (e.g., laboratory technicians,
medical examiner, or morgue staff) as
well as employees of public health
departments directly engaged in matters
related to public health and related
supervisory personnel. Human services
staff include employees providing or
administering social services; public
benefits; child welfare services; and
child, elder, or family care, as well as
others."
Public Comment: Measuring Time
Spent on COVID-19 Response: Treasury
received public comments on several
components of this eligible use category.

Many commenters argued that it poses
an administrative burden to identify the
extent to which staff are responding to
COVID-19 and to maintain records to
support that assessment. Largely citing
administrative burden in assessing
eligibility, several commenters
recommended revisions to the
administrative convenience that the full
payroll and covered benefits for public
health and safety staff "primarily
dedicated" to responding to COVID-19
may be paid with SLFRF funds. Some
commenters recommended presuming
that all public health and safety staff are
primarily dedicated to COVID-19
response, while others proposed that
public health and safety workers who
primarily serve QCTs or low- and
moderate -income areas be presumed to
be primarily dedicated to COVID-19
243 Note that this category encompasses both
public health and health care employees; both are
treated as public health employees for the purposes
of this eligible use category.
response, given the disproportionate
impacts of the pandemic in those
communities. Similarly, Tribal
communities recommended that their
public health staff be presumed eligible
due to the disproportionate impact of
the pandemic on their communities.

Some commenters proposed that they be
able to use the administrative
convenience for staff outside of public
health and safety that are responding to
COVID-19 (i.e., to be able to pay the full
payroll and covered benefits for any
staff "primarily dedicated" to COVID-
19 response).

Treasury Response: In the final rule,
Treasury is maintaining the approach in
the interim final rule, including
elaborations issued in further guidance,
but providing additional clarification on
its application, including methods to
apply the approach to minimize
administrative burden. Treasury notes
that recipients may assess the extent to
which staff are dedicated to responding
to COVID-19 through a variety of
means, including establishing
presumptions or assessing public health
and safety staff at the division or
operating unit level. For example, a
recipient could consider the amount of
time spent by employees in its public
health department's epidemiology
division in responding to COVID-19
and, if a majority of its employees are
dedicated to responding to COVID-19,
determine that the entire division is
primarily dedicated to responding to
COVID-19. Treasury also clarifies that
recipients may use reasonable estimates
to establish administrable
presumptions; for example, a recipient
could estimate, based on discussions
with staff, the general share of time that
employees in a specific role or type of
position spend on COVID-19 related
tasks and apply that share of time to all
employees in that position.

Recipients are generally required to be
able to support uses of SLFRF funds as
eligible, including, in this instance,
maintenance of records to support an
assessment that public health and safety
staff are primarily dedicated to
responding to COVID-19. As noted
above, recipients may use reasonable
estimates to implement this provision.

Recipients should maintain records on
how they developed these estimates and
need not track staff hours. Treasury
notes that records retained can include
payroll records (e.g., the number and
type of staff in various positions),
attestations from supervisors or staff
(e.g., self -attestation of share of time
spent on COVID-19), or regular work
product or correspondence (e.g.,
calendars, email correspondence,
documents, and other electronic

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4385
records). Treasury anticipates that these
types of records are generally retained
in many government settings; recipients
should also consult the Award Terms
and Conditions for SLFRF funds for
requirements on length of record
retention. For example, a recipient
could establish a reasonable
presumption about the share of time
that an employee, division, or operating
unit is responding to COVID-19 and
simply retain those employees'
electronic records as a record to support
their assessment.

Public Comment: Public Health and
Safety Staff Primarily Dedicated to
COVID-19 Response: Some commenters
recommended expanding the
administrative convenience for public
health and safety staff primarily
dedicated to COVID-19 response to
further types of staff, to all public health
and safety staff, or to public health and
safety staff serving underserved areas.

Treasury Response: The interim final
rule recognized that COVID-19 response
continues to require substantial staff
resources and provides an
administrative convenience to make it
relatively simpler to identify the
eligibility of the types of workers —
public health and safety workers —
generally most involved in COVID-19
response. At the same time, many
public health and safety workers
perform roles unrelated to COVID-19;
coverage of all roles would be overbroad
compared to the workers responding to
COVID-19 in actuality. For this reason,
the final rule maintains the interim final
rule's approach to permitting SLFRF
funds to be used for public health and
safety staff primarily dedicated to
responding to COVID-19. Finally, to the
extent that a greater proportion of public
health and safety staff time is needed to
respond to COVID-19 in
disproportionately impacted
communities, the "primarily dedicated"
approach recognizes this increased
need.

Public Comment: Eligible Types of
COVID-19 Response: Some public
commenters also sought further
clarification on how to identify eligible
types of "COVID-19 response." For
example, commenters requested
clarification on delineating COVID-19
response from general public health
response and defining COVID-19
response for public safety employees.

Treasury Response: Treasury is
clarifying that "responding to" COVID-
19 entails work needed to respond to
the public health or negative economic
impacts of the pandemic, apart from the
typical pre -pandemic job duties or
workload of an employee in a
comparable role, if one existed. For
example, responding to COVID-19 for a
public safety worker may entail working
in an emergency operations center to
coordinate pandemic -related supply
distribution, responding to an increased
volume of 911 calls, or implementing
COVID-19 prevention and mitigation
protocols in a carceral setting.

Public Comment: Eligible Employees:

Some commenters requested
clarification on the types of eligible
employees or expansion of eligible
employees to include additional types
of staff, including in behavioral health;
administrative, management, or
financial management positions; social
services; morgue staff; and nonprofit
staff supporting projects to undertake
eligible uses of funds under SLFRF.

Treasury Response: Treasury
provided further guidance on eligible
types of employees following the
interim final rule, which expressly
included social services and morgue
staff, and incorporates that guidance
into the final rule. In addition, Treasury
is clarifying that public health
"employees involved in providing
medical and other health services to
patients and supervisory personnel"
includes behavioral health services as
well as physical health services.

Treasury also is clarifying that this
provision only addresses employees of
the recipient government responding to
COVID-19. For discussion of eligible
expenses to administer SLFRF,
including eligible costs for subrecipients
performing eligible activities on behalf
of a recipient government, see section
Administrative Expenses in Program
Administration Provisions.

Finally, Treasury is clarifying that
indirect costs for administrative,
management, and financial management
personnel to support public health and
safety staff responding to COVID-19 are
not permissible under this provision,
given the relatively greater challenge of
differentiating the marginal increase in
staff time and workload due to
pandemic response for indirect versus
direct costs.

Public Comment: Time Period:

Finally, some commenters made
recommendations on the time period
during which this eligible use should be
available. Some commenters
recommended eligibility begin before
March 3, 2021, the period when
Treasury's interim final rule permitted
recipients to begin to incur costs using
SLFRF funds; for discussion of this
topic, see section Timeline for Use of
SLFRF Funds in Program
Administration Provisions. As noted
above, Treasury also posed a question in
the interim final rule asking for how
long Treasury should maintain the
administrative convenience that SLFRF
funds may be used for the full payroll
and covered benefits of public health
and safety staff primarily dedicated to
COVID-19 response. Several
commenters recommended that
Treasury maintain this approach
throughout the program or through
December 31, 2024. Other commenters
requested clarification on whether
eligibility for this use of funds was tied
to the length of the state of emergency
or whether a jurisdiction has an active
state of emergency.

Treasury Response: In the final rule,
Treasury is clarifying that recipients
will be permitted to fund the full
payroll and covered benefits of public
health and safety staff primarily
dedicated to COVID-19 response
throughout the period of performance
for the SLFRF program, though
recipients should periodically reassess
their determination of primarily
dedicated staff, including as the public
health emergency and response evolves.

Government Employment and Rehiring
Public Sector Staff
The interim final rule permitted use
of funds for costs associated with
rehiring state, local, and Tribal
government staff in order to bolster the
government's ability to effectively
administer services. Specifically,
recipients may pay for payroll, covered
benefits, and other costs associated with
the recipient increasing the number of
its employees up to the pre -pandemic
baseline, or the number of employees
that the recipient government employed
on January 27, 2020.

Public Comment: Many commenters
requested greater flexibility and
additional clarification on the
provision's requirements, including the
pre -pandemic baseline and re -hiring
process. Some commenters requested
that the final rule allow for hiring above
the pre -pandemic baseline given
historic underinvestment in the public
sector workforce. Commenters suggested
a number of adjustments to the pre -
pandemic baseline, including adjusting
based on population or revenue growth,
while some recommended allowing
recipients to set their own hiring levels.

Others requested clarification on the
definition of the baseline and the re-
hiring process, including whether the
pre -pandemic baseline referred to
budgeted or filled positions and
whether new hires had to fill the same
roles as the previous hires. Commenters
also asked whether recipients need to
show if the reduction in number of
employees was due to the pandemic in
order to qualify for funding and
requested that workers dedicated to

4386 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations COVID-19 response be exempted from
the calculation of number of employees.

Many commenters also requested an
expanded set of eligible uses beyond
restoring their workforce up to the pre -
pandemic baseline. Commenters
requested that funding be able to be
used to avoid layoffs, provide back pay,
retain employees through pay increases
and other retention programs, or
reimburse salaries and benefits already
paid. Some commenters also requested
clarification as to whether recipients
can fund re -hired positions through the
period of performance and on the
definition of payroll and benefits. Other
commenters requested preferential
hiring for workers laid off, a strong
commitment to equity, and a
requirement that funds would not be
used to pay for contract or temporary
replacement workers during a labor
dispute.

Treasury Response: The final rule
allows for an expanded set of eligible
uses to restore and support public sector
employment. Eligible uses include
hiring up to a pre -pandemic baseline
that is adjusted for historic
underinvestment in the public sector,
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.

Restoring pre -pandemic employment.

In response to comments and
recognizing underinvestment in public
sector employment, the final rule
expands the ability to use SLFRF funds
to restore pre -pandemic employment.

Treasury is also clarifying how, and the
extent to which, recipients may use
SLFRF funds to rehire public
employees.

The final rule provides two options to
restore pre -pandemic employment,
depending on recipient's needs. Under
the first and simpler option, recipients
may use SLFRF funds to rehire staff for
pre -pandemic positions that were
unfilled or were eliminated due the
pandemic without undergoing further
analysis. Under the second option, the
final rule provides recipients an option
to hire above the pre -pandemic baseline,
by adjusting the pre -pandemic baseline
for historical growth in public sector
employment over time, as well as
flexibility on roles for hire. Recipients
may choose between these options but
cannot use both.

To pursue the first option, recipients
may use SLFRF funds to hire employees
for the same positions that existed on
January 27, 2020 but that were unfilled
or eliminated as of March 3, 2021,
without undergoing further analysis. For
these employees, recipients may use
SLFRF funds for payroll and covered
benefit costs that are obligated by
December 31, 2024 and expended by
December 31, 2026, consistent with the
Uniform Guidance's Cost Principles at 2
CFR part 200 Subpart E. This option
provides administrative simplicity for
recipients that would simply like to
restore pre -pandemic positions and
would not like to hire above the pre -
pandemic baseline.

To pursue the second option,
recipients should undergo the analysis
provided below. In short, this option
allows recipients to pay for payroll and
covered benefits associated with the
recipient increasing its number of
budgeted full-time equivalent
employees (FTEs) up to 7.5 percent
above its pre -pandemic employment
baseline, which adjusts for the
continued underinvestment in state and
local governments since the Great
Recession. State and local government
employment as a share of population in
2019 remained considerably below its
share prior to the Great Recession in
2007, which presented major risks to
recipients mounting a response to the
COVID-19 public health emergency.

The adjustment factor of 7.5 percent
results from estimating how much larger
2019 state and local government
employment would have needed to be
for the share of state and local
government employment to population
in 2019 to have been back at its 2007
level and is intended to correct for this
gap.

Recipients should complete the steps
described below. Recipients may choose
whether to conduct this analysis on a
government -wide basis or for an
individual department, agency, or
authority.
❑ Step One: Identify the recipient's
budgeted FTE level on January 27, 2020.

This includes all budgeted positions,
filled and unfilled. This is called the
pre -pandemic baseline.
❑ Step Two: Multiply the pre -
pandemic baseline by 1.075 (that is, 1
+ adjustment factor). This is called the
adjusted pre -pandemic baseline.
❑ Step Three: Identify the recipient's
budgeted FTE level on March 3, 2021,
which is the beginning of the period of
performance for SLFRF funds.

Recipients may, but are not required to,
exclude FTEs dedicated to responding
to the COVID-19 public health
emergency.244 This is called the actual
number of FTEs.
244 Recipients may determine that a portion of an
FTE's time is dedicated to responding to the
COVID-19 public health emergency. Further, for
administrative convenience, the recipient may
❑ Step Four: Subtract the actual
number of FTEs from the adjusted pre -
pandemic baseline to calculate the
number of FTEs that can be hired and
covered by SLFRF funds.

Recipients may use SLFRF funds to
cover payroll and covered benefit costs
obligated by December 31, 2024, and
expended by December 31, 2026, up to
the number of FTEs calculated in Step
Four, consistent with the Uniform
Guidance's Cost Principles at 2 CFR part
200 Subpart E. Recipients may only use
SLFRF funds for additional FTEs hired
over the March 3, 2021 level of
budgeted FTEs (i.e., the actual number
of FTEs); note again that recipients may
choose whether to conduct the analysis
of FTEs that can be covered by SLFRF
funds on a government -wide basis or for
an individual department, agency, or
authority.

These FTEs must have begun their
employment on or after March 3, 2021,
which is the beginning of the period of
performance. For administrative
convenience, recipients do not need to
demonstrate that the reduction in
number of FTEs was due to the COVID-
19 pandemic, as Treasury assumes the
vast majority of employment reductions
during this time were due to pandemic
fiscal pressures on state and local
budgets. Recipients do not need to hire
for the same roles that existed pre -
pandemic.

For illustration, consider a
hypothetical recipient with 1,000
budgeted FTEs on January 27, 2020 (950
filled FTE positions and 50 unfilled FTE
positions). The recipient's pre -
pandemic baseline is 1000 FTEs; its
adjusted pre -pandemic baseline is 1,000
* 1.075 = 1075 FTEs. Now, assume that
on March 3, 2021, the recipient had 800
budgeted FTEs in total (795 filled FTE
positions and 5 unfilled FTE positions),
with 50 FTEs primarily dedicated to
responding to the COVID-19 public
health emergency. The recipient would
have the option of using either 800 FTEs
or 750 FTEs as its actual number of
FTEs for the calculation; assuming it
chooses the lower number, it would be
able to fund up to 325 FTEs with SLFRF
funds (that is, 1,075 — 750 = 325 FTEs).
consider public health and safety FTEs to be
entirely devoted to mitigating or responding to the
COVID-19 public health emergency if the FTE, or
his or her operating unit of division, is primarily
dedicated to responding to the COVID-19 public
health emergency. Recipients may also consider
other presumptions for assessing the extent to
which an FTE, division, or operating unit is
engaged in activities that respond to the COVID-19
public health emergency, provided that the
recipient reassesses periodically and maintains
records to support its assessment, such as payroll
records, attestations from supervisors or staff, or
regular work product or correspondence
demonstrating work on the COVID-19 response.

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4387 Specifically, the recipient would be able
to use SLFRF to fund payroll and
covered benefits for up to 325 FTEs that
begin their employment on or after
March 3, 2021, for costs obligated by
December 31, 2024, and expended by
December 31, 2026, consistent with the
Uniform Guidance's Cost Principles, as
long as SLFRF funds are used for
additional FTEs hired over the
recipient's 750 FTE level (which is its
March 3, 2021 budgeted FTE level).

In hiring new employees, the final
rule encourages recipients to ensure a
diverse workforce. The final rule also
prohibits recipients from using funds to
temporarily fill positions during a labor
dispute, as this would not constitute
responding to the public health or
negative economic impacts of the
pandemic. Further, recipients must
ensure that its hiring practices do not
violate conflict -of -interest policies.245
Total compensation for a hired
employee that is substantially in excess
of typical compensation for employees
of their experience and tenure within
the recipient's government, without a
corresponding business case, may
indicate a potential conflict -of -interest
in fact or appearance.

Providing additional funding for
employees who experienced pay cuts
and furloughs. In recognition of the
economic hardship caused by pay cuts
and furloughs, additional funds may be
provided to employees who experienced
pay cuts or were furloughed since the
onset of the pandemic on January 27,
2020. Recipients must be able to
substantiate that the pay cut or furlough
was substantially due to the public
health emergency or its negative
economic impacts (e.g., fiscal pressures
on state and local budgets) and should
document their assessment. As a
reminder, this additional funding must
be reasonably proportional to the
negative economic impact of the pay cut
or furlough on the employee, which
would include taking into account
unemployment insurance (UI) benefits
that a furloughed employee may have
received during the furloughed period.

Treasury presumes that additional funds
beyond the difference in pay had the
245 As part of accepting the Award Terms and
Conditions for SLFRF, each recipient agreed to
maintain a conflict -of -interest policy consistent
with 2 CFR 200.318(c)112 that is applicable to all
activities funded with the SLFRF award. Pursuant
to this policy, decisions concerning SLFRF must be
free of undisclosed personal or organizational
conflicts of interest, both in fact and in appearance.

A recipient may not use control over SLFRF for
their own private gain. Furthermore, no employee,
officer, or agent may participate in the selection,
award, or administration of a contract supported by
a federal award if he or she has a real or apparent
conflict of interest.
employee not received a pay cut or been
furloughed would not be reasonably
proportional.

Recipients may also provide premium
pay to certain employees, as detailed
further in section Premium Pay.

Avoiding layoffs. Funds may be used
to maintain current compensation
levels, with adjustments for inflation, in
order to prevent layoffs that would
otherwise be necessary. Recipients must
be able to substantiate that layoffs were
likely in the absence of SLFRF funds
and would be substantially due to the
public health emergency or its negative
economic impacts (e.g., fiscal pressures
on state and local budgets) and should
document their assessment.

Retaining workers. Funds may be
used to provide worker retention
incentives, which are designed to
persuade employees to remain with the
employer as compared to other
employment options. Recipients must
be able to substantiate that the
employees were likely to leave
employment in the absence of the
retention incentive and should
document their assessment. For
example, a recipient may determine that
a retention bonus is necessary based on
the presence of an alternative
employment offer for an employee.

All worker retention incentives must
be narrowly tailored to need and should
not exceed incentives traditionally
offered by the recipient or compensation
that alternative employers may offer to
compete for the employees. Further,
because retention incentives are
intended to provide additional incentive
to remain with the employer, they must
be entirely additive to an employee's
regular rate of wages and other
remuneration and may not be used to
reduce or substitute for an employee's
normal earnings. Treasury will presume
that retention incentives that are less
than 25 percent of the rate of base pay
for an individual employee or 10
percent for a group or category of
employees are reasonably proportional
to the need to retain employees, as long
as the other requirements are met.

Ancillary administrative costs. Funds
may be used to pay for ancillary
administrative costs associated with
administering SLFRF-funded hiring and
retention programs detailed above,
including costs to publish job postings,
review applications, and onboard and
train new hires. For additional
information on administrative expenses,
see section Administrative Expenses in
Program Administration Provisions.

Effective Service Delivery:

Administrative Expenses
The interim final rule provided that
funds could be used for: "Expenses to
improve efficacy of public health or
economic relief programs:

Administrative 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." In the final rule,
Treasury is clarifying that there are
several categories of eligible
administrative expenses.

First, recipients may use funds for
administrative costs to improve the
efficacy of public health or economic
relief programs through tools like
program evaluation, data analysis, and
targeted consumer outreach (see section
Effective Service Delivery: Program
Evaluation, Data, and Outreach).

Second, recipients may use funds for
administrative costs associated with
programs to respond to the public
health emergency and its negative
economic impacts, including programs
that are not funded by SLFRF or not
federally funded. In other words,
Treasury recognizes that responding to
the public health and economic impacts
of the pandemic requires many
programs and activities, some of which
are not funded by SLFRF. Executing
these programs effectively is a
component of responding to the public
health and negative economic impacts
of the pandemic.

Finally, recipients may use funds for
direct and indirect administrative costs
for administering the SLFRF program
and projects funded by the SLFRF
program. See section Administrative
Expenses in Program Administration
Provisions for details on this eligible use
category.

Effective Service Delivery: Program
Evaluation, Data, and Outreach
The Supplementary Information of
the interim final rule provided that
state, local and Tribal governments may
use SLFRF funds to improve the design
and execution of programs responding
to the COVID-19 pandemic and to
improve the efficacy of programs
addressing negative economic impacts.

The interim final rule included high-
level guidance about how SLFRF funds
could be used in this eligible use
category, including the use of targeted
consumer outreach, improvements to
data or technology infrastructure,
impact evaluations, and data analysis.

Since the publication of the interim
final rule, Treasury has also released

4388 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations supplementary information on data
analysis, evidence building, and
program evaluation in the Compliance
and Reporting Guidance.

Public Comment: Treasury received
positive comments about the
opportunity to invest in data and
technology upgrades with SLFRF funds.

For example, one commenter noted that
investing in technology for better
connectivity, coupled with software and
hardware upgrades, will allow the
workforce to be more productive.

Treasury also received comments
seeking clarification on using funds for
investments in data and technology,
including whether upgrading
government websites to improve
community outreach and investing in
technologies that support social
distancing were eligible uses.

Treasury Response: Governments
with high capacity to use data and
evidence to administer programs are
more likely to be responsive to the
needs of their community, more
transparent about their community
impact, and more resilient to
emergencies such as the pandemic and
its economic impacts.246 Treasury
recognizes that collecting high -quality
data and developing community -driven,
evidence -based programs requires
resources to hire and build the capacity
of staff, adopt new processes and
systems, and use new technology and
tools in order to effectively develop,
execute, and evaluate programs. As
such, Treasury is clarifying that
recipients may use SLFRF funds toward
the following non -exhaustive list of uses
to address the data, evidence, and
program administration needs of
recipients. Additional information may
be provided in the Compliance and
Reporting Guidance.
❑ Program evaluation and evidence
resources to support building and using
evidence to improve outcomes,
including development of Learning
Agendas 247 to support strategic
evidence building, selection of
evidence -based interventions, and
program evaluations including impact
evaluations (randomized control trials
248Results for America, Invest in What Works
State Standard of Excellence (August 2020), https://
2020state.results4america. org/2020_State-
Stan d and -o f-Excell en ce. p d f.
247 Learning Agendas are systematic plans to
identify, prioritize, answer important questions
about programs and policies using analytic
techniques that are appropriate to the type of
question asked. For more information on learning
agendas, please see OMB Memorandum M-19-23,
available at: https://www.whitehouse.gov/wp-
content/uploads/2019/07/M-19-23.pdf and OMB
Memorandum M-21-27, available at: https://
www.whitehouse.gov/wp-content/uploads/2021/06/
M-21-27.pdf
and quasi -experimental designs) as well
as rapid -cycle evaluations, process or
implementation evaluations, outcome
evaluations, and cost -benefit analyses.

Recipients are encouraged to undertake
rigorous program evaluations when
practicable, assess the impact of their
programs by beneficiary demographics
(including race, ethnicity, gender,
income, and other relevant factors), and
engage with community stakeholders
(including intended beneficiaries) when
developing Learning Agendas and
designing evaluations to ensure that
programmatic, cultural, linguistic, and
historical nuances are accurately and
respectfully addressed.

Recipients are also encouraged to use
relevant evidence Clearinghouses,248
among other sources, to assess the level
of evidence for their interventions and
identify evidence -based models that
could be applied in their jurisdiction
(meaning models with strong or
moderate evidence; see Compliance and
Reporting Guidance for details on these
terms).

Data analysis resources to gather,
assess, and use data for effective policy -
making and real-time tracking of
program performance to support
effective implementation of SLFRF-
funded programs and programs that
respond to the public health emergency
and its negative economic impacts, or
which households, small businesses, or
impacted industries are accessing
during the pandemic that are funded by
other sources. These resources include
but are not limited to data gathering,
data cleaning, data analysis, data
infrastructure, data management, data
sharing, data transparency, performance
management, outcomes -based
budgeting, outcomes -based
procurement, and other data needs.

Treasury encourages the disaggregation
of data to identify disparate program
impacts and the use of cross -
jurisdictional data sharing to better
measure and implement government
programs.
248 Evidence Clearinghouses are databases of
research in particular program areas. Frequently
these Clearinghouses identify evidence -based
programs, the strength of the evidence for those
programs, and provide contextual or supporting
information in easy to understand formats. Many
federal departments have developed rigorous and
helpful Clearinghouses that cover a wide range of
uses enumerated in this final rule as well as other
programs that may be responsive to public health
or negative economic impacts of the pandemic. For
more information on Clearinghouses, please see the
Compliance and Reporting Guidance: 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 -an d-tribal- governments/state-and-local fiscal -recovery funds/
recipient -compliance -and -reporting -responsibilities. ❑ Technology infrastructure resources
to improve access to and the user -
experience of government information
technology systems, including upgrades
to hardware and software as well as
improvements to public -facing websites
or to data management systems, to
increase public access and improve
public delivery of government programs
and services (including in the judicial,
legislative, or executive branches).
❑ Community outreach and
engagement resources to support the
gathering and sharing of information in
ways that improve equity and effective
implementation of SLFRF-funded
programs and programs that respond to
the public health emergency and its
negative economic impacts, or which
households, small businesses, or
impacted industries are accessing
during the pandemic that are funded by
other sources. These methods include
but are not limited to community
meetings, online surveys, focus groups,
human -centered design activities,
behavioral science techniques, and
other community engagement tools.
❑ Capacity building resources to
support using data and evidence in
designing, executing, and evaluating
programs, including hiring public sector
staff, contractors, academics,
consultants, and others with expertise
in evaluation, data, technology, and
community engagement as well as
technical assistance support for public
sector staff, staff of subrecipients, and
community partners to support effective
implementation of SLFRF-funded
programs and programs that respond to
the public health emergency and its
negative economic impacts, or which
households, small businesses, or
impacted industries are accessing
during the pandemic that are funded by
other sources.

Administrative Needs Caused or
Exacerbated by the Pandemic
As described in guidance and the
interim final rule, SLFRF funds may be
used to address administrative needs of
recipient governments that were caused
or exacerbated by the pandemic.

Guidance following the interim final
rule included several examples of this,
for example, uses of funds to address
backlogs resulting from pandemic -
related shutdowns (e.g., backlogs in
court systems).249 This also includes
249 See FAQ 2.19. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home.treasury.gov/system/files/136/SLFRPFAQ.pdf.

In the case of courts specifically, this includes
"implementing COVID-19 safety measures to
facilitate court operations, hiring additional court
staff or attorneys to increase speed of case

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4389 using funds for increased repair or
maintenance needs to respond to
significantly greater use of public
facilities during the pandemic (e.g.,
increased use of parks resulting in
damage or increased need for
maintenance). Some commenters
expressed support for the ability to use
funds for these purposes. Treasury is
maintaining these enumerated eligible
uses in the final rule and clarifying that
capital expenditures such as technology
infrastructure to adapt government
operations to the pandemic (e.g., video-
conferencing software, improvements to
case management systems or data
sharing resources), reduce government
backlogs, or meet increased
maintenance needs are eligible.
b. Capital Expenditures
The interim final rule expressly
permitted use of funds for a limited
number of capital expenditures that
mostly pertained to COVID-19
prevention and mitigation. These
included capital investments in public
facilities to meet pandemic operational
needs, such as physical plant
improvements to public hospitals and
health clinics; adaptations to public
buildings to implement COVID-19
mitigation tactics; ventilation
improvements in congregate settings,
health care settings, or other key
locations; assistance to small businesses
and nonprofits and aid to impacted
industries to implement COVID-19
prevention or mitigation tactics, such as
physical plant changes to enable social
distancing. For disproportionately
impacted populations and communities,
the interim final rule also expressly
permitted development of affordable
housing to increase the supply of
affordable and high -quality living units.

Public Comment: Many commenters
supported the interim final rule's
allowance of capital expenditures in
facilities to meet pandemic operational
needs but requested that the final rule
explicitly allow for a broader range of
capital expenditures. Commenters
expressed an interest in investing in
equipment, real property, and facilities
that they argued will yield lasting
benefits beyond the SLFRF period of
performance. Some commenters stated
that the approach in the interim final
rule limited the vast majority of capital
expenditures to governments that
experienced revenue loss under
Sections 602(c)(1)(C) and 603(c)(1)(C)
and that this approach may prevent
some governments from fully meeting
the needs of their residents. A few
resolution, and other expenses to expedite case
resolution are eligible uses."
commenters argued that Treasury
should limit use of funds on capital
expenditures not related to addressing a
direct pandemic harm, such as general
economic development or workforce
development, and some expressed
support for generally limiting capital
expenditures to those that address the
needs of low-income communities and
communities of color.

Many commenters requested that
capital expenditures related to direct
COVID-19 public health response be
included as enumerated eligible uses.

The requested types of expenditures
include improvements and construction
of hospitals and health clinics
(including behavioral health clinics), as
well as other health -related
infrastructure improvements, such as
improvements to medical equipment or
public health information technology.

These commenters stated that
investments in health and public health
systems are vital to ensuring critical
infrastructure necessary to respond to
continued impacts of COVID-19 or to
address disparities in health, due to lack
of access to health care, that contributed
to disproportionate impacts of COVID-
19 on some communities. Further, some
commenters requested that construction
or improvements of emergency
management and public safety facilities
be deemed eligible, citing that some of
these sites serve as remote vaccination
sites or are otherwise crucial to the
pandemic public health response.

Commenters also requested use of
funds for capital expenditures that
support community needs apart from
health care, such as new construction or
improvements to schools, affordable
housing (beyond presumed
disproportionately impacted
communities), childcare facilities, and
community centers; some suggested that
all types of projects permissible under
the Community Development Block
Grant Program should be eligible both
for policy and administrability reasons.

Further, some commenters also asked
for clarification as to whether parks and
recreational facilities are eligible if built
in certain disproportionately impacted
areas, as well as public transportation
infrastructure.

Finally, some commenters also
requested use of funds for capital
expenditures in government
administration buildings, such as public
courthouses, as well as technology
infrastructure that would allow for
remote delivery of public benefits.

Others also asked about whether funds
could be used to renovate vacant
business district buildings or
commercial spaces to spur economic
recovery.

Treasury Response: Capital
expenditures, in certain cases, can be
appropriate responses to the public
health and economic impacts of the
pandemic, in addition to programs and
services. Like other eligible uses of
SLFRF funds in this category, capital
expenditures should be a related and
reasonably proportional response to a
public health or negative economic
impact of the pandemic. The final rule
clarifies and expands how SLFRF funds
may be used for certain capital
expenditures, including criteria and
documentation requirements specified
in this section, as applicable.

Treasury provides presumptions and
guidelines for capital expenditures that
are enumerated earlier in sections
Public Health, Negative Economic
Impacts, and General Provisions: Other
under the Public Health and Negative
Economic Impact eligible use category
("enumerated projects"), along with
capital expenditures beyond those
enumerated by Treasury. In addition to
satisfying the two-part framework in
Standards: Designating a Public Health
Impact and Standards: Designating a
Negative Economic Impact for
identifying and designing a response to
a pandemic harm, Treasury will require
projects with total expected capital
expenditure costs of $1 million or
greater to undergo additional analysis to
justify their capital expenditure.

Increased reporting requirements will be
required for projects that are larger in
size, as well as projects that are not
enumerated as eligible by Treasury,
with certain exceptions for Tribal
governments discussed below. Smaller
projects with total expected capital
expenditures below $1 million will not
be required to undergo additional
analysis to justify their capital
expenditure, as such projects will be
presumed to be reasonably proportional,
provided that they are responding to a
harm caused or exacerbated by the
public health emergency. These
standards and documentation
requirements are designed to minimize
administrative burden while also
ensuring that projects are reasonably
proportional and supporting Treasury's
risk -based approach to overall program
management and monitoring.

This section provides (1) an overview
of general standards governing capital
expenditures; (2) presumptions on
capital expenditures, which help guide
recipients in determining whether the
expenditure meets the standards and the
associated documentation requirements;
and (3) additional standards and
requirements that may apply.

4390 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations Overview of General Standards
In considering whether a capital
expenditure would be eligible under the
public health and negative economic
impacts eligible use category, recipients
must satisfy the requirements for all
uses under the public health and
negative economic impacts eligible use
category, including identifying an
impact or harm and designing a
response that addresses or responds to
the identified impact or harm.

Responses must be reasonably designed
to benefit the individual or class that
experienced the impact or harm and
must be related and reasonably
proportional to the extent and type of
impact or harm. Recipients should
consult further details on this standard
provided in the sections Standards:

Designating a Public Health Impact and
Standards: Designating a Negative
Economic Impact under General
Provisions: Structure and Standards.

In addition to the framework
described above, for projects with total
expected capital expenditures of $1
million or greater, recipients must
complete and meet the substantive
requirements of a Written Justification
for their capital expenditure, except for
Tribal governments as discussed below.

This Written Justification helps clarify
the application of this interpretive
framework to capital expenditures,
while recognizing that the needs of
communities differ. In particular, this
justification reflects the fact that the
time required for a large construction
project may make capital expenditures
less responsive to pandemic -related
needs relative to other types of
responses. In addition, as discussed in
section Timeline for Use of SLFRF
Funds of this Supplemental
Information, SLFRF funds must be
obligated by December 31, 2024 and
expended by December 31, 2026.

Capital expenditures may involve long
lead-times, and the Written Justification
may support recipients in analyzing
proposed capital expenditures to
confirm that they conform to the
obligation and expenditure timing
requirements. Further, such large
projects may be less likely to be
reasonably proportional to the harm
identified. For example, construction of
a new, larger public facility for the
purpose of increasing the ability to
socially distance generally would not be
considered a reasonably proportional
response compared to other less time -
and resource -intensive options that may
be available and would be equally or
more effective. Other solutions, such as
improvements in ventilation, could be
made more quickly and are typically
more cost effective than construction of
a new, larger facility. The needs of
communities differ, and recipients are
responsible for identifying uses of
SLFRF funds that best respond to these
needs. The Written Justification
recognizes this while also establishing
consistent documentation and reporting
to support monitoring and compliance
with the ARPA and final rule. Finally,
the Written Justification also reflects the
fact that infrastructure projects are
generally not within scope of this
eligible use category. See section Uses
Outside the Scope of this Category in
General Provisions: Other.

As noted above, Tribal governments
are not required to complete the Written
Justification for projects with total
capital expenditures of $1 million or
greater. Tribal governments generally
have limited administrative capacity
due to their small size and
corresponding limited ability to
supplement staffing for short-term
programs. In addition, Tribal
governments are already subject to
unique considerations that require
additional administrative processes and
administrative burden for Tribal
government decision making, including
capital expenditures. Tribal
governments generally are subject to a
jurisdictionally complex sets of rules
and regulations in the case of
improvements to land for which the title
is held in trust by the United States for
a Tribe (Tribal Trust Lands).250 This
includes the requirement in certain
circumstances to seek the input or
approval of one or more federal agencies
such the Department of the Interior,
which holds fee title of Tribal Trust
Lands.

As a result of their limited
administrative capacity and unique and
complex rules and regulations
applicable to Tribal governments
operating on Tribal Trust Lands, Tribal
governments would experience
significant and redundant
administrative burden by also being
required to complete a Written
Justification for applicable capital
expenditures. While Tribal governments
are not required to complete the Written
Justification for applicable capital
expenditures, the associated substantive
requirements continue to apply,
including the requirement that a capital
expenditure must be reasonably
designed to benefit the individual or
class that experienced the identified
impact or harm and must be related and
reasonably proportional to the extent
and type of impact or harm. Note that,
as a general matter, Treasury may also
25° See 25 U.S.C. 5108.
request further information on SLFRF
expenditures and projects, including
capital expenditures, as part of the
regular SLFRF reporting and
compliance process, including to assess
their eligibility under the final rule.

The Written Justification should (1)
describe the harm or need to be
addressed; (2) explain why a capital
expenditure is appropriate to address
the harm or need; and (3) compare the
proposed capital expenditure against
alternative capital expenditures that
could be made. The information
required for the Written Justification
reflects the framework applicable to all
uses under the public health and
negative economic impacts eligible use
category, providing justification for the
reasonable design, relatedness, and
reasonable proportionality of the capital
expenditure in response to the harm or
impact identified.

1. Description of harm or need to be
addressed: Recipients should provide a
description of the specific harm or need
to be addressed, and why the harm was
exacerbated or caused by the public
health emergency. When appropriate,
recipients may provide quantitative
information on the extent and type of
the harm, such as the number of
individuals or entities affected.

2. Explanation of why a capital
expenditure is appropriate: Recipients
should provide an independent
assessment demonstrating why a capital
expenditure is appropriate to address
the specified harm or need. This should
include an explanation of why existing
capital equipment, property, or facilities
would be inadequate to addressing the
harm or need and why policy changes
or additional funding to pertinent
programs or services would be
insufficient without the corresponding
capital expenditures. Recipients are not
required to demonstrate that the harm or
need would be irremediable but for the
additional capital expenditure; rather,
they may show that other interventions
would be inefficient, costly, or
otherwise not reasonably designed to
remedy the harm without additional
capital expenditure.

3. Comparison of the proposed capital
expenditure against alternative capital
expenditures: Recipients should provide
an objective comparison of the proposed
capital expenditure against at least two
alternative capital expenditures and
demonstrate why their proposed capital
expenditure is superior to alternative
capital expenditures that could be
made. Specifically, recipients should
assess the proposed capital expenditure
against at least two alternative types or
sizes of capital expenditures that are
potentially effective and reasonably

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4391
feasible. Where relevant, recipients
should compare the proposal against the
alternative of improving existing capital
assets already owned or leasing other
capital assets. Recipients should use
quantitative data when available,
although they are encouraged to
supplement with qualitative
information and narrative description.

Recipients that complete analyses with
minimal or no quantitative data should
provide an explanation for doing so.

In determining whether their
proposed capital expenditure is superior
to alternative capital expenditures,
recipients should consider the following
factors against each selected alternative.
a. A comparison of the effectiveness of
the capital expenditures in addressing
the harm identified. Recipients should
generally consider the effectiveness of
the capital expenditures in addressing
the harm over the useful life of the
capital asset and may consider metrics
such as the number of impacted or
disproportionately impacted individuals
or entities served, when such
individuals or entities are estimated to
be served, the relative time horizons of
the project, and consideration of any
uncertainties or risks involved with the
capital expenditure.
b. A comparison of the expected total
cost of the capital expenditures.

Recipients should consider the expected
total cost of the capital expenditure
required to construct, purchase, install,
or improve the capital assets intended to
address the public health or negative
economic impact of the public health
emergency. Recipients should include
pre -development costs in their
calculation and may choose to include
information on ongoing operational
costs, although this information is not
required.

Recipients should balance the
effectiveness and costs of the proposed
capital expenditure against alternatives
and demonstrate that their proposed
capital expenditure is superior. Further,
recipients should choose the most cost-
effective option unless it substantively
reduces the effectiveness of the capital
investment in addressing the harm
identified.

As an example, a recipient
considering building a new diagnostic
testing laboratory to enhance COVID-19
testing capacity may consider whether
existing laboratories sufficiently meet
demand for COVID-19 testing,
considering the demand for test results
(along with their turnaround time) as
well as the impact of current testing
availability on the spread of COVID-19.

Recipients may also consider other
public health impacts of the level of
diagnostic testing capacity, for example
if insufficient capacity has decreased
testing for other health conditions. The
recipient may consider alternatives such
as expanding existing laboratories or
building a laboratory of a different size.

In comparing the effectiveness of the
capital expenditures, examples of
factors that the recipient may consider
include when the facilities will become
operational and for how long; the daily
throughput of COVID-19 tests; and the
effect on minimizing delays in test
results on the populations that such
tests will serve. In comparing costs, the
recipient may compare the total
expected cost of the new laboratory
(including costs of acquisition of real
property, construction of the laboratory,
and purchase of any necessary
equipment needed to operationalize the
lab), against the expected costs of
expanding existing laboratories
(whether by replacing current
equipment with higher throughout
devices or physically expanding space
to accommodate additional capacity) or
building a new laboratory of a different
size, including by leasing property. As
a reminder, recipients should only
consider alternatives that are potentially
effective and reasonably feasible.

Because, in all cases, uses of SLFRF
funds to respond to public health and
negative economic impacts of the
pandemic must be related and
reasonably proportional to a harm
caused or exacerbated by the pandemic,
some capital expenditures may not
eligible. For example, constructing a
new correctional facility would
generally not be a proportional response
to an increase in the rate of certain
crimes or overall crime as most
correctional facilities have historically
accommodated fluctuations in
occupancy.251 In addition, construction
of new congregate facilities, which
would generally be expected to involve
expenditures greater than $1 million,
would generally not be a proportional
response to mitigate or prevent COVID-
19, because such construction is
generally expected to be more costly
than alternative approaches or capital
expenditures that may be equally or
more effective in decreasing spread of
251 See, e.g., "Economic Perspectives on
Incarceration and the Criminal Justice System,"
Council of Economic Advisers (April 2016), pg. 36-

43. the disease.252 These alternatives
include personal protective equipment,
ventilation improvements, utilizing
excess capacity in other facilities or
wings, or temporary facility capacity
expansions.

Large capital expenditures intended
for general economic development or to
aid the travel, tourism, and hospitality
industries —such as convention centers
and stadiums —are, on balance,
generally not reasonably proportional to
addressing the negative economic
impacts of the pandemic, as the efficacy
of a large capital expenditure intended
for general economic development in
remedying pandemic harms may be very
limited compared to its cost.253
Presumptions on Capital Expenditures
For administrative convenience, the
final rule provides presumptions on
whether a Written Justification is
required —and required to be submitted
to Treasury through reporting —based on
the type and size of the capital
expenditure, as detailed in the table
below.

As discussed above, Tribal
governments are not required to
complete the Written Justification for
applicable capital expenditures, but the
associated substantive requirements
continue to apply, including the
requirement that a capital expenditure
must be reasonably designed to benefit
the individual or class that experienced
the identified impact or harm and must
be related and reasonably proportional
to the extent and type of impact or
harm.
252 For instance, the CDC has published detailed
recommendations for nursing homes, long-term care
facilities, and correctional and detention facilities,
on infection prevention and control. Many of these
recommendations are relatively low cost, such as
proper use of PPE. In addition, increasing
vaccination rates among nursing home staff is
among the most important ways to decrease the
spread of the disease. Centers for Disease Control
and Prevention, Interim Infection Prevention and
Control Recommendations to Prevent SARS—CoV-
2 Spread in Nursing Homes (September 10, 2021),
https://www.cdc.gov/coronavirus/2019-ncov/hcp/
l ong-term-care.h tml#anchor_ 1 631 0301 5301 7.
253 For instance, researchers have found no
consistent positive relationship between building
sports facilities and local economic development.

As Siegfried and Zimbalist (2000, 103) write in a
review of the literature, "independent work on the
economic impact of stadiums and arenas has
uniformly found that there is no statistically
significant positive correlation between sports
facility construction and economic development."
John Siegfried and Andrew Zimbalist, The
Economics of Sports Facilities and Their
Communities, Journal of Economic Perspectives 14,
no. 3 (Summer 2000): 95-114, https://
www.aeaweb.org/articles?id=10.1257/jep.14.3.95 .

4392 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations If a project has total expected cap-
ital expenditures of
and the use is enumerated by Treasury as eligible,
then 254
and the use is beyond those enumerated by Treas-
ury as eligible, then 255
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.

In selecting these thresholds, Treasury
recognized that capital expenditures
vary widely in size and therefore would
benefit from tiered treatment to
implement eligibility standards while
minimizing administrative burden,
especially for smaller projects. For
example, Treasury selected $1 million
as a threshold for whether a recipient
needs to complete a Written
Justification as well as a threshold
under which capital expenditures
would be presumed reasonably
proportional. Treasury estimates that $1
million would encapsulate the costs of
a significant portion of equipment or
small renovations. These types of
smaller projects are often a necessary
and reasonably proportional part of a
response to the public health
emergency; therefore, the $1 million
threshold provides a simplified pathway
to complete smaller projects more likely
to meet the eligibility standard. At the
same time, Treasury selected $10
million as the threshold for more
intensive reporting requirements,
estimating that projects larger than $10
million would likely constitute
significant improvements or
construction of mid- or large -sized
facilities. As discussed above, given
their scale and longer time to
completion, these types of larger
254 Whether or not a Written Justification is
required, recipients should still determine that the
response is related and reasonably proportional to
the public health emergency and its negative
economic impacts. Treasury recognizes that
enumerated eligible uses are "related" to the public
health emergency and its negative economic
impacts and presumed to be reasonably
proportional, except recipients pursuing projects
with expected total capital expenditures equal to or
greater than $1 million should still independently
determine that the expenditures are a reasonably
proportional response. Enumerated projects with
total expected capital expenditures under $1
million receive a safe harbor and deemed to meet
the related and reasonably proportional standard.
255 Whether or not a Written Justification is
required, recipients should still determine that the
response is related and reasonably proportional to
the public health emergency and its negative
economic impacts. Treasury presumes that projects
with total expected capital expenditures under $1
million are reasonably proportional in size to
responding to the public health emergency and its
negative economic impacts; however, recipients
should determine that the response otherwise meets
the requirements of the standard, including that the
response is related to the public health emergency
and its negative economic impacts.
projects may be less likely to be
reasonably proportional responses. The
$10 million threshold also generally
aligns with thresholds in other parts of
the SLFRF program, such as for
enhanced reporting on labor practices.

Expenditures from closely related
activities directed toward a common
purpose are considered part of the scope
of one project. These expenditures can
include capital expenditures, as well as
expenditures on related programs,
services, or other interventions. A
project includes expenditures that are
interdependent (e.g., acquisition of land,
construction of the school on the land,
and purchase of school equipment), or
are of the same or similar type and
would be utilized for a common
purpose (e.g., acquisition of a fleet of
ambulances that would be used for
COVID-19 emergency response).

Recipients must not segment a larger
project into smaller projects in order to
evade review. A recipient undertaking a
set of identical or similar projects (e.g.,
development of a number of new
affordable housing complexes across the
recipient jurisdiction) may complete
one Written Justification
comprehensively addressing the entire
set of projects.

Projects Enumerated as Eligible by
Treasury
Under the public health and negative
economic impacts eligible use category,
the final rule provides a non-exclusive
list of eligible uses of funding for
projects that respond to the public
health emergency or its negative
economic impacts. Treasury has
determined that these enumerated
projects are related to the public health
emergency and its negative economic
impacts; however, recipients (other than
Tribal governments) undertaking these
projects with total expected capital
expenditures of $1 million or greater
must still complete and meet the
substantive requirements of a Written
Justification as part of their
demonstration that the project is a
related and reasonably proportional
response to the harm identified.

Projects with total expected capital
expenditures of under $1 million:

Treasury provides a safe harbor for
projects with total expected capital
expenditures of less than $1 million and
will not require recipients to complete,
submit, or meet the substantive
requirements of a Written Justification
for the capital expenditure. In essence,
recipients may pursue an enumerated
project with total expected capital
expenditures of under $1 million
without having to undergo additional
assessments to meet SLFRF
requirements.
❑ Projects with total expected capital
expenditures of at least $1 million but
under $10 million: Recipients should
complete a Written Justification for the
capital expenditure and make an
independent assessment of whether
their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Recipients will
not be required to submit the Written
Justification as part of regular reporting
to Treasury but should keep
documentation for their records.
❑ Projects with total expected capital
expenditures of at least $10 million:

Similar to the above, recipients should
complete a Written Justification of the
capital expenditure and make an
independent assessment of whether
their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Further,
recipients will be asked to submit the
Written Justification as part of regular
reporting to Treasury. Similar to other
parts of the SLFRF program, such as on
reporting on labor practices, Treasury
recognizes that projects with expected
total capital expenditures of at least $10
million may be less likely to meet
eligibility requirements and therefore
requires recipients to provide an
enhanced level of information to
Treasury.

Projects Beyond Those Enumerated as
Eligible by Treasury
As with all uses, recipients that
undertake capital expenditures beyond
those enumerated as eligible by
Treasury must meet the two-part
framework under Standards:

Designating a Public Health Impact and
Standards: Designating a Negative
Economic Impact under General
Provisions: Structure and Standards,

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4393 including the requirement that
responses are related and reasonably
proportional to the harm or impact
identified. As part of that assessment,
these recipients may also be asked to
complete a Written Justification.

Recipients (other than Tribal
governments) are subject to the
following presumptions for the Written
Justification of the capital expenditure,
based on the total expected capital
expenditures of the project:
❑ Projects with total expected capital
expenditures of under $1 million:

Treasury provides a safe harbor for
unenumerated projects with total
expected capital expenditures of under
$1 million and will not require
recipients to complete, submit, or meet
the substantive requirements of a
Written Justification of the capital
expenditure. Recipients should still
make a determination as to whether the
capital expenditure is part of a response
that is related and reasonably
proportional to the public health
emergency or its negative economic
impacts.
❑ Projects with total expected capital
expenditures of $1 million or over:

Recipients should complete a Written
Justification of the capital expenditure
and make an independent assessment
that their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Further,
recipients will be asked to submit the
Written Justification as part of regular
reporting to Treasury.

Treasury employs a risk -based
approach to overall program
management and monitoring, which
may result in heightened scrutiny on
larger projects. Accordingly, recipients
pursuing projects with larger capital
expenditures should complete more
detailed analyses for their Written
Justification, commensurate with the
scale of the project.

Additional Provisions, Standards, and
Definitions
Strong Labor Standards in Construction
Treasury encourages recipients to
carry out projects in ways that produce
high -quality work, avert disruptive and
costly delays, and promote efficiency.

Treasury encourages recipients to use
strong labor standards, including project
labor agreements (PLAs) and
community benefits agreements that
offer wages at or above the prevailing
rate and include local hire provisions.

Treasury also recommends that
recipients prioritize in their
procurement decisions employers who
can demonstrate that their workforce
meets high safety and training standards
(e.g., professional certification,
licensure, and/or robust in-house
training), that hire local workers and/or
workers from historically underserved
communities, and who directly employ
their workforce or have policies and
practices in place to ensure contractors
and subcontractors meet high labor
standards. Treasury further encourages
recipients to prioritize employers
(including contractors and
subcontractors) without recent
violations of federal and state labor and
employment laws.

Treasury believes that such practices
will promote effective and efficient
delivery of high -quality projects and
support the economic recovery through
strong employment opportunities for
workers. Such practices will reduce
likelihood of potential project
challenges like work stoppages or safety
accidents, while ensuring a reliable
supply of skilled labor and minimizing
disruptions, such as those associated
with labor disputes or workplace
injuries. That will, in turn, promote on -
time and on -budget delivery.

Furthermore, among other
requirements contained in 2 CFR 200,
Appendix II, all contracts made by a
recipient or subrecipient in excess of
$100,000 with respect to a capital
expenditure that involve employment of
mechanics or laborers must include a
provision for compliance with certain
provisions of the Contract Work Hours
and Safety Standards Act, 40 U.S.C.
3702 and 3704, as supplemented by
Department of Labor regulations (29
CFR part 5).

Treasury will seek information from
recipients on their workforce plans and
practices related to capital expenditures
undertaken under the public health and
negative economic impacts eligible use
category with SLFRF funds. This
reporting will support transparency and
competition by enhancing available
information on the services being
provided.

Environmental, Uniform Guidance, and
Other Generally Applicable
Requirements
Treasury cautions that, as is the case
with all projects using SLFRF funds, all
projects must comply with applicable
federal, state, and local law. In the case
of capital expenditures in particular,
this includes environmental and
permitting laws and regulations.

Likewise, as with all capital expenditure
projects using the SLFRF funds, projects
must be completed in a manner that is
technically sound, meaning that it must
meet design and construction methods
and use materials that are approved,
codified, recognized, fall under standard
or acceptable levels of practice, or
otherwise are determined to be
generally acceptable by the design and
construction industry.

Further, as with all other uses of
funds under the SLFRF program, the
Uniform Guidance at 2 CFR part 200
applies to capital expenditures unless
stated otherwise. Importantly, this
includes 2 CFR part 200 Subpart D on
post -federal award requirements,
including property standards pertaining
to insurance coverage, real property,
and equipment; procurement standards;
sub -recipient monitoring and
management; and record retention and
access.

Definitions
Treasury adopts several definitions
from the Uniform Guidance at 2 CFR
200.1 under this section, including for
capital expenditures, capital assets,
equipment, and supplies.

Per the Uniform Guidance, the term
"capital expenditures" means
"expenditures to acquire capital assets
or expenditures to make additions,
improvements, modifications,
replacements, rearrangements,
reinstallations, renovations, or
alterations to capital assets that
materially increase their value or useful
life." The term "capital assets" means
"tangible or intangible assets used in
operations having a useful life of more
than one year which are capitalized in
accordance with [Generally Accepted
Accounting Principles]."
Capital assets include lands, facilities,
equipment, and intellectual property.

Equipment means "tangible personal
property (including information
technology systems) having a useful life
of more than one year and a per -unit
acquisition cost which equals or
exceeds the lesser of the capitalization
level established by the non -Federal
entity for financial statement purposes,
or $5,000." Supplies, which means all
tangible personal property other than
those included as "equipment," are not
considered capital expenditures.

Recipients may also use SLFRF funds
for pre -project development costs that
are tied to or reasonably expected to
lead to an eligible capital expenditure.

For example, pre -project costs
associated with planning and
engineering for an eligible project are
considered an eligible use of funds.
c. Distinguishing Subrecipients Versus
Beneficiaries
Under the interim final rule, state,
local, and Tribal governments that
receive a federal award directly from a
federal awarding agency, such as
Treasury, are designated as "recipients,"

4394 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations and state, local, and Tribal governments
are authorized to transfer funds to other
entities, including private entities like
nonprofits. The interim final rule stated
that, "[a] transferee receiving a transfer
from a recipient under sections 602(c)(3)
and 603(c)(3) will be a subrecipient.

Subrecipients are entities that receive a
subaward from a recipient to carry out
a program or project on behalf of the
recipient with the recipient's Federal
award funding."
For funds transferred to a
subrecipient, the interim final rule
noted that "[r]ecipients continue to be
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
terms and conditions of the award.

Recipients also remain responsible for
reporting to Treasury on their
subrecipients' use of payments from the
SLFRF funds for the duration of the
award."
Public Comment: Treasury received
many comments requesting clarification
about which entities qualify as
subrecipients and are, in turn, subject to
subrecipient monitoring and reporting
requirements. For example, commenters
sought clarification about whether a
nonprofit that received a grant to
provide services under a program to
carry out an enumerated eligible use
would qualify as a subrecipient and be
subject to subrecipient monitoring and
reporting requirements. Similarly,
commenters also wondered if a
nonprofit that received a grant in
recognition of experiencing a negative
economic impact of the public health
emergency would also be a subrecipient
and subject to subrecipient reporting
requirements.

Treasury Response: Treasury is
clarifying the distinction between a
subrecipient and beneficiary in the final
rule. The Uniform Guidance definitions
for subaward and subrecipient inform
Treasury's distinction between
subrecipients and beneficiaries.

First, per 2 CFR 200.1 of Uniform
Guidance "[s]ubaward means an award
provided by a pass -through entity 256 to
a subrecipient for the subrecipient to
carry out part of a Federal award
received by the pass -through entity. It
does not include payments to a
contractor or payments to an individual
that is a beneficiary of a Federal
program. A subaward may be provided
through any form of legal agreement,
2561n this context, a pass -through entity means a
recipient of SLFRF funds.
including an agreement that the pass -
through entity considers a contract."
Further, 2 CFR 200.1 of the Uniform
Guidance defines a subrecipient, in that
"[s]ubrecipient 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
recipient of other Federal awards
directly from a Federal awarding
agency." Treasury is aligning the
definition of subrecipient in the final
rule with the definition of subrecipient
in the Uniform Guidance.

Treasury is maintaining the
monitoring and subrecipient reporting
requirements outlined in the final rule.

Per 2 CFR 200.101 (b)(2) of the Uniform
Guidance, the terms and conditions of
federal awards flow down to subawards
to subrecipients. Therefore, non-federal
entities, as defined in the Uniform
Guidance, must comply with the
applicable requirements in the Uniform
Guidance regardless of whether the non-
federal entity is a recipient or
subrecipient of a federal award. This
includes requirements such as the
treatment of eligible uses of funds,
procurement, and reporting
requirements.

The Uniform Guidance definitions for
both subaward and subrecipient specify
that payments to individuals or entities
that are direct beneficiaries of a federal
award are not considered subrecipients.

The final rule adopts this definition of
a beneficiary and outlines that
households, communities, small
businesses, nonprofits, and impacted
industries are all potential beneficiaries
of projects carried out with SLFRF
funds. Beneficiaries are not subject to
the requirements placed on
subrecipients in the Uniform Guidance,
including audit pursuant to the Single
Audit Act and 2 CFR part 200, subpart
F or subrecipient reporting
requirements.

The distinction between a
subrecipient and a beneficiary,
therefore, is contingent upon the
rationale for why a recipient is
providing funds to the individual or
entity. If the recipient is providing
funds to the individual or entity for the
purpose of carrying out a SLFRF
program or project on behalf of the
recipient, the individual or entity is
acting as a subrecipient. Acting as a
subrecipient, the individual or entity is
subject to subrecipient monitoring and
reporting requirements. Conversely, if
the recipient is providing funds to the
individual or entity for the purpose of
directly benefitting the individual or
entity as a result of experiencing a
public health impact or negative
economic impact of the pandemic, the
individual or entity is acting as a
beneficiary. Acting as a beneficiary, the
individual or entity is not subject to
subrecipient monitoring and reporting
requirements.
d. Uses Outside the Scope of This
Category
Summary of the Interim Final Rule and
Final Rule Structure
In the interim final rule, Treasury
noted that certain uses of funds are not
permissible under the eligible use
category of responding to the public
health and negative economic impacts
of the pandemic. In the final rule, these
uses remain impermissible, but
Treasury has re -categorized where they
are addressed to increase clarity.

Specifically, the interim final rule
provided that the following uses of
funds are not eligible under this eligible
use category: Contributions to rainy day
funds, financial reserves, or similar
funds; payment of interest or principal
on outstanding debt instruments; fees or
issuance costs associated with the
issuance of new debt; and satisfaction of
any obligation arising under or pursuant
to a settlement agreement, judgment,
consent decree, or judicially confirmed
debt restructuring plan in a judicial,
administrative, or regulatory
proceeding, except to the extent the
judgment or settlement requires the
provision of services that would
respond to the COVID-19 public health
emergency. These uses of funds remain
ineligible under the final rule; Treasury
has re -categorized these issues to the
section Restrictions on Use, which
describes restrictions that apply to all
eligible use categories, to clarify that
these uses are not eligible under any
eligible use category of SLFRF. Treasury
responds to public comments on this
issue in the section Restrictions on Use.

As noted above, the interim final rule
also posed several questions on what
other types of services or costs Treasury
should consider as eligible uses to
respond to the public health and
negative economic impacts of COVID-
19, including in disproportionately
impacted communities. In this section,
Treasury addresses proposed uses of
funds suggested by commenters that
Treasury has not included as
enumerated eligible uses of funds in this
eligible use category.

General Eligible Uses
Public Comment: Commenters
proposed a wide variety of additional
recommended enumerated eligible uses

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4395 in all sections of the public health and
negative economic impacts eligible use
category, including in impacted and
disproportionately impacted
communities. The proposed additional
uses included general categories of
services (e.g., legal and social services,
long-term investments to remediate
long-term disparities, response to
natural disasters). Other suggested uses
of funds respond to needs widely
experienced across the country (e.g.,
access to and affordability of health
insurance). Finally, other suggested uses
of funds were highly specific (e.g.,
healthcare equipment for a specific
health condition, fire hydrants, weather
alert systems) or most applicable to the
particularized needs to certain
populations or geographic areas of the
United States (e.g., senior citizens,
immigrants, formerly incarcerated
individuals, responding to
environmental issues in certain
geographic regions). Other commenters
generally requested a high degree of
flexibility to respond to the particular
needs of their communities.

Treasury Response: Given the large
number and diversity of SLFRF
recipients, Treasury has aimed to
include as enumerated eligible uses
programs, services, and capital
expenditures that respond to public
health and negative economic impacts
of the pandemic experienced widely in
many jurisdictions across the country,
making it clear and simple for recipients
to pursue these enumerated eligible uses
under the final rule. This provides
enumerated eligible uses that many
recipients may want to pursue, while
including uses that are responsive to the
pandemic's impacts across the diverse
range of SLFRF recipients. In the final
rule, Treasury has clarified several
additional uses that generally respond
to pandemic impacts experienced
broadly across jurisdictions and
populations.

Treasury has not chosen to include as
enumerated uses all uses proposed by
commenters; given the significant range,
and in some cases highly specific
nature, of the proposed uses Treasury
was not able to assess that the proposed
uses would respond to negative
economic impacts experienced
generally across the country, supporting
an enumerated eligible use available to
all recipients presumptively.

However, Treasury emphasizes that
the enumerated eligible uses are non -
exhaustive and that other uses, beyond
those enumerated, are eligible. Treasury
recognizes that the impacts of the
pandemic vary over time, by
jurisdiction, and by population; as such,
the final rule provides flexibility for
recipients to identify other public health
or negative economic impacts to
additional households, small
businesses, or nonprofits, including
classes of these entities, and pursue
programs and services that respond to
those impacts. Treasury also notes that
some populations are presumed to be
impacted or disproportionately
impacted by the pandemic, and thus
eligible for responsive services; these
presumed eligible populations may
encompass many individuals in the
specific populations for whom
commenters recommended services. For
details on these issues, see section
General Provisions: Structure and
Standards.

Infrastructure, Community
Development, and General Economic
Development
Some potential additions to
enumerated eligible uses were also
recommended by several commenters
each but are not included as enumerated
eligible uses in the final rule.

Public Comment: Infrastructure: In
the interim final rule, Treasury noted
that a "general infrastructure project, for
example, typically would not be
included [in this eligible use category]
unless the project responded to a
specific pandemic public health need."
Numerous commenters requested that
Treasury permit investments in
infrastructure as a response to the
public health and negative economic
impacts of the pandemic. While these
comments most commonly
recommended that constructing and
maintaining roads and surface
transportation infrastructure be eligible,
the proposed uses for infrastructure
ranged widely and included parking
lots, bridges, traffic management
infrastructure, solid waste disposal
facilities, and utility infrastructure
(outside of water, sewer, and
broadband).

Many commenters argued that
infrastructure development and
maintenance is a pressing need in their
communities and that their
communities had less need for water,
sewer, and broadband infrastructure or
other eligible uses to respond to the
public health and negative economic
impacts of the pandemic. Other
commenters argued that these uses
would stimulate the economy, attract
businesses, or allow for tourist
movement; these commenters argued
that, by generally supporting a stronger
economy or facilitating conditions that
are more conducive to business activity
and tourism, these uses respond to the
negative economic impacts of the
pandemic.

Treasury Response: In the final rule,
Treasury is maintaining the approach
under the interim final rule that general
infrastructure projects, including roads,
streets, and surface transportation
infrastructure, would generally not be
eligible, unless the project responded to
a specific pandemic public health need
or a specific negative economic impact.

The ARPA expressly includes
infrastructure if it is "necessary" and in
water, sewer, or broadband, suggesting
that the statute contemplates only those
types of infrastructure. Further,
responding to the public health and
negative economic impacts of the
pandemic requires identifying whether,
and the extent to which, there has been
a harm that resulted from the COVID-
19 public health emergency and
whether, and the extent to which, the
use would respond or address this
harm. Uses of funds intended to
generally grow the economy and
therefore enhance opportunities for
workers and businesses would not be an
eligible use, because such assistance is
not reasonably designed to impact
individuals or classes that have been
identified as having experienced a
negative economic impact. In other
words, there is not a reasonable
connection between the assistance
provided and an impact on the
beneficiaries. Such an activity would be
attenuated from and thus not reasonably
designed to benefit the households that
experienced the negative economic
impact.

Note, however, that Treasury has
clarified that capital expenditures that
are related and reasonably proportional
to responding to the public health and
economic impacts of the pandemic are
eligible uses of funds, in addition to
programs and services; for details on
eligibility criteria for capital
expenditures, see section Capital
Expenditures in General Provisions:

Other.

Public Comment: Community
Development Block Grant: Several
commenters recommended that
Treasury enumerate as eligible uses
those eligible under the Department of
Housing and Urban Development's
Community Development Block Grant
(CDBG) or the Housing and Community
Development Act of 1974, which
established the CDBG program.

Commenters requested that these uses
be eligible either to respond to the
negative economic impacts of the
pandemic, or in the alternate the
disproportionate negative economic
impacts of the pandemic in certain
communities. Under the CDBG program,
recipient governments may undertake a
wide range of community and economic

4396 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations development services and projects.

Commenters reasoned that many state
and local governments are familiar with
this program, and that aligning to its
eligible uses may help recipients easily
understand and pursue eligible projects.

Commenters also noted that Treasury
had chosen to align with existing federal
programs in other eligible use
categories, namely water infrastructure,
in the interim final rule.

Treasury Response: In the final rule,
Treasury is not including all categories
of projects permissible under CDBG as
enumerated eligible uses to respond to
the public health and negative economic
impacts of the pandemic. Because CDBG
permits such a broad range of activities,
including services to individual
households, communities, small
businesses, general economic
development activities, and capital
expenditures, Treasury determined that
it was more appropriate to assess the
underlying types of projects eligible
within CDBG and whether each type of
project responds to the negative
economic impacts of the pandemic. In
other words, Treasury considered
whether various types of community
and economic development projects
respond to the impacts of the pandemic
in different communities and
circumstances. In the final rule,
Treasury addresses the eligibility of
these various types of projects in each
relevant eligible use category within
public health and negative economic
impacts under SLFRF, including
assistance for impacted households,
disproportionately impacted
households, disproportionately
impacted small businesses, and capital
expenditures.

Public Comment: General Economic
Development: Treasury provided
guidance following the interim final
rule that general economic development
or workforce development would
generally not be eligible as it does not
respond to a negative economic impact
of the COVID-19 public health
emergency.

Some commenters recommended that
Treasury expand enumerated eligible
uses to include general economic
development activities, beyond those
that respond to negative economic
impacts of the pandemic, such as
creating an economic development
strategy for the jurisdiction's overall
economic growth, creating a general
workforce development strategy, or
providing funds to businesses that did
not experience negative economic
impacts to carry out economic
development activities or to incentivize
the addition or retention of jobs.

Commenters supportive of assistance to
businesses for general economic
development activities argued that
subsidies to businesses increase job
growth and that, in some cases,
assistance to companies that excelled
during the public health emergency
would help create more job
opportunities for workers or expand the
jurisdiction's tax base and produce
funds to support government services.

In contrast, other commenters argued
that academic research consistently
finds that economic development
subsidies have a negligible, or even
negative, economic effect, citing
research findings to this effect.257
Treasury Response: In the final rule,
Treasury maintains the interim final
rule's approach that general economic
development or workforce development,
meaning activities that do not respond
to negative economic impacts of the
pandemic and rather seek to more
generally enhance the jurisdiction's
business climate, would generally not
be eligible under this eligible use
category. As noted above, to identify an
eligible use of funds under this category,
a recipient must identify a beneficiary
or class of beneficiaries that experienced
a harm or impact due to the pandemic,
and eligible uses of funds must be
257 See, e.g., Matthew D. Mitchell et al., The
Economics of a Targeted Economic Development
Subsidy (Arlington, VA: Mercatus Center at George
Mason University, 2019), 5, available at https://
www.mercatus . org/publications/government-
spending/economics-targeted-economic-
development-subsidy; Timothy J. Bartik, Who
Benefits from Economic Development Incentives?
How Incentive Effects on Local Incomes and the
Income Distribution Vary with Different
Assumptions about Incentive Policy and the Local
Economy (Upjohn Institute Technical Report No.
13-034, W.E. Upjohn Institute for Employment
Research, March 1, 2018), available at: https://
research.upjohn.org/up_technicalreports/34/; Cailin
Slattery and Owen Zidar, Evaluating State and
Local Business Tax Incentives, Journal of Economic
Perspectives 34, no. 2 (2020): 90-118, available at:
https://www.aeaweb.org/articles?id=10.1257/
jep.34.2.90; Kenneth Thomas, The State of State and
Local Subsidies to Business (Mercatus Policy Brief,
Mercatus Center at George Mason University,
Arlington, VA, October 2019), available at: https://
www.mercatus.org/system/files/thomas_-policy_
brief-_the_state_of state_and_local_subsidies_to_
business_-_v1.pdf Dennis Coates, Growth Effects of
Sports Franchises, Stadiums, and Arenas: 15 Years
Later (Mercatus Working Paper, Mercatus Center at
George Mason University, Arlington, VA,
September 2015), available at: https://
www.mercatus.org/system/files/Coates-Sports-
Franchises.pdf, Dennis Coates and Brad R.

Humphreys, Do Economists Reach a Conclusion on
Subsidies for Sports Franchises, Stadiums, and
Mega -Events?, Econ Journal Watch 5, no. 3 (2008):
294-315, available at: https://econjwatch.org/
articles/do-economists-reach-a-conclusion-on-
subsidiesfor-sports-franchises-stadiums-and-mega-
events; Matthew D. Mitchell, Daniel Sutter, and
Scott Eastman, The Political Economy of Targeted
Economic Development Incentives, Review of
Regional Studies 48, no. 1 (2018): 1-9, available at:
https://www.mercatus . org/publications/corporate-
wel fare/political-economy-targeted-economic-
d evel o pm en t -in cen ti ves.
reasonably designed to respond to the
harm, benefit the beneficiaries that
experienced it, and be related and
reasonably proportional to that harm or
impact.

As noted above, recipients should
analyze eligible uses based on the
beneficiary of the assistance, and
recipients may not provide assistance to
small businesses or impacted industries
that did not experience a negative
economic impact. Provision of
assistance to a business that did not
experience a negative economic impact,
under the theory that such assistance
would generally grow the economy and
therefore enhance opportunities for
workers, would not be an eligible use,
because such assistance is not
reasonably designed to impact
individuals or classes that have been
identified as having experienced a
negative economic impact. In other
words, there is not a reasonable
connection between the assistance
provided and an impact on the
beneficiaries. Such an activity would be
attenuated from and thus not reasonably
designed to benefit the households that
experienced the negative economic
impact. Research cited by some
commenters finding that business
subsidies have limited or negative
economic impact also suggests that such
a response may not be reasonably
designed to benefit households and
other entities impacted by the
pandemic. Similarly, planning activities
for an economic development or
workforce strategy regarding general
future economic growth do not provide
a program, service, or capital
expenditure that responds to negative
economic impacts of the pandemic.

However, Treasury notes that the final
rule includes as enumerated eligible
uses many types of assistance that
respond to negative economic impacts
of the pandemic and may produce
economic development benefits. For
example, see sections Assistance to
Unemployed Workers, Assistance to
Small Businesses, and Capital
Expenditures.

B. Premium Pay
Background and Summary of the
Interim Final Rule
Sections 602(c)(1)(B) and 603(c)(1)(B)
of the Social Security Act, as added by
the ARPA, provide that SLFRF funds
may be used "to respond to workers
performing essential work during the
COVID-19 public health emergency by
providing premium pay to eligible
workers of the . . . government that are
performing such essential work, or by
providing grants to eligible employers

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4397 that have eligible workers who perform
essential work."
Premium pay is designed to
compensate workers that, by virtue of
their employment, were forced to take
on additional burdens and make great
personal sacrifices as a result of the
COVID-19 pandemic. Premium pay can
be thought of as hazard pay by another
name.258
During the public health emergency,
employers' policies on COVID-19-
related premium pay or hazard pay have
varied widely, with many essential
workers not yet compensated for the
heightened risks they have faced and
continue to face.259 Many of these
workers earn lower wages on average
and live in socioeconomically
underserved communities as compared
to the general population.26° A recent
study found that 25 percent of essential
workers were estimated to have low
household income, with 13 percent in
high -risk households.261 The low pay of
many essential workers makes them less
able to cope with the financial
consequences of the pandemic or their
work -related health risks. As Americans
return to work and governments relax
certain rules, essential workers will
continue to bear the brunt of the risk of
maintaining the ongoing operation of
vital facilities and services. The added
health risk to essential workers is one
prominent way in which the pandemic
has amplified pre-existing
socioeconomic inequities. Premium pay
is designed to address the disparity
between the critical services provided
by and the risks taken by essential
workers and the relatively low
compensation they tend to receive.

The interim final rule established a
three-part framework for recipients
seeking to use SLFRF funds for
premium pay. First, to receive premium
pay one must be an eligible worker.

Second, an eligible worker must also
perform essential work. Finally,
premium pay must respond to workers
performing essential work during the
COVID-19 public health emergency.

Most of the comments received by
Treasury pertaining to premium pay
related to these three requirements.

Comments also addressed the definition
of premium pay generally and posed
258 See U.S. Department of Labor, Hazard Pay,
https://www.dol.gov/generalltopic/wages/
hazardpay (last visited October 18, 2021).
258 Economic Policy Institute, Only 30% of those
working outside their home are receiving hazard
pay (June 16, 2020), https://www.epi.org/press/only-
30-o f-th o se -working -outside -their -home -are -
receiving -hazard -pay -black -an d-hispanic-workers-
are-most-concerned-about-bringing-the-
coronavirus-home/.
288 McCormack, supra note 65.
2811d.
questions regarding premium pay
program structuring. This section
responds to the comments by addressing
the three requirements in turn, then the
overall definition of premium pay and,
finally, program structure.

Eligible Workers
The ARPA defines "eligible workers"
as "those workers needed to maintain
continuity of operations of essential
critical infrastructure sectors and
additional sectors as each . . .
[government] may designate as critical
to protect the health and wellbeing of
[its] residents." The interim final rule
supplemented this definition by
identifying a list of "essential critical
infrastructure sectors" whose workers
are eligible workers, based on the list of
sectors in the HEROES Act, a bill
introduced in the House of
Representatives in 2020 that would have
provided premium pay to essential
workers.262 In addition to the critical
infrastructure sectors defined in the
interim final rule, the chief executive (or
equivalent) of a recipient government
may designate additional non-public 263
sectors as critical so long as doing so is
necessary to protecting the health and
wellbeing of the residents of such
jurisdiction.

Public Comment: Treasury received
multiple comments on the definition of
"eligible worker" included in the
interim final rule. Many commenters
agreed with the definition of eligible
worker adopted by Treasury. Other
commenters sought clarification about
or changes to the definition of eligible
worker, including the definition of
eligible sectors, the inclusion of
government workers in the definition of
eligible workers, and the process for
designating additional non-public
sectors as eligible.

Some commenters asked Treasury to
change how it identifies eligible sectors,
including suggestions to add to or
subtract from the list of eligible sectors.

For example, some commenters asked
Treasury to consider using Bureau of
Labor Statistics (BLS) -Standard
Occupational Classifications to identify
specific sectors or occupations, in
contrast to the approach taken in the
interim final rule, which included a
mixture of economic sectors, industries,
and occupations. Many commenters
asked Treasury to explicitly clarify that
a particular industry or occupation is
covered by the definition of "essential
critical infrastructure sector." Some of
282 See H.R. 6800, 116th Cong. (2020).
283 Note that the sectors defined in the interim
final rule already include all state, local, and Tribal government employees.
these commenters represented public
employees, e.g., employees of facilities
and public works; public utilities;
courthouse employees; police, fire, and
emergency medical services; and waste
and wastewater services. Others were a
mixture of public and private sector
employees, e.g., coroners and medical
examiners; transportation infrastructure
(specifically electric vehicle
infrastructure and supply equipment);
electric utilities, natural gas, and steam
supply; and grocery employees. Other
commenters requested that Treasury
prohibit certain occupations currently
included in the eligible workers
definition (e.g., police and corrections
officers) from receiving premium pay for
performance of regular duties.

Commenters also asked Treasury to
clarify which government workers are
included in the definition of eligible
workers. The interim final rule included
as an essential critical infrastructure
sector, "any work performed by an
employee of a State, local, or Tribal
government." Some commenters
requested that Treasury adopt a
definition of eligible worker that
includes all employees of the recipient
government; however, all public
employees of state, local, and Tribal
governments are already included in the
interim final rule definition of "eligible
worker." Commenters asked whether
this includes governments that did not
receive SLFRF funds (Le., "non
recipient governments"). Many
commenters from Tribal governments
requested that the definition of eligible
worker, which includes "any work
performed by an employee of a . . .

Tribal government," also include an
employee of a "Tribal enterprise" to
remove uncertainty regarding which
employees are included.

Finally, commenters made
suggestions for the process by which the
chief executive (or equivalent) of a
recipient government may designate
additional non-public sectors as critical.

Commenters asked that Treasury adopt
a requirement that Treasury must
approve or deny any additional non-
public sector identified by the chief
executive of a recipient government
prior to implementation of the
recipient's program.

Some commenters asked Treasury to
clarify whether their chief executive (or
equivalent) could designate particular,
and in some cases all, employees of the
recipient government as eligible for
premium pay.

Treasury Response: In the final rule,
Treasury will preserve the definition of
"eligible worker" as it was defined in
the interim final rule with minor
modifications to clarify that all public

4398 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations employees of recipient governments are
already included in the interim final
rule definition of "eligible worker." A
more specific eligibility system (e.g.,
linking eligibility to specific
occupational or industry codes) would
have provided more certainty but would
have been much more rigid. In contrast,
the current definition is flexible enough
to give recipients the ability to tailor
their premium pay programs to meet
their needs while ensuring that
programs focus on sectors where
workers were forced to shoulder
substantial risk as a result of the
COVID-19 pandemic. Furthermore, the
critical infrastructure sectors defined in
the interim final rule already include
many of the occupations that
commenters requested be added. For
example, Treasury received many
comments from public workers asking
to be included in the definition of
"eligible worker" even though these
workers already fall within the scope of
"any work performed by an employee of
a State, local, or Tribal government."
Treasury has clarified in the final rule
that the chief executive's discretion to
designate additional sectors as critical
relates only to "non-public" sectors,
since all public employees of recipient
governments are already included in the
definition of "eligible worker." While
all such public employees are "eligible
workers" and the chief executive (or
equivalent) of a recipient government
may designate additional non-public
sectors as critical, in order to receive
premium pay, these workers must still
meet the other premium pay
requirements (e.g., performing essential
work).

Treasury recognizes that the list of
"essential critical infrastructure sectors"
includes both occupations and sectors.

Recipients, if uncertain which
occupations are included in a critical
infrastructure sector, may consult
government occupational classifications
if helpful but are not required to do
so.264 Furthermore, a recipient
government does not need to submit to
Treasury for approval its designation of
a sector as essential critical
infrastructure; rather, Treasury will
defer to the reasonable interpretation of
the recipient government and the
discretion of the recipient's chief
executive in making such designations.

If a recipient is unsure if a non-public
sector is covered by the definition in the
264 See, e.g., sources such as Bureau of Labor
Statistics, Occupational Outlook Handbook,
which provide information on which
professions or occupations are typically
included in interpretations of a sector, https://
www.b1s.gov/ooh/ .
final rule,265 the chief executive (or
equivalent) of a recipient government
may also identify the non-public sector
as critical so long as the chief executive
deems the non-public sector necessary
to protecting the health and wellbeing of
residents. Treasury has, where possible,
clarified the definition of "essential
critical infrastructure sectors." For
instance, Treasury has clarified in the
final rule that work performed by an
employee of a Tribal government
includes an employee of a Tribal
enterprise and discussed in this
Supplementary Information how a
recipient may qualify other non-public
sectors as essential critical
infrastructure.

Essential Work
The interim final rule defined
"essential work" as work that (1) is not
performed while teleworking from a
residence and (2) involves either (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. Treasury adopted
this definition of essential work to
ensure that premium pay is targeted to
workers that faced or face heightened
risks due to the character of their work
during a pandemic.

Public Comment: Some commenters
found the definition unclear and asked
Treasury to clarify what constitutes
"essential work." Others disagreed with
the essential work test altogether,
arguing that it forces recipients to
distinguish between essential and non-
essential employees, which may be
difficult to do. Accordingly, these
commenters asked Treasury to allow
recipients to determine which workers
qualify as essential. Treasury also
received several requests that specific
occupations be explicitly deemed
essential, including all public
employees, veterinarians, election
administrators, detention staff and
sheriff's deputies, and employees of
utilities, such as electric power, natural
gas, steam supply, water supply, and
sewage removal.

Several commenters requested that
Treasury not distinguish between
remote and in -person work or amend
the standard so that employees
providing essential services would still
be eligible even if they worked
remotely. Finally, a few commenters
requested clarification as to the
265 Public sector workers are "eligible workers"
under the interim final rule and final rule.
definition of "regular" in -person
interactions and whether Treasury
could clarify which job functions merit
more (or less) premium pay.

Treasury Response: Treasury is
maintaining the definition of "essential
work" in the final rule without
modification. The test adopted in the
interim final rule was designed to
compensate workers facing
disproportionate risk due to the
pandemic. COVID-19 is transmitted
through person -to -person interactions,
and therefore, workers with regular in -
person interactions are the primary
group facing increased health risks.

Although COVID-19 is not transmitted
primarily by people handling items,
such work may present increased risk in
certain cases, and the final rule
maintains the interim final rule's
inclusion of such work in order to give
recipient governments the flexibility to
include workers performing such work
as they determine appropriate. Changing
the test as some commenters suggested,
e.g., by eliminating the in -person work
requirement or allowing recipients to
designate which employees are
essential, even if not working in person,
would no longer focus the program on
workers taking on additional health
risks and instead allow premium pay to
be awarded to individuals who
experienced relatively little risk of
exposure to COVID-19. To maintain
flexibility, Treasury is not defining the
term "regular" with regard to in -person
interactions, allowing recipients to
develop programs based on the specific
workforce to be served and local
circumstances. Generally speaking,
however, recipients are encouraged to
consider an eligible worker's risk of
exposure in designing premium pay
programs.

Respond To
As required by the ARPA, the interim
final rule required that premium pay
programs "respond to" eligible workers
performing essential work during the
COVID-19 public health emergency.

Premium pay responds to eligible
workers performing essential work if it
prioritizes low- and moderate -income
persons, given the significant share of
essential workers that are low- and
moderate -income and may be least able
to bear added costs associated with
illness. The level of the award limit —up
to $13 per hour not to exceed $25,000
in aggregate —in the ARPA supports this
reasoning.

Accordingly, the interim final rule
required written justification for how
premium pay to certain higher -income
workers responds to eligible workers
performing essential work: If a recipient

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4399 (or grantee) uses SLFRF funds to
provide premium pay to an employee
and the pay or grant would increase a
worker's total pay above 150 percent of
their residing state or county's average
annual wage for all occupations, as
defined by the BLS Occupational
Employment and Wage Statistics,
whichever is higher, on an annual basis,
then the recipient must provide,
whether for themselves or on behalf of
a grantee, written justification to
Treasury detailing how the award
responds to eligible workers performing
essential work.

Public Comment: Treasury received
numerous comments on the wage
threshold and the written justification
requirement. Several commenters
supported the threshold as a way to
encourage recipients to target premium
pay to lower -income, eligible workers.

Some commenters even asked Treasury
to make the wage threshold a firm
restriction, above which an eligible
worker could not receive premium pay.

Others agreed with the threshold but
also requested flexibility to use existing
worker classifications as an
administratively simple way to identify
workers for whom premium pay would
be responsive. For instance, a few
commenters asked Treasury to allow
recipients or grantees to presume that
premium pay "responds to" eligible
workers performing essential work
when it is provided to employees who
are not exempt from the Fair Labor
Standards Act (FLSA) overtime
provisions —a test that employers are
routinely required to apply.266
In contrast, several commenters
disagreed with the threshold and the
requirement for written justification. A
few commenters thought the threshold
was too low to capture employees in
certain critical infrastructure sectors
(e.g., public safety, waste collection) and
that it did not sufficiently account for
the variance in economic need across
different geographic areas and family
structures. Some smaller communities
argued that the threshold was difficult
to calculate and apply.

Other commenters proposed revisions
for how the threshold is calculated. For
instance, a few commenters asked
Treasury to consider using alternative
earnings measures such as median
income. Similarly, another commenter
asked Treasury to consider the incomes
of workers with different levels of
seniority in developing any income
266 See generally 29 U.S.C. 207(a); U.S.

Department of Labor, Overtime Pay Requirements of
the FLSA (Fact Sheet No. 23), https://www.dol.gov/
agencies/whd/fact-sheets/23-flsa-overtime-pay.
thresholds for permitting or reporting on
premium pay.

Finally, there was also some
uncertainty as to the threshold and the
requirement for written justification.

Some commenters interpreted the
threshold as a hard cap on who was
eligible for premium pay, which is not
the case. Relatedly, some commenters
also requested further guidance on what
recipients should include in the written
justification submitted to the Secretary.

Treasury Response: The final rule
makes some modifications to the
determination of when premium pay
"responds to" eligible workers
performing essential work during the
public health emergency. Under the
interim final rule, premium pay was
responsive if either the workers' pay
was below a wage threshold or, if the
pay was above a wage threshold, the
recipient submitted written justification
to Treasury explaining how the
premium pay was responsive. The final
rule retains these two means of
establishing premium pay in response to
workers performing essential work and
adds an additional means of
demonstrating that premium pay is
responsive. Under the final rule, a
recipient may also show that premium
pay is responsive by demonstrating that
the eligible worker receiving premium
pay is not exempt from the FLSA
overtime provisions.267 This change will
expand the number of workers eligible
to receive premium pay 268 and does not
require recipients to provide written
justification to Treasury regarding the
workers who are not exempt from the
FLSA overtime provisions, making the
program easier to administer for
recipients. Incorporating this change
further simplifies application of the
267 Department of Labor, Overtime Pay, https://
www.dol.gov/agencies/whd/overtime; see also 29
U.S.C. 207.
268 Among workers that report working overtime,
roughly 41-44 percent of workers earn above
$50,000 per year, which is slightly less than the
national average annual wage for all employees
according to the Bureau of Labor Statistics'
Occupational Employment and Wage Statistics,
available at https://www.bls.gov/oes/ . See also U.S.

Census Bureau, Basic Monthly CPS, January 2019
through December 2019, available at https://
www.census.gov/data/datasets/time-series/demo/
cps/cps-basic.html. Notes: Annual earnings reflect
weekly wages multiplied by 52. Usual weekly
earnings are computed by BLS to include earnings
from work such as tips, overtime, regular wages,
etc., but not non -labor sources of income such as
government transfers and capital gains. Pre -
overtime earnings are computed by taking the
difference of usual weekly earnings and earnings
from overtime last week and multiplying by 52.

Note, some sources multiply weekly earnings by 50
instead of 52 to account for unpaid time off and
holidays, so these figures may be slightly larger
than those reported elsewhere. Either assumption
may overestimate earnings if workers do not work
year-round.
final rule for recipients because
Treasury understands that most
employers, public and private, are
familiar with and are routinely required
to apply the FLSA.

With this addition, the final rule
provides that premium pay is
responsive to eligible workers
performing essential work during the
public health emergency if each eligible
worker who receives premium pay falls
into one of three categories: (1) The
worker's pay is below the wage
threshold, (2) the worker is not exempt
from the FLSA overtime provisions, or
(3) the recipient has submitted a written
justification to Treasury.

The final rule makes it clear that
written justification to Treasury is not
necessary with respect to eligible
workers whose pay is less than the wage
threshold. Nor is written justification
necessary with respect to eligible
workers who are not exempt from the
FLSA overtime provisions. The written
justification is only necessary if the
worker's pay (with or without the
premium) exceeds the threshold, and
the worker is exempt from the FLSA
overtime provisions. The final rule also
clarifies that a worker's pay exceeds the
threshold if either the premium pay
increases the worker's total pay above
the wage threshold or the worker's total
pay was already above the threshold,
before receiving premium pay.

Treasury has also updated the final
rule to clarify that written justification
means a brief, written narrative
justification of how the premium pay or
grant is responsive to workers
performing essential work during the
public health emergency. This could
include a description of the essential
workers' duties, health or financial risks
faced due to COVID-19, and why the
recipient determined that the premium
pay was responsive despite the workers'
higher income.

Recipients should refer to SLFRF
program reporting guidance, user
guides, and other documentation for
further guidance on the form and
content of the written justification.

Treasury anticipates that recipients will
easily be able to satisfy the justification
requirement for front-line workers, like
nurses and hospital staff.

Definition of Premium Pay
The statute defines premium pay as
"an amount of up to $13 per hour . . . ,
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 with respect to any
single eligible worker." The interim

4400 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations final rule incorporated this definition
and emphasized that premium pay
should be in addition to compensation
typically received.

Public Comment: Several submitted
comments related to the definition of
"premium pay." Several commenters
asked Treasury to clarify certain aspects
of the interim final rule and statutory
definition of premium pay. For instance,
a few commenters asked whether the
$25,000 limit applies to the annual
amount of premium pay received or the
aggregate amount of premium pay
received over the period of performance.

A few commenters requested flexibility
as to how premium pay may be
awarded, including flexibility to make
monthly or quarterly payments or lump
sum payments. Finally, commenters
requested additional clarification as to
how premium pay should be calculated.

For instance, a commenter asked how to
calculate the amount of and account for
overtime pay and other incentive
pay.269
Treasury Response: Treasury has
clarified some of these issues in the
final rule. For example, Treasury has
clarified in the final rule that the
$25,000 per employee limit is for the
entire period of performance, not an
annual cap. Further, recipients have
discretion with respect to the way in
which premium pay is awarded to
eligible workers (e.g., monthly,
quarterly, lump sum), provided that the
total premium pay awarded to any
eligible worker does not exceed $13 per
hour or $25,000 over the period of
performance. Finally, a recipient may
award premium pay to an eligible
worker in addition to the overtime pay
already earned by the eligible worker
but in no instance may the portion of
the compensation funded with SLFRF
funds exceed $13 per hour, even if strict
time -and -a -half calculation requires
more.270 To the extent that an employer
is required under the FLSA to make
payments to an eligible worker in excess
of $13 per hour or $25,000 in the
aggregate over the period of
performance, the employer must use a
source of funding other than the SLFRF
funds to satisfy those obligations.

Program Structure
Public Comment: Several commenters
also requested elaboration on eligible
269 See 29 U.S.C. 207(a) ("[A]t a rate not less than
one and one-half times the regular rate at which he
is employed.").
270 All recipients are required to comply with
otherwise applicable laws, including any wage and
hour requirements in the Fair Labor Standards Act.

See generally, Department of Labor, Wages and the
Fair Labor Standards Act, https://www.dol.gov/
agencies/whd/flsa.
types of employees and permissible
structures for awarding premium pay. A
few commenters asked if premium pay
could be awarded to volunteers or those
in irregular and non -hourly or salaried
employment positions. Similarly,
various commenters asked if part-time
workers were eligible for premium pay.

Some commenters asked Treasury to
provide more detail on when premium
pay may be paid retroactively or if a
government could reimburse its general
fund for hazard pay already paid before
the start of the period of performance.

Treasury Response: Treasury has also
made clear in the final rule that a
recipient may award premium pay to
non -hourly or salaried workers as well
as part-time workers. Premium pay may
not, however, be awarded to volunteers.

If a recipient is interested in
compensating volunteers with SLFRF
funds, then it must do so consistent
with the requirements set forth in other
eligible use categories; for example, see
section Public Sector Capacity and
Workforce in Public Health and
Negative Economic Impacts.

Under the final rule, recipients may
award premium pay retroactively;
however, SLFRF funds may not be used
to reimburse a recipient or eligible
employer grantee for premium pay or
hazard pay already received by the
employee. To make retroactive premium
payments funded with SLFRF funds, a
recipient or eligible employer grantee
must make a new cash outlay for the
premium payments and the payments
must be in addition to any wages or
remuneration the eligible worker
already received, subject to the other
requirements and limitations set forth in
the ARPA and this final rule.

Finally, as part of accepting the
Award Terms and Conditions for
SLFRF, each recipient agreed to
maintain a conflict -of -interest policy
consistent with 2 CFR 200.318(c) that is
applicable to all activities funded with
the SLFRF award. This award term
requires recipients and subrecipients to
report to Treasury or the pass -through
agency, as appropriate, any potential
conflict of interest related to the award
funds per 2 CFR 200.112. Pursuant to
this policy, decisions concerning SLFRF
funds must be free of undisclosed
personal or organizational conflicts of
interest, both in fact and in appearance.

Consistent with this policy, elected
officials are prohibited from using their
official position and control over SLFRF
funds for their own private gain. This
policy also prohibits, among other
things, elected officials from steering
funds to projects in which they have a
financial interest or using funds to pay
themselves premium pay.

C. Revenue Loss
Background
Sections 602(c)(1)(C) and 603(c)(1)(C)
of the Social Security Act provide that
SLFRF funds may be used "for the
provision of government services to the
extent of the reduction in revenue of
such . . . government due to the
COVID-19 public health emergency
relative to revenues collected in the
most recent full fiscal year of the . . .
government prior to the emergency."
This provision allows recipients
experiencing budget shortfalls to use
payments from the SLFRF funds to
avoid cuts to government services and,
thus, enables state, local, and Tribal
governments to continue to provide
valuable services and ensures that fiscal
austerity measures do not hamper the
broader economic recovery.

State and local government budgets
experienced stress in fiscal year 2020 as
delayed tax filings and pandemic -
related business closures caused
revenues to decline sharply.271 Twenty-
two state governments took actions to
close budget gaps in fiscal year 2020 272
and nearly 80 percent of cities reported
being less able to meet the fiscal needs
of their communities relative to fiscal
year 2019.273 Surveys of Tribal
governments and Tribal enterprises
conducted in 2020 found majorities of
respondents reporting substantial cost
increases and revenue decreases, with
Tribal governments reporting reductions
in health care, housing, social services,
and economic development activities as
a result of reduced revenues.274
The economic recovery, aided by the
broad distribution of COVID-19
vaccines and the deployment of federal
stimulus, has led to a strong rebound in
total state and local government revenue
and is contributing to a brighter fiscal
271In the second quarter of 2020, quarterly state
and local tax revenues as reported by the U.S.

Census Bureau fell 19 percent compared to the
second quarter of 2019; U.S. Census Bureau,
Quarterly Summary of State and Local Tax
Revenue, https://www.census.gov/programs-
surveys/qtax.html.
272 National Association of State Budget Officers,
Fiscal Survey of the States (Fall 2020), available at
https://higherlogicdownload.s3.amazonaws.com/
NASBO/9d2d2db1-c943-4 f1 b-b750-0fca152d64c2/
Upl oadedlmages/Fiscal %20Survey/NASBO_Fall_
2020_Fiscal_Survey_of States_S.pdf.
273 National League of Cities, City Fiscal
Conditions (2020), available at https://www.nlc.org/
wp-content/uploads/2020/08/City_Fiscal_
Con d i ti o n s_2 02 0_FINAL. p d f.
274 Surveys conducted by the Center for Indian
Country Development at the Federal Reserve Bank
of Minneapolis in March, April, and September
2020. Elijah Moreno & Heather Sobrepena, Tribal
entities remain resilient as COVID-19 batters their
finances, Federal Reserve Bank of Minneapolis
(Nov. 10, 2020), https://www.minneapolisfed.org/
article/2020/tribal -en ti ti es -rem ain -resilient-a s- covid-19-batters-their-finances.

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4401 outlook for most jurisdictions as
compared to the earlier months of the
public health emergency. For the fiscal
year ending June 30, 2021, total state
and local government tax revenues
increased 21 percent relative to the
same period in 2020, reflecting the
combined impact of the modified tax
filing deadline in 2020 and an
improving economy.275 However,
despite a stable budget situation overall,
many governments face uncertainty as
the COVID-19 pandemic continues to
impact commuting patterns, hospitality
and tourism, and other drivers of
jurisdictions' economies. Thirty-five
percent of cities still report being less
able to meet financial needs than in
fiscal year 2020,276 and over half of
surveyed Tribal governments and Tribal
enterprises reported losing at least 40
percent of their revenue since the start
of the pandemic.277 Budget challenges
persist as governments work to mitigate
and contain COVID-19 and help
citizens weather the economic
downturn.

State, local, and Tribal government
budgets affect the broader economic
recovery. During the period following
the 2007-2009 recession, state and local
government budget pressures led to
fiscal austerity that was a significant
drag on the overall economic
recovery.278 Inflation -adjusted state and
local government revenue did not return
to the previous peak until 2013,279
while employment in the sector
returned to the previous peak in August
2019, nearly a decade later.280 Just
months after recouping losses from the
previous downturn, the COVID-19
pandemic caused state and local
government employment to contract
again, but this time more sharply: By
May 2020, state and local government
payrolls fell 7.7 percent compared to
February 2020. Despite improvement,
non-federal public sector job growth
continues to lag behind the rest of the
U.S. labor market recovery.281
Summary of Interim Final Rule
As stated above, the Social Security
Act provides that SLFRF funds may be
used "for the provision of government
services to the extent of the reduction in
revenue of such . . . government due to
the COVID-19 public health emergency
relative to revenues collected in the
most recent full fiscal year of the . . .
government prior to the emergency."
The interim final rule provided a
formula for calculating revenue loss
through a four -step process:
❑ Step 1: Identify revenues collected
in the most recent full fiscal year prior
to the public health emergency (i.e., last
full fiscal year before January 27, 2020),
called the base year revenue.
❑ Step 2: Estimate counterfactual
revenue, which is the amount of
revenue the recipient would have
expected in the absence of the downturn
caused by the pandemic. The
counterfactual revenue is equal to base
year revenue * [(1 + growth adjustment)
❑ (n/12)], where n is the number of
months elapsed since the end of the
base year to the calculation date, and
growth adjustment is the greater of the
average annual growth rate across all
State and Local Government "General
Revenue from Own Sources" in the
most recent three years prior to the
emergency, 5.2 percent, or the
recipient's average annual revenue
growth in the three full fiscal years prior
to the COVID-19 public health
emergency.282 This approach to the
growth rate provides recipients with the
option to use a standardized growth
adjustment when calculating the
counterfactual revenue trend and thus
minimizes administrative burden, while
not disadvantaging recipients with
revenue growth that exceeded the
national average prior to the COVID-19
public health emergency by permitting
these recipients to use their own
revenue growth rate over the preceding
three years.
❑ Step 3: Identify actual revenue,283
which equals revenues collected over
the twelve months immediately
preceding the calculation date.
❑ Step 4: The extent of the reduction
in revenue is equal to counterfactual
revenue less actual revenue. If actual
revenue exceeds counterfactual revenue,
the extent of the reduction in revenue is
set to zero for that calculation date.

For illustration, consider a
hypothetical recipient with base year
revenue equal to 100 (Step 1) that ends
on June 30, 2019. In Step 2, the
hypothetical recipient finds that the
average annual growth across all state
and local government "General Revenue
from Own Sources" in the most recent
three years of available data, 5.2
percent, is greater than the recipient's
average annual revenue growth in the
three full fiscal years prior to the public
health emergency. In this illustration, n
(months elapsed) and counterfactual
revenue would be equal to:

As of:
12/31/2020
12/31/2021
12/31/2022
12/31/2023
n (months elapsed)
18 30
42 54
Counterfactual revenue:
107.9
113.5
119.4
125.6
278 Analysis of Quarterly Summary of State and
Local Tax Revenue, U.S. Census Bureau, supra note
271.
278 National League of Cities, City Fiscal
Conditions (2021), available at https://www.nlc.org/
wp-content/uploads/2021/10/2021-City-Fiscal-
Conditions-Report-2021. pd f.
277 Center for Indian Country Development and
Federal Reserve Bank of Minneapolis, One Year
Into COVID-19, Pandemic's Negative Effects Persist
in Indian Country (May 2021), available at https://
www.minneapolisfed . org/article/2021 /one -year -
in to-covi d -19 -pan d emics-n egati ve-e ffects-persist-in- indian-country.
278 See, e.g., Nora Fitzpatrick et al., Fiscal Drag
from the State and Local Sector?, Liberty Street
Economics Blog, Federal Reserve Bank of New York
(June 27, 2012), https://libertystreeteconomics .
newyorkfed.org/2012/06/fiscal-drag from-the-state-
and-local-sector.html; Jiri Jonas, Great Recession
and Fiscal Squeeze at U.S. Subnational Government
Level, IMF Working Paper 12/184, (July 2012),
available at https://www.imforg/extemal/pubs/ft/
wp/2012/wp12184.pdf, Gordon, supra note 16.
279 State and local government general revenue
from own sources, adjusted for inflation using the
Bureau of Economic Analysis' implicit price
deflator for GDP. U.S. Census Bureau, Annual
Survey of State Government Finances and U.S.

Bureau of Economic Analysis, National Income and
Product Accounts, https://www.census.gov/
programs-surveys/gov-finances.html.
280 U.S. Bureau of Labor Statistics, All Employees,
State Government [CES9092000001] and All
Employees, Local Government [CES9093000001],
retrieved from FRED, Federal Reserve Bank of St.

Louis, https://fred.stlouisfed.org/series/
CES9092000001 and https://fred.stlouisfed.org/
series/CES9093000001.
281 Pew Research, State and Local Government
Job Growth Lags as Economy Recovers (September
2021), available at https://www.pewtrusts.org/en/
research-and-analysis/articles/2021/09/14/state-
and-local-government job -growth -lags -as -economy -
recovers.
282 At the time the interim final rule was
published, the average annual growth across all
state and local government "General Revenue from
Own Sources" in the most recent three years of
available data (2015-2018) was 4.1%, which was
presented as one option for the growth adjustment.

Since the interim final rule was published, 2019
data has been made available, which increases this
rate to 5.2%. The final rule updates the percentage
to 5.2%, as shown in Step 2.
283 As explained below, in the final rule,
recipients must adjust actual revenue amounts
based on certain tax policy changes.

4402 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations reduction in revenue for the
140
130
120
110
The figure below illustrates the hypothetical recipient calculated in accordance with the methodology.

Actual Revenue
®Extent of reduction in revenue
® Base year revenue
Counterfactual revenue
Finally, as explained in greater detail
below, the clear meaning of the
statutory phrase "due to the COVID-19
public health emergency" is that it is
referring to revenue reductions caused
by the public health emergency. As
such, it does not include revenue
reduced for reasons other than the
public health emergency. Treasury in
the interim final rule presumed that any
reduction in revenue relative to the
counterfactual estimate would be
considered revenue lost due to the
pandemic and thereby relieved
recipients of the administrative burden
of determining the extent to which
reduction in revenue was due to the
public health emergency. The
calculation methodology in the interim
final rule implicitly assumed that
recipients did not suffer a loss in
revenue due to the public health
emergency if they did not experience a
reduction in aggregate revenue
compared to the counterfactual
estimate. The interim final rule invited
comments on whether Treasury should
revise its presumption to "take into
account other factors, including actions
taken by the recipient as well as the
expiration of the COVID-19 public
health emergency, in determining
whether to presume that revenue losses
Dec -20
Dec -21
are 'due to' the COVID-19 public health
emergency."
Treasury received a substantial
number of comments on the revenue
loss provisions set forth in the interim
final rule. These comments largely
pertained to the following topics: The
overall methodology for calculating
revenue loss; the definition of
"revenue"; whether revenue should be
aggregated or calculated on some
alternative basis (e.g., source -by -source
or fund -by -fund); the appropriate
calculation dates (i.e., fiscal year or
calendar year); the presumption that all
revenue loss is due to the pandemic; the
base year; and the definition of
"government services."
Overall Methodology for Calculating
Revenue Loss
As noted above, the interim final rule
provided a formula for recipients to
calculate revenue loss by comparing
actual revenues received during a given
time -period with a counterfactual
amount of revenue based on revenues in
the base year and an adjustment for
expected growth in revenue each year.

Public Comment: Treasury received
many public comments on the overall
methodology for calculating revenue
loss. Some recipients, including smaller
governments, have expressed concern
regarding the burden associated with
Dec -22
Dec -23
the calculation of revenue loss,
particularly the burden involved in
calculating the amount of general
revenue, given that the definition of
general revenue in the interim final rule
does not always align with the
definition of revenue already calculated
by recipients for other purposes, and
requested clarifications regarding a
number of components, including the
definition of revenue. Commenters also
asked for clarification on the
relationship between revenue loss
calculations across different calculation
dates. Other commenters argued that the
revenue loss formula does not precisely
capture the nuances of local revenues or
their particular situation. For example,
some commenters stated that requiring
that revenues be aggregated fails to
capture decreases in revenue sources
that cannot easily be made up for with
other revenue sources.

Treasury Response: In the final rule,
Treasury is largely maintaining the
revenue loss formula as set forth in the
interim final rule. To address comments
that the formula for calculating revenue
loss was difficult to apply, Treasury is
including an option for recipients to use
a standard allowance for revenue loss.

Specifically, in the final rule, recipients
will be permitted to elect a fixed
amount of loss that can then be used to
fund government services. This fixed

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4403
amount, referred to as the "standard
allowance," is set at up to $10 million
total for the entire period of
performance not to exceed the
recipient's SLFRF award amount.

Although Treasury anticipates that this
standard allowance will be most helpful
to smaller local governments and Tribal
governments, any recipient can use this
standard allowance instead of
calculating revenue loss pursuant to the
formula above, so long as recipients
employ a consistent methodology across
the period of performance (i.e., choose
either the standard allowance or the
regular formula). Treasury intends to
amend its reporting forms to provide a
mechanism for recipients to make a one-
time, irrevocable election to utilize
either the revenue loss formula or the
standard allowance.

The $10 million level is based on
average revenue loss across state and
local governments, taking into
consideration potential variation in
revenue types and losses and continued
uncertainty faced by many recipients
regarding revenue shortfalls. To
calculate this estimate, Treasury applied
a variation of the final rule's revenue
loss calculation on available aggregate
state and local government tax revenue
data as reported by the Census Bureau
for the first calculation date of
December 31, 2020. This estimate
accounts for expected variation across
recipient experiences and reflects the
fact that the final rule revenue loss
calculation provides recipients several
options for specific aspects (e.g.,
calendar year or fiscal year basis; use of
average state and local revenue growth
rate or specific local rate). Treasury
compared actual calendar year 2020 tax
revenues, in aggregate for all state and
local governments, to several
counterfactual trends that vary based on
the end date of the fiscal base year.284
Treasury also assessed counterfactual
trends using different revenue growth
rates (e.g., the three-year average growth
rates of total state and local government
general revenue for both fiscal years
ending in 2016-2018 and fiscal years
ending in 2017-2019; the three-year
average growth rates of total state and
local government tax revenues for fiscal
years ending in 2017-2019; and the one-
year growth rate for total state and local
government tax revenue in the last full
fiscal year before the public health
emergency). To account for the fact that
the initial estimate, based on tax
284 Because the Census Bureau's state and local
government tax revenue data is reported on a
quarterly frequency, fiscal base year end dates of
March 31, June 30, September 30, and December 31
were used in this assessment.
revenue, only includes a subset of
recipient aggregate general revenue,
Treasury applied a scaling factor to
recognize that tax revenues generally
make up just over half of general
revenue collected by state and local
governments (i.e., Treasury scaled up its
estimate based on tax revenue to
produce an estimate for total general
revenue).285 The resulting calculation
was then extrapolated over the four-year
period of performance and divided by a
population of interest to arrive at an
average loss estimate.

As noted above, Treasury estimated a
range of scenarios to account for
different values of the variables that
would impact average losses. For
example, the end date of the fiscal base
year and growth rate of counterfactual
revenue impact the overall estimate of
revenue loss. In addition, this estimate
takes into consideration the limitations
in the available data. The governments
covered by the Census Bureau's survey
do not entirely align with SLFRF
recipients. The Census Bureau's figures
are based on 50 state governments, all
local government property tax collectors
and local government non -property tax
imposers, representing at a minimum
the more than 38,000 "General Purpose
Governments" defined by Census.

However, there are only roughly 32,000
recipients of SLFRF funds. Thus,
Treasury considered the difference
between the number and type of entities
in the Census Bureau data and the
SLFRF recipients.

Based on this methodology, Treasury
estimates that average revenue loss
(determined by comparing the
counterfactual revenue to actual
revenue) may range from $0 to $11.7
million per recipient over the period of
performance.286 Treasury settled on a
point estimate toward the upper end of
the range of potential averages, in part,
to account for significant variation in
the experiences of recipient
governments: Some recipients likely
experienced losses at the upper end of
this range of potential averages. A point
estimate toward the upper end of the
range errs toward ensuring more
recipients' experiences are covered and
increases the utility of the standard
allowance for SLFRF recipients.

Specifically, the program includes a
very large number of recipients with
relatively smaller awards; these
recipients have tended to describe
having greater difficulty completing the
285 Annual Survey of State and Local Government
Finances (2019).
286 This is the range of averages that Treasury
calculated by varying the aforementioned
assumptions.
regular revenue loss calculation. Thus,
selecting a point estimate toward the
higher end of the expected range not
only increases the likelihood that the
standard allowance will reflect the
experience of a larger number of SLFRF
recipients but is more responsive to the
comments of those with smaller awards.

In addition, using a point estimate
toward the upper end of the range
accounts for the difficulty and
uncertainty in predicting revenue losses
years into the future, throughout the
period of performance.287
Finally, Treasury selected a single
allowance level, as opposed to varying
levels, to further the goals of simplicity,
flexibility, and administrability.

Furthermore, data limitations make it
difficult to distinguish between types of
local governments.288
General Revenue
The interim final rule adopted a
definition of "general revenue" based
largely on the components reported
under "General Revenue from Own
Sources" in the Census Bureau's Annual
Survey of State and Local Government
Finances. Under the interim final rule,
general revenue included revenue
collected by a recipient and generated
from its underlying economy, and it
would capture a range of different types
of tax revenues, as well as other types
of revenue that are available to support
government services.289 Specifically,
revenue under the interim final rule
included money that is received from
tax revenue, current charges, and
miscellaneous general revenues and
excluded refunds and other correcting
transactions, proceeds from issuance of
debt or the sale of investments, agency
or private trust transactions, revenue
from utilities, social insurance trust
revenues, and intergovernmental
287 See, e.g., Government Accountability Office,
State and Local Governments: Fiscal Conditions
During the COVID-19 Pandemic in Selected States
(July 2021) (noting that "[s]tate and local
government revenues partly depend on the overall
economy, and actions to stem the spread of the
virus drastically reduced economic activity.");
Board of Governors of the Federal Reserve System,
Monetary Policy Report (July 9, 2021) (noting that
the pandemic "pushed down state and local
government tax collections" and that while some of
the drag is "abating" state and local "government
payrolls . . . have only edged up from their lows
at the onset of the pandemic").
288 Local government tax revenue data in the
Census Bureau's Quarterly Summary of State and
Local Tax Revenue, supra note 271, is provided on
an aggregated basis.
289 The Department also released guidance
clarifying how a recipient may determine whether
a particular entity is "part of the recipient's
government." See FAQ 3.14. 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.

4404 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations transfers from the federal government,
including transfers made pursuant to
section 9901 of the ARPA.29O In the case
of Tribal governments, it also included
revenue from Tribal business
enterprises.

Public Comment: Many commenters
asked Treasury to include certain items
in the definition of "general revenue."
For instance, several commenters that
operate their own utilities asked that
revenue from utilities be included,
arguing that declines in utility revenue
directly affect contributions to their
general funds. Many of these
commenters noted that moratoriums on
utility shutoffs and a decline in
collections have resulted in significant
budgetary pressures.

Some commenters also asked for the
exclusion of certain intergovernmental
transfers in the definition of general
revenue, including transfers of shared
revenue from the state.291 Other
commenters asked for the inclusion of
certain transfers from the federal
government, including fees paid for
services and grants that are, in effect,
paid for the provision of services.

Treasury also received multiple
requests to include revenue from Tribal
enterprises in the definition of "general
revenue" and that "Tribal enterprise" be
defined broadly. Others asked for the
ability to choose whether to include
revenue from Tribal enterprises.

Finally, some commenters requested
that the definition of general revenue
exclude certain sources of revenue, such
as revenue sources that do not support
a general fund (i.e., revenue sources that
are restricted in use). Commenters also
asked that general revenue exclude
revenue from special assessments,
settlements that make the recipient
290 The interim final rule stated that "general
revenue" and "tax revenue" excludes refunds and
other correcting transactions. Instead of
"excluding" refunds and other correcting
transactions, the Census Bureau methodology upon
which those definitions are based provides that
general revenue and tax revenue are determined
"net of" refunds and other correcting transactions.

The use of "excluding" in the interim final rule is
substantively the same as the Census Bureau
methodology. However, to be consistent with the
terminology used by the Census Bureau, the final
rule uses "net of" instead of "excluding." Current
charges are defined as "charges imposed for
providing current services or for the sale of
products in connection with general government
activities." It includes revenues such as public
education institution, public hospital, and toll
revenues. Miscellaneous general revenue comprises
of all other general revenue of governments from
their own sources (i.e., other than utility and
insurance trust revenue), including rents, royalties,
lottery proceeds, and fines.
291 The interim final rule excluded governmental
transfers from the Federal Government, but it did
not exclude intergovernmental transfers from other
governmental units for purposes of the revenue loss
provisions.
whole for past expenditures, and one-
time revenues such as revenue from the
sale of property.

Treasury Response: In the final rule,
Treasury has maintained the definition
of "general revenue" from the interim
final rule with two exceptions.

Treasury has adjusted the definition
to allow recipients that operate utilities
that are part of their own government to
choose whether to include revenue from
these utilities in their revenue loss
calculation. This change responds to
comments from recipients indicating
that revenue from utilities is used to
fund other government services and that
utility revenues have declined on
aggregate.292 This approach is consistent
with other eligible uses, which
recognize decreased ability of many
households to make utility payments;
see section Assistance to Households,
which identifies utility assistance as an
enumerated eligible use of funds,
including through direct or bulk
payments to utilities for consumer
assistance. Furthermore, for utilities or
other entities (e.g., certain service
districts) that are not part of the
recipient government, a transfer from
the utility to the recipient constitutes an
intergovernmental transfer and therefore
is included in the definition of "general
revenue." 293
Treasury has also added liquor store
revenue to the definition of general
revenue. The Supplemental Information
to the interim final rule stated that the
definition of tax revenue would include
liquor store revenue, but the text of the
rule did not include it. Accordingly, in
the final rule, Treasury is clarifying that
revenue includes liquor store revenue.

However, Treasury believes revenue
from government -owned liquor stores is
better classified as general revenue than
it is as tax revenue, so the final rule
includes it as part of general revenue.

In response to requests that the
definition of general revenue exclude
revenue from special assessments,
settlements that make the recipient
whole for past expenditures, and one-
time revenues such as revenue from the
sale of property, Treasury is maintaining
its position in the final rule that such
revenue is included in general revenue.

While such revenues may be less
predictable than other sources of
292 U.S. Energy Information Administration,
Annual Electric Utility Data (October 2021),
available at https://www.eia.gov/electricity/sales_
revenue price/.
203 FAQ 3.14 provides further guidance on how
to determine what entities constitute a government
for purposes of calculating revenue loss. See
Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, as of July 19, 2021;
https://home.treasuly.gov/system/files/136/
SLFRPFAQ.pdf.
revenue (e.g., property taxes), these are
not uncommon sources of revenue for
recipients, and their inclusion provides
a more complete view of the financial
health of a recipient government and is
consistent with the Census Bureau
methodology. Treasury is also
maintaining the exclusion of all
payments from the federal government
(including payments for services) from
general revenue in order to avoid
substantial dilution of the definition of
revenue, particularly in light of
extraordinary fiscal support provided
during the pandemic. Treasury is
maintaining the inclusion of
intergovernmental transfers other than
from the federal government for the
reasons provided in the Supplemental
Information to the interim final rule; to
do otherwise would be to significantly
distort the revenue calculations for local
governments that regularly receive
revenue sharing payments, for example,
from their state governments. Treasury
is also maintaining the approach that
"general revenue" includes revenue
from Tribal enterprises. This approach
recognizes that these enterprises often
form the revenue base for Tribal
governments' budgets.

To ease the burden on recipients and
account for anomalous variations in
revenue, as mentioned above, Treasury
has incorporated a "standard
allowance" option into the final rule. A
recipient may choose to use the
standard allowance, which under the
final rule is set at up to $10 million, not
to exceed the recipient's SLFRF award
amount, as an alternative to calculating
revenue loss according to the formula
described above. This addition will
promote administrative efficiency and
simplify the revenue loss calculation for
the vast majority of recipients. Treasury
intends to amend its reporting forms to
provide a mechanism for recipients to
elect to utilize either the revenue loss
formula or the standard allowance, in
addition to other changes made as part
of the final rule.

Aggregate Revenue Loss Calculation
Under the interim final rule, revenue
loss was calculated based on aggregate
revenues and therefore loss in one type
of revenue could be offset by gains in
another. The amount of SLFRF funds
available to provide government
services was based on overall net
revenue loss. In the Supplementary
Information to the interim final rule,
Treasury asked commenters to discuss
the advantages and disadvantages of,
and any potential concerns with, this
approach, including circumstances in
which it could be necessary or

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4405
appropriate to calculate the reduction in
revenue by source.

Public Comment: Treasury received
many comments stating that revenue
loss should be calculated on a source -
by -source basis. Some commenters
argued that a source -by -source approach
would be administratively simpler.

Other commenters argued that
calculating revenue loss source -by -
source would better reflect the impact of
the COVID-19 pandemic on their ability
to fund government services because
revenue gains in one source cannot
always be used to make up for losses in
another. For similar reasons, other
commenters asked that revenue loss be
calculated on a fund basis.

Treasury Response: Treasury
considered alternative methods (e.g.,
source -by -source, fund -by -fund) but
ultimately determined to maintain the
calculation of revenue loss in the
aggregate. The pandemic has had
different effects on recipients (and their
revenues), and Treasury recognized that
one particular type of revenue or one
particular source may have experienced
a greater amount of loss for some
recipients. However, the statute refers
only to "the reduction in revenue of
such State, local government, or Tribal
government." The statute is thus clear
that Treasury is to refer to the aggregate
revenue reduction of the recipient due
to the public health emergency. Further,
this provision is designed to address
declines in the recipients' overall ability
to pay for governmental services, and
calculating revenue loss on an aggregate
basis provides a more accurate
representation of the effect of the
pandemic on overall revenues and the
fiscal health of the recipient. In many
circumstances, recipient governments
have flexibility to use revenues from an
array of sources and offset declines in
some sources with gains in others.

While the details and configuration of
this flexibility vary widely across
recipient governments, calculating
revenue loss on a source -by -source or
fund -by -fund basis would not capture
how recipient governments balance
their budgets in the regular course of
business. Accordingly, the final rule
maintains the requirement that revenue
loss is to be calculated on an aggregate
basis.

Calculation Dates
Public Comment: Under the interim
final rule, recipients calculate revenue
loss as of the end of the calendar year.

Treasury received many comments
requesting that recipients be permitted
to calculate revenue loss as of the end
of their fiscal year. Commenters argued
that doing so would be simpler and less
burdensome on recipients and that
financial data as of the end of the fiscal
year is audited and therefore more
reliable. Commenters also argued that
recipients' fiscal years are structured
around the timing of major revenue
sources, and that the Census Bureau
uses fiscal years in its Annual Survey.

Treasury also received comments
about the use of multiple calculation
dates. Several Tribal governments stated
that they would not see ongoing revenue
losses due to the COVID-19 public
health emergency and asked to be able
to determine revenue loss as of the first
calculation date. Several commenters
asked whether revenue loss is
determined independently for each
year, so that a gain in one year does not
offset a loss in another, or whether
revenue loss is cumulative from the
beginning of the pandemic.

Treasury Response: In the final rule,
Treasury has made adjustments to give
recipients more flexibility with respect
to calculation dates and to clarify
certain elements. Specifically, the final
rule provides recipients the option to
choose whether to calculate revenue
loss on a fiscal year or calendar year
basis, though they must choose a
consistent basis for loss calculations
throughout the period of performance.

Treasury has also clarified in the final
rule that revenue loss is calculated
separately for each year such that the
calculation of revenue lost in one year
does not affect the calculation of
revenue lost in prior or future years.

Presumption That Revenue Loss Is Due
to the Pandemic
As stated above, sections 602(c)(1)(C)
and 603(c)(1)(C) of the Social Security
Act provide that SLFRF funds may be
used "for the provision of government
services to the extent of the reduction in
revenue of such . . . government due to
the COVID-19 public health emergency
relative to revenues collected in the
most recent full fiscal year of the . . .
government prior to the emergency." As
discussed in the interim final rule,
although revenue may decline for
reasons unrelated to COVID-19, in order
to minimize the administrative burden
on recipients in calculating revenue loss
and take into consideration the
devastating effects of the COVID-19
public health emergency, any reduction
in revenue relative to the counterfactual
estimate was presumed in the interim
final rule to be considered revenue lost
due to the pandemic.

Treasury stated in the Supplementary
Information to the interim final rule that
it was considering when, if ever, during
the period of performance it would be
appropriate to reevaluate the
presumption that all losses are
attributable to the public health
emergency. Treasury also sought
comment on whether to take into
account other factors, including actions
taken by the recipient as well as the
expiration of the COVID-19 public
health emergency, in determining
whether to presume that revenue losses
are "due to" the COVID-19 public
health emergency.

Public Comment: Treasury received
many comments in support of the
presumption, as well as some opposed.

Some commenters argued that the
presumption eases the administrative
burden on recipients because, without
it, it would be difficult to identify which
losses are attributable to the COVID-19
public health emergency. Many
commenters also argued that Treasury
should maintain the presumption
because recipients are likely to
experience losses due to the public
health emergency even after the end of
the public health emergency. Treasury
also received comments asking that it
adjust any revenue loss calculation to
account for tax changes enacted by the
recipient. In particular, some
commenters noted that some recipients
had increased taxes in order to meet
additional demands for government
services or to address declines in
revenue due to the pandemic. These tax
increases have in some cases offset some
or all of the actual revenue loss
attributable to the public health
emergency. Because the interim final
rule calculates revenue loss by reference
to actual revenue collected, commenters
argued that the calculation of revenue
loss "due to" the public health
emergency needs to take into
consideration the effects of tax increases
by deducting the effect of these tax
increases from actual revenue collected.

Treasury Response: In the final rule,
Treasury has maintained the
presumption that a reduction in a
recipient's revenue is due to the public
health emergency with certain
adjustments to respond to comments
and to better account for revenue loss
"due to the COVID-19 public health
emergency." The final rule makes
adjustments to the presumption to take
into account certain government actions
to change tax policy. In particular,
Treasury is adjusting the presumption to
account for changes to tax policy by
providing that changes in revenue that
are caused by tax increases or decreases
adopted after the issuance of the final
rule will not be treated as due to the
public health emergency.

4406 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations Presumption of Revenue Loss "Due To"
the Pandemic
In enacting sections 602(c)(1)(C) and
603(c)(1)(C) of the Social Security Act,
Congress provided that a state, local
government, or Tribal government could
use funds to "cover costs . . . for the
provision of government services," but
only "to the extent of the reduction in
revenue . . . due to the COVID-19
public health emergency relative to
revenues collected in the most recent
full fiscal year . . . prior to the
emergency." In doing so, Congress
recognized that the pandemic was
causing significant disruption to
economic activity and sought to
minimize the impact of associated
revenue losses on the ability of the
recipient to provide government
services when such services were
needed most.294 The text of the statute
itself reinforces this important context:

The law specifically limits funds to
cover revenue losses that both are "due
to the COVID-19 public health
emergency" and could impact "the
provision of government services."
Courts have recognized that the
phrase "due to" can refer to various
causal standards.295 Here, in the context
of Congress's addressing economic
disruptions caused by the COVID-19
pandemic that could impact both
revenues and government services, the
key consideration is whether a revenue
loss experienced by the recipient
resulted from the exogenous impacts of
the public health emergency (and were
thus "due to" the pandemic) or instead
from the recipient's own discretionary
actions (and, in this context, were not
"due to" the pandemic). Reductions in
revenue due to the public health
emergency does not cover revenue
reductions that resulted from a
recipient's own discretionary actions.

In the interim final rule, Treasury
included a presumption that all revenue
loss is due to the pandemic in order to
minimize the administrative burden on
recipients discussed above and take into
consideration the devastating effects of
the COVID-19 public health emergency.

Based on comments, Treasury believes
that the reasons for the presumption
continue to be valid and has determined
to maintain the presumption in the final
rule with certain modifications. In
294 See also sections 602(a)(1) and 603(a) of the
Social Security Act (appropriating the funds for
payment to recipients in order to "mitigate the
fiscal effects stemming from the public health
emergency").
295 U.S. Postal Service v. Postal Regulatory
Comm'n, 640 F.3d 1263 (D.C. Cir. 2011); see Kimber
v. Thiokol Corp., 196 F.3d 1092, 1100 (loth Cir.
1999); Adams v. Director, OWCP, 886 F.2d 818, 821
(6th Cir. 1989).
particular, at this point in the course of
the pandemic, with the fiscal pressure
on state and local governments having
been significantly reduced, it is
appropriate for Treasury to reassess
aspects of this presumption. As
discussed below, the final rule requires
recipients to exclude the value of tax
policy changes adopted after January 6,
2022.

Recipients of the SLFRF range from
states to the smallest local governments.

At the time that the interim final rule
was adopted, it was important for
recipients to be able to calculate with
ease and certainty their amount of
revenue loss so that they could begin
deploying these funds to continue to
maintain essential government services.

To this end, the presumption in the
interim final rule provided a relatively
simple formula for all recipients to use,
but the exigent need for recipients to
immediately deploy funds for the
provision of government services has
decreased and the benefit of the
presumption in reducing administrative
burden is less relevant for those
governments that are not likely to avail
themselves of the standard allowance
described above.

Consistent with these considerations,
the final rule requires recipients to
exclude revenue loss due to tax changes
adopted after January 6, 2022.

Eliminating revenue loss due to tax
changes from the presumption is
appropriate given the significance of tax
revenue as a portion of all revenue for
state and local governments, the direct
impact of tax policy decisions on
revenue collected, and the relative ease
with which recipients can isolate the
estimated effect of a tax change on
revenue.296 Most state budgeting
processes require a "budget score,"
often developed through a consensus
process with executive and legislative
branch experts,297 and Treasury expects
that larger localities, those most likely to
utilize the revenue loss formula rather
than the standard allowance, also
regularly use revenue or budget
estimates when considering changes to
tax policies. As such, in many cases,
296 Treasury considered whether to also eliminate
the presumption with respect to losses resulting
from other changes in policy, such as decreases in
user fees or fines. However, the effects of these
changes are more minor overall and would be more
challenging to accurately identify and quantify, so
the administrability benefit of the presumption for
recipients outweighs whatever distortion there
might be as a result of not reflecting such changes.
297 See generally, National Association of State
Budget Officers, Budget Processes in the States,
(2021), available at https://higherlogicdownload .
s3.amazonaws. com/NASBO/9d2d2db1-c943-4 f1 b-
b750-0fca152d64c2/Uploadedlmages/Budget%20
Processess/NASBO_2021 _Bu dget_Processes_in_th e_
States_S. pd f.
recipients already prepare estimates of
the impact of tax changes on revenue,
and as discussed below, Treasury will
generally permit recipients to rely on
such estimates in adjusting their
revenue loss calculations.

Reductions in revenue that are not
attributable to tax changes would
continue to be subject to the
presumption. A requirement that
recipients evaluate the revenue effect of
changes in discretionary policy actions
other than tax changes would be more
difficult for recipients than evaluating
the changes attributable to tax changes
given that state and local governments
do not generally prepare estimates of the
revenue effects of other actions. Finally,
as noted above, taxes are the single
largest source of revenue for state and
local government recipients in the
aggregate.

Revisions to Presumption To Address
Tax Reductions
For these reasons, Treasury is
providing in the final rule that changes
in general revenue that are caused by
tax cuts adopted after the date of
adoption of the final rule (January 6,
2022) will not be treated as due to the
public health emergency, and the
estimated fiscal impact of such tax cuts
must be added to the calculation of
"actual revenue" for purposes of
calculation dates that occur on or after
April 1, 2022. Tax cuts include final
legislative or regulatory action or a new
or changed 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 reducing tax
revenue relative to current law. This
includes the phase -in or taking effect of
any statute or rule if the phase -in or
taking effect was not prescribed prior to
the issuance of the final rule.

In assessing whether a tax change has
had the effect of reducing tax revenue,
recipients may either calculate the
actual effect on revenue or rely on
estimates prepared at the time the tax
change was adopted. More specifically,
recipients may rely on information
typically prepared in the course of
developing the budget (e.g., expected
revenues) and/or considering tax
changes (e.g., budget scores, revenue
notes) to determine the amount of
revenue that would have been collected
in the absence of the tax cut, as long as
those estimates are based on reasonable
assumptions and do not use dynamic
methodologies that incorporate the
projected effects of macroeconomic
growth, given that macroeconomic

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4407
growth is accounted for in the
counterfactual growth assumptions.

Recipients that choose to calculate the
actual effect of a tax change on revenue
must similarly base their calculations on
reasonable estimates that do not use
dynamic methodologies. Recipients
should apply this adjustment in
determining their actual revenue totals
at Step 3 in the revenue loss calculation
described above.

Revisions to Presumption To Address
Tax Increases
As noted above, the calculation
methodology in the interim final rule
implicitly assumed that recipients did
not experience a reduction in revenue
due to the public health emergency if
they did not experience a reduction in
aggregate revenue relative to the
counterfactual estimate. Treasury
recognizes that some recipients may
have experienced a reduction in
revenue due to the public health
emergency that was offset by other
revenue, particularly in the case of
increases to tax revenue resulting from
a tax increase. The final rule requires
recipients that increased taxes to deduct
the amount of increases to revenue
attributable to such tax increase. This
change is also consistent with the
incorporation in the interim final rule
and final rule of a counterfactual growth
rate, which effectively permits
recipients to count revenue losses due
to the public health emergency that are
offset by increased tax revenue resulting
from organic growth.

For these reasons, Treasury is
providing in the final rule that
recipients must subtract from their
calculation of actual revenue the effect
of tax increases adopted after the date of
adoption of this final rule (January 6,
2022) for purposes of calculation dates
that occur on or after April 1, 2022. This
change and the change to the final rule
described above treat tax changes in a
consistent manner: In the case of
reduction in revenue resulting from a
tax cut, a recipient must add the amount
of that reduction to its calculation of
actual revenue, and in the case of an
increase in revenue resulting from a tax
increase, a recipient must subtract the
amount of additional revenue collected
as a result of the tax increase from its
calculation of actual revenue.298
298 The final rule does not permit recipients to
reflect the effects of other changes in policy, such
as increases in fees adopted after adoption of the
final rule. Treasury understands that the main
beneficiaries of such a change would be those
recipients that will benefit from the standard
allowance provided for in the final rule and that for
other recipients the administrative burden on
recipients needed to calculate these adjustments
As is the case with tax cuts, discussed
above, tax increases that must be
reflected in the calculation of revenue
include final legislative or regulatory
action or a new or changed
administrative interpretation that
increases any tax and that the recipient
assesses has had the effect of increasing
tax revenue relative to current law. In
assessing whether a tax change has had
the effect of increasing tax revenue,
recipients may either calculate the
actual effect on revenue or rely on
estimates prepared at the time the tax
change was adopted. Recipients may
rely on information typically prepared
in the course of developing the budget
(e.g., expected revenues) and/or
considering tax changes (e.g., budget
scores, revenue notes) to determine the
amount of revenue that was collected as
a result of the tax increase as long as
those estimates are based on reasonable
assumptions and do not use dynamic
methodologies that incorporate the
projected effects of macroeconomic
growth, given that macroeconomic
growth is accounted for in the
counterfactual growth assumptions.

Recipients that choose to calculate the
actual effect of a tax change on revenue
must similarly base their calculations on
reasonable estimates that do not use
dynamic methodologies. Recipients
should apply this adjustment in
determining their actual revenue totals
at Step 3 in the revenue loss calculation
described above.

Previously Adopted Tax Changes
As discussed above, the final rule will
not require recipients to reflect the
revenue effects of tax increases or
decreases adopted prior to the adoption
of the final rule. Recipients that adopted
a tax change in a previous period will
not be required to recalculate the
amount of revenue loss as of prior
calculation dates or to reflect the fiscal
impacts of such tax changes in
calculation dates after the effective date
of the final rule. However, the final rule
will permit recipients to elect to reflect
the revenue effects of their tax changes
adopted between the beginning of the
public health emergency and the
adoption of the final rule.299 If a
recipient elects to do so, it must do so
with respect to all of its tax changes
would outweigh the benefit of having a somewhat
larger amount of funds available for government
services.
299 The final rule also addresses the possibility
that some recipients may have fiscal years ending
during the period between January 6, 2022 and
April 1, 2022; such recipients' election to reflect tax changes from prior periods would also apply to
changes during this period with respect to the
calculation date in this period.
adopted between the beginning of the
public health emergency and the
adoption of the final rule. Treasury
intends to revise its reporting
requirements to permit recipients to
amend their previously reported
calculation periods to reflect such
changes.

Determination of the Base Year
Under the ARPA and interim final
rule, SLFRF funds may be used "for the
provision of government services to the
extent of the reduction in revenue . . .
relative to revenues collected in the
most recent full fiscal year" of the
recipient. Therefore, the base year for
the revenue loss calculation is the most
recent full fiscal year prior to the
COVID-19 public health emergency.

Public Comment: Treasury received
multiple comments asking for flexibility
in determining base year revenues. For
instance, some commenters asked to use
a different base year than the "most
recent full fiscal year" prior to the
pandemic for calculating revenue loss;
others asked to be able to average prior
years. Commenters stated that, for
various reasons, revenue was artificially
low in the last full fiscal year prior to
the public health emergency, and,
therefore, using revenue in that year as
the base year did not accurately reflect
expected revenue in a normal year. For
example, several Tribes stated that
unforeseeable weather events resulted
in forced closure of casinos which, in
turn, artificially deflated revenues in the
base year. Other commenters indicated
that one-time anomalies in the timing of
tax collection in that year artificially
pushed revenue into the following fiscal
year. Similarly, a few commenters noted
that tax changes that took effect in the
middle of the base year may artificially
skew the size of the revenue loss
experienced by the recipient
government.

Treasury Response: Treasury
understands that recipients may have
experienced events in the base year that
led to lower or higher revenues than
what they otherwise would have
collected. The ARPA provides that
revenue loss is to be determined with
respect to revenue in the most recent
full fiscal year prior to the pandemic,
and therefore the final rule maintains its
incorporation of the statutory definition.

In calculating revenue loss, recipients
may use data on a cash, accrual, or
modified accrual basis, provided that
recipients are consistent in their choice
of methodology throughout the covered
period, which might help recipients
adjust to certain delays in revenue
receipt. Both the standard allowance
and elements of the formula (e.g.,

4408 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations counterfactual growth rate) incorporate
generous assumptions to give recipients
flexibility and to account for variation
among recipients' experiences during
the pandemic.

Government Services
The SUPPLEMENTAL INFORMATION to the
interim final rule provided a non -
exhaustive list of examples of services
that are government services. The
interim final rule also discussed why
neither payment of debt service nor
replenishing financial reserves
constitutes government services, as
these expenditures do not provide
services but relate to the financing of
such services. Similarly, government
services under the interim final rule did
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, unless the judgment or
settlement required the provision of
government services.

Public Comment: Treasury received
several comments requesting further
clarification regarding the scope of
government services, including asking
for either a specific definition of
government services or that a specific
use be expressly deemed to be a
government service. Some commenters
disagreed with the exclusions from
government services in the interim final
rule. For instance, many of the
comments Treasury received suggested
that replenishing reserve funds and at
least certain types of debt service should
be treated as providing governmental
services. Some commenters also
suggested that a recipient should be able
to use funds for costs incurred before
March 3, 2021. Other commenters asked
Treasury to maintain the prohibition on
using the funds to pay debt service.

Treasury Response: Treasury
continues to believe that the lists of
activities that either are or are not
providing government services are
accurate but is clarifying here that,
generally speaking, services provided by
the recipient governments are
"government services" under the
interim final rule and final rule, unless
Treasury has stated otherwise.

Government services include, but are
not limited to, maintenance or pay -go
funded building 300 of infrastructure,
including roads; modernization of
cybersecurity, including hardware,
300 Pay -go infrastructure funding refers to the
practice of funding capital projects with cash -on -
hand from taxes, fees, grants, and other sources,
rather than with borrowed sums.
software, and protection of critical
infrastructure; health services;
environmental remediation; school or
educational services; and the provision
of police, fire, and other public safety
services.

The aforementioned list of
government services is not exclusive.

However, recipients should be mindful
that other restrictions may apply,
including those articulated in the
section Restrictions on Use. In the final
rule, Treasury is maintaining the
limitations on government services
included in the interim final rule and
has addressed and responded to public
commenters on these issues in the
section Restrictions on Use.

D. Investments in Water, Sewer, and
Broadband Infrastructure
Summary of Interim Final Rule
Under the ARPA, recipients may use
funds to make necessary investments in
water, sewer, and broadband
infrastructure. The interim final rule
provided recipients with the ability to
use funds for a broad array of uses
within these categories.

The interim final rule discussed two
general provisions that apply across all
water, sewer, and broadband
infrastructure investments. First, the
interim final rule addressed the
meaning of "necessary" investments as
meaning those designed to provide an
adequate minimum level of service and
unlikely to be made using private
sources of funds. Second, the interim
final rule encouraged recipients to use
strong labor standards in water, sewer,
and broadband projects, as discussed
below.

Necessary Investments
The statute limits investments to
those that are necessary. As discussed in
more detail below, Treasury determined
that the types of water and sewer
projects that were authorized under the
interim final rule by reference to
existing Environmental Protection
Agency (EPA) programs would in all
cases be necessary investments given
the conditions applicable to such EPA
programs. Similarly, the interim final
rule's definition of eligible broadband
projects as those designed to provide a
certain standard of service to those
households and businesses with limited
existing service was based on the
statutory requirement that investments
in water, sewer, and broadband must be
"necessary."
As discussed further below, Treasury
has expanded the scope of what is an
eligible water and sewer infrastructure
project to include additional uses. In
particular, the final rule permits use of
SLFRF funds for certain dam and
reservoir restoration projects and certain
drinking water projects to support
population growth. The nature of these
additional uses is such that additional
factors must be considered in
determining whether one of these
additional uses is a necessary project. In
addition, Treasury recognizes that there
may be a need for improvements to
broadband beyond those households
and businesses with limited existing
service as defined in the interim final
rule. Treasury has replaced this specific
requirement based on an understanding
that broadband investments may be
necessary for a broader set of reasons.

Given this expansion of what is
considered in scope as a water, sewer,
or broadband infrastructure project, the
final rule provides a further elaboration
of Treasury's understanding of the
conditions under which an
infrastructure project will be considered
to be a necessary investment. Treasury
considers a necessary investment in
infrastructure to be one that is (1)
responsive to an identified need to
achieve or maintain an adequate
minimum level of service, which may
include a reasonable projection of
increased need, whether due to
population growth or otherwise and (2)
a cost-effective means for meeting that
need, taking into account available
alternatives. In addition, given that
drinking water is a resource that is
subject to depletion, in the case of
investments in infrastructure that
supply drinking water in order to meet
projected population growth, the project
must be projected to be sustainable over
its estimated useful life.

Not included in the list of criteria
above is the requirement in the interim
final rule that the project be unlikely to
be made using private sources of funds.

Given that it may be difficult to assess
in a particular case what the probability
of private investment in a project would
be, Treasury has eliminated this
standard from the meaning of necessary
but still encourages recipients to
prioritize projects that would provide
the greatest public benefit in their
respective jurisdictions.

Strong Labor Standards in Water, Sewer,
and Broadband Construction
As stated in the Supplementary
Information to the interim final rule,
Treasury encourages recipients to carry
out investments in water, sewer, or
broadband infrastructure in ways that
produce high -quality infrastructure,
avert disruptive and costly delays, and

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4409 promote efficiency.3O1 Treasury
encourages recipients to use strong labor
standards, including project labor
agreements (PLAs) and community
benefits agreements that offer wages at
or above the prevailing rate and include
local hire provisions. Treasury also
recommends that recipients prioritize in
their procurement decisions employers
who can demonstrate that their
workforce meets high safety and
training standards (e.g., professional
certification, licensure, and/or robust in-
house training), that hire local workers
and/or workers from historically
underserved communities, and who
directly employ their workforce or have
policies and practices in place to ensure
contractors and subcontractors meet
high labor standards. Treasury further
encourages recipients to prioritize
employers (including contractors and
subcontractors) without recent
violations of federal and state labor and
employment laws.

Treasury believes that such practices
will promote effective and efficient
delivery of high -quality infrastructure
projects and support the economic
recovery through strong employment
opportunities for workers. Such
practices will also reduce the likelihood
of potential project challenges like work
stoppages or safety accidents, while
ensuring a reliable supply of skilled
labor and minimizing disruptions, such
as those associated with labor disputes
or workplace injuries. That will, in turn,
promote on -time and on -budget
delivery.

Furthermore, among other
requirements contained in 2 CFR 200,
Appendix II, all contracts made by a
recipient or subrecipient in excess of
$100,000 with respect to water, sewer,
or broadband infrastructure project that
involve employment of mechanics or
laborers must include a provision for
compliance with certain provisions of
the Contract Work Hours and Safety
Standards Act, 40 U.S.C. 3702 and 3704,
3°1 Treasury received several comments related to
its encouragement of certain wage and labor
standards in the Supplementary Information to the
interim final rule. Some commenters opposed this
encouragement, arguing that even encouragement
and reference to PLAs and prevailing wage laws
could lead to confusion or make it more likely that
recipients would apply labor standards in ways that
would discourage competition and raise project
costs. Conversely, some commenters supported the
encouragement of the use of certain standards,
including giving preference to employers that meet
certain employment standards (e.g., those that
maintain high safety and training standards)
because it would support the goal of completing
water, sewer, and broadband projects efficiently
and safely. As in the interim final rule, this
encouragement does not impose a legally binding
restriction on recipients.
as supplemented by Department of
Labor regulations (29 CFR part 5).

Treasury will continue to seek
information from recipients on their
workforce plans and water, sewer, and
broadband projects undertaken with
SLFRF funds. This reporting will
support transparency and competition
by enhancing available information on
the services being provided. Since
publication of the interim final rule,
Treasury has provided recipients with
additional guidance and instructions on
the reporting requirements.302
Environmental and Other Generally
Applicable Requirements
Treasury cautions that, as is the case
with all projects engaged in using the
SLFRF funds, all projects must comply
with applicable federal, state, and local
law. In the case of infrastructure
projects in particular, this includes
environmental and permitting laws and
regulations. Likewise, as with all capital
expenditure projects using SLFRF
funds, projects must be undertaken and
completed in a manner that is
technically sound, meaning that they
must meet design and construction
methods and use materials that are
approved, codified, recognized, fall
under standard or acceptable levels of
practice, or otherwise are determined to
be generally acceptable by the design
and construction industry.

1. Water and Sewer Infrastructure
Sections 602(c)(1)(D) and Section
603(c)(1)(D) of the Social Security Act
provide that recipients may use the
SLFRF funds "to make necessary
investments in water [and] sewer . . .
infrastructure." The interim final rule
permitted a broad range of necessary
investments in projects that improve
access to clean drinking water and
improve wastewater and stormwater
infrastructure systems. As discussed
below, after review of comments
received on the interim final rule,
Treasury has made changes in the final
rule to expand the scope of eligible
water and sewer projects.

Summary of Interim Final Rule and
Final Rule Structure
Background: In the interim final rule,
Treasury aligned eligible uses of the
SLFRF with the wide range of types or
categories of projects that would be
eligible to receive financial assistance
through the Clean Water State Revolving
Fund (CWSRF) or Drinking Water State
Revolving Fund (DWSRF) administered
302 See U.S. Department of the Treasury,
Compliance and Reporting Guidance, 21 (June 24,
2021), https://home.treasury.gov/system/files/136/
SLFRF-Compliance-and-Reporting-Guidance. pd f.
by the Environmental Protection Agency
(EPA). By referring to these existing
programs, with which many recipients
are already familiar, Treasury intended
to provide flexibility to recipients to
respond to the needs of their
communities while facilitating
recipients' identification of eligible
projects. Furthermore, by aligning
SLFRF eligible uses with these existing
programs, Treasury could ensure that
projects using the SLFRF are limited to
"necessary investments."
Public Comment: Treasury received
many comments responding to the
water and sewer infrastructure
provisions of the interim final rule from
state, local, and Tribal governments,
industry trade associations, public
interest groups, private individuals, and
other interested parties. Commenters
requested that Treasury provide a wider
set of eligible uses for water and sewer
infrastructure beyond those uses
articulated by the DWSRF and CWSRF,
suggesting that Treasury expand the
definition of necessary water and sewer
infrastructure.

Treasury Response: In response to
commenters, Treasury is expanding the
eligible use categories for water and
sewer infrastructure, discussed in
further detail below. Because the
interim final rule aligned the definition
of necessary water and sewer
infrastructure with the eligible uses
included in the DWSRF and CWSRF,
Treasury is reflecting in the final rule a
revised standard for determining a
necessary water and sewer
infrastructure investment for eligible
water and sewer uses beyond those uses
that are eligible under the DWSRF and
CWSRF.

Interpretation of Necessary Investments
and Water and Sewer Infrastructure
Necessary Investments: As discussed
above, Treasury considers an
investment in infrastructure to be
necessary if it is (1) responsive to an
identified need to achieve or maintain
an adequate minimum level of service,
which for some eligible project
categories may include a reasonable
projection of increased need, whether
due to population growth or otherwise
and (2) a cost-effective means for
meeting that need, taking into account
available alternatives. In addition, in the
case of investments in drinking water
service infrastructure to supply drinking
water to satisfy a projected increase in
population, the project must also be
projected to be sustainable over its
estimated useful life. As detailed further
below, DWSRF and CWSRF eligible
projects continue to be presumed to be
necessary investments under the final

4410 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations rule, with the exception of projects for
the rehabilitation of dams and
reservoirs, which the EPA has permitted
in certain circumstances under the
DWSRF and, as discussed below, are
addressed separately in the final rule.

In evaluating whether a project would
respond to a need to achieve or
maintain an adequate minimum level of
service, a recipient should consider
whether it would meet the needs of the
population to be served and would
satisfy applicable standards. For
example, a drinking water project must
be sized such that it provides an
adequate volume of water to households
and other customers and must meet
applicable standards for drinking water
quality under the Safe Drinking Water
Act (SDWA). Similarly, a centralized
wastewater treatment project should be
designed to manage updated estimated
flow rates and comply with Clean Water
Act requirements. These requirements
are already reflected in the eligibility
criteria of the DWSRF and CWSRF,
respectively.

In evaluating whether a project is a
cost-effective means of providing the
water or sewer service, the recipient
should consider the need for the project,
the costs and benefits of the project
compared to alternatives, and the
effectiveness of the project in meeting
the identified need. Recipients are not
required to conduct a full cost -benefit
analysis; however, they should consider
and analyze relevant factors. For
example, a recipient may not use funds
to pursue a costly dam rehabilitation to
provide drinking water to a community
if it could provide the same service with
a significantly smaller investment by
drawing water from another available
reservoir, assuming that doing so would
meet the other requirements of the final
rule. As detailed further below,
recipients are only required to assess
cost-effectiveness of projects for the
creation of new drinking water systems,
dam and reservoir rehabilitation
projects, or projects for the extension of
drinking water service to meet
population growth needs.

Certain DWSRF eligibilities are
already subject to a cost-effectiveness
test. Specifically, projects that create
new drinking water systems must be a
cost-effective solution to addressing the
identified problem,3o3 The EPA also
imposes a cost-effectiveness condition
on dam and reservoir rehabilitation
projects undertaken pursuant to its class
deviation from the DWSRF rule. These
projects are particularly expensive and,
unlike in the case of other types of
eligible projects, there are often
303 See 40 CFR 35.3520(b)(2)(vi).
available alternatives to conducting
these projects. Projects for the extension
of drinking water service to meet
population growth needs are also often
particularly expensive, and there are
often different ways to meet the needs
of expanding populations. Treasury will
accordingly require that recipients
engage in a cost-effectiveness analysis
when engaging in projects for the
creation of new drinking water systems,
dam and reservoir rehabilitation
projects, or projects for the extension of
drinking water service to meet
population growth needs. Other types of
eligible water or sewer projects will not
be subject to this cost-effectiveness test,
including lead line replacement and
lead remediation.304
In the case of projects that expand
drinking water service infrastructure to
satisfy a projected increase in
population, the project must also be
sustainable, meaning that the project
can continue providing the adequate
minimum level of service for its
estimated useful life, taking into
account projected impacts of changes to
the climate and other expected demands
on the source of water. For example, a
reservoir rehabilitation project may not
be pursued if the reservoir will no
longer be able to provide an adequate
source of drinking water before the end
of the estimated useful life of the
improvements to the reservoir. In areas
currently impacted by drought or where
drought conditions are expected to be
more frequent or more severe in the
future, sources of drinking water may be
diminished more quickly than in prior
periods. In considering how much of a
source of water will be available in the
future for the drinking water project, a
recipient must consider that a source of
water may be drawn upon or otherwise
used for other current and expected
uses, including use by fish and other
wildlife.

The final rule applies this
sustainability condition to projects that
expand drinking water service
infrastructure to satisfy a projected
increase in population but not to other
drinking water projects. When a new
source of water is required to remedy an
existing threat to public health, as in the
case of source projects eligible under the
DWSRF, sustainability should be a
consideration, but in some cases, the
need to replace a contaminated source
may mean that a less sustainable choice
"4 In such cases, either the projects are
presumptively cost-effective (e.g., lead projects
would always be considered cost-effective given the
costs imposed by lead poisoning) or a cost-
effectiveness test is less relevant given the lack of
available alternatives or the relatively low cost of
the project.
may be made. When faced with such an
issue, such as in the case of a
contaminated well system, a project to
replace the contaminated source can be
said to be "necessary" even if the
replaced source is not sustainable over
the long term. Expediency may dictate
that a shorter -term solution is pursued
if it is cost-effective and will prevent
health issues while a longer -term
solution can be found. In contrast, an
expansion to accommodate population
growth cannot be said to be necessary if
it is not sustainable over its estimated
useful life.

Not included in the list of criteria
above is the requirement in the interim
final rule that the project be unlikely to
be made using private sources of funds.

Given that it may be difficult to assess
in a particular case what the probability
of private investment in a project would
be, Treasury has eliminated this
standard from the meaning of necessary
but nevertheless encourages recipients
to apply funds to projects that would
provide the greatest public benefit.

Water and Sewer Infrastructure: As
stated above, Congress provided that
SLFRF funds are available for
"necessary water, sewer, and broadband
infrastructure." Treasury interprets the
reference to water and sewer uses
consistent with the inclusion of
broadband uses. Water, sewer, and
broadband infrastructure all involve the
provision of essential services to
residents, businesses, and other
consumers. As the pandemic has made
clear, access to broadband has itself
become essential for individuals and
businesses to participate in education,
commerce, work, and civic matters and
to receive health care and social
services.

Water and sewer services provided
broadly to the public as essential
services include the provision of
drinking water and the removal,
management, and treatment of
wastewater and stormwater.305
Although governments are engaged in
other infrastructure related to water,
including irrigation projects,
transportation projects, and recreation
projects, such projects go beyond the
scope of what is provided to all
residents as an essential service.

Provision of drinking water and
removal, management, and treatment of
305In many jurisdictions, stormwater flows into
the sewer system rather than into a separate
stormwater system. The separate inclusion of
"water" and "sewer" infrastructure also makes
clear that "water" in this context cannot refer to all
uses relevant to water. Given that sewer systems
carry wastewater (and often stormwater), if water
infrastructure were to refer to all water -related
infrastructure in this context, it would make the
inclusion of sewer infrastructure redundant.

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4411 wastewater and stormwater are the
typical responsibilities of "water and
sewer" authorities throughout the
country, and there is a tremendous need
for improvements to the ability of state,
local, and Tribal governments to
provide such services, including to
address the consequences of deferred
maintenance and additional resiliency
needed to adapt to changes to the
climate.306
Although the meaning of water and
sewer infrastructure for purposes of
sections 602(c)(1)(D) and 603(c)(1)(D) of
the Social Security Act does not include
all water -related uses, Treasury has
made clear in this final rule that
investments to infrastructure include a
wide variety of projects. Treasury
interprets the word "infrastructure" in
this context broadly to mean the
underlying framework or system for
achieving the given public purpose,
whether it be provision of drinking
water or management of wastewater or
stormwater.307 As discussed below, this
can include not just storm drains and
culverts for the management of
stormwater, for example, but also
bioretention basins and rain barrels
implemented across a watershed,
including on both public and private
property, that together reduce the
amount of runoff that needs to be
managed by traditional infrastructure.

Further, Treasury understands that
investments in infrastructure include
3°6 In addition, Treasury interprets the eligible
uses of SLFRF funds against the background of the
Coronavirus Relief Fund (CRF), for which the
SLFRF funds are, in part, a successor. CRF
recipients expressed great interest in using the CRF
to pursue water infrastructure projects, including
provision of drinking water and internal plumbing
on Tribal lands and in Alaskan villages, and
broadband projects throughout the country;
Treasury permitted these projects given the
connection to the public health emergency (see
Coronavirus Relief Fund for States, Tribal
Governments, and Certain Eligible Local
Governments, 86 FR 4182, 4190, 4192 (Jan. 15,
2021), but the short deadline for use of funds made
it difficult to use CRF funds in this way. Congress'
inclusion of the water, sewer, and broadband clause
in the ARPA, along with the SLFRF funds' longer
eligible use date, is responsive to this unmet need.

As discussed below, Congress in the Infrastructure
Investment and Jobs Act amended sections 602(c)
and 603(c) of the Social Security Act to add a new
paragraph as sections 602(c)(4) and 603(c)(5),
respectively, providing that SLFRF funds may be
used to meet non-federal matching requirements of
any authorized Bureau of Reclamation project. This
authority was added as a separately enumerated
eligible use regardless of whether the underlying
project would be an eligible use of SLFRF funds
under the water and sewer infrastructure eligible
use category.
307 See, e.g., section 502 of the Federal Water
Pollution Control Act (33 U.S.C. 1362), defining
"green infrastructure" as "the range of measures
that use plant or soil systems, permeable pavement
or other permeable surfaces or substrates,
stormwater harvest and reuse, or landscaping to
store, infiltrate, or evapotranspirate stormwater and
reduce flows to sewer systems or to surface waters."
improvements that increase the capacity
of existing infrastructure and extend the
useful life of existing infrastructure.

Accordingly, water and sewer
infrastructure investment projects
include those that conserve water,
thereby reducing pressure on
infrastructure for the provision of
drinking water, and that recycle
wastewater and stormwater, thereby
reducing pressure on the infrastructure
for treating and managing wastewater
and stormwater.

As with other infrastructure projects
and capital expenditure projects that are
permitted as responses to the public
health emergency and its negative
economic impacts, costs for planning
and design and associated pre -project
costs are eligible uses of SLFRF funds.

Costs for the acquisition of land are also
eligible, but only if needed for the
purposes of locating eligible project
components. Recipients should ensure
that they have the technical, financial,
and managerial capability to ensure
compliance with the requirements of the
SDWA, or that the assistance will
ensure compliance and the owners or
operators of the systems will undertake
feasible and appropriate changes in
operations to ensure compliance over
the long-term.

Drinking Water State Revolving Fund
and Clean Water State Revolving Fund
Background: As stated above, in the
interim final rule, Treasury included
eligible uses of the DWSRF and the
CWSRF as eligible uses of the SLFRF in
the water and sewer infrastructure
category. By providing that projects
eligible under the DWSRF and the
CWSRF are also eligible uses of SLFRF
funds, the interim final rule permitted a
broad range of projects that improve
drinking water infrastructure, such as
building or upgrading facilities and
transmission, distribution, and storage
systems, including replacement of lead
service lines. With respect to clean
water and wastewater infrastructure, the
interim final rule provided that
recipients may use SLFRF funds to
construct publicly owned treatment
infrastructure, manage and treat
stormwater or subsurface drainage
water, and facilitate water reuse, among
other uses. Consistent with the DWSRF
and the CWSRF, the interim final rule
provided that SLFRF funds may be used
for cybersecurity needs to protect water
or sewer infrastructure, such as
developing effective cybersecurity
practices and measures at drinking
water systems and publicly owned
treatment works.

Use of DWSRF and CWSRF to Support
Climate Change Adaptations. Many of
the types of projects eligible under
either the DWSRF or CWSRF also
support efforts to address climate
change. For example, by taking steps to
manage potential sources of pollution
and preventing these sources from
reaching sources of drinking water,
projects eligible under the DWSRF and
CWSRF may reduce energy required to
treat drinking water. Similarly, projects
eligible under the DWSRF and CWSRF
include measures to conserve and reuse
water, for example through projects to
reuse or recycle wastewater, stormwater,
or subsurface drainage water. Treasury
encourages recipients to consider green
infrastructure investments and projects
to improve resilience to the effects of
climate change. For example, more
frequent and extreme precipitation
events combined with construction and
development trends have led to
increased instances of stormwater
runoff, water pollution, and flooding.

Green infrastructure projects that
support stormwater system resiliency
could include bioretention basins that
provide water storage and filtration
benefits, and green streets, where
vegetation, soil, and engineered systems
are combined to direct and filter
rainwater from impervious surfaces. In
cases of a natural disaster, recipients
may also use SLFRF funds for water
infrastructure to provide relief, such as
interconnecting water systems or
rehabilitating existing wells during an
extended drought.

Public Comment: Many commenters
expressed support for the interim final
rule's alignment of the use of funds for
water and sewer infrastructure under
the SLFRF with the project categories
provided through the EPA's DWSRF and
CWSRF programs.

Many commenters also provided
recommendations about the specific
types of water infrastructure projects
that should be eligible under the final
rule. In many of these cases,
commenters recommended that
Treasury include project types that are
already eligible under the DWSRF and
CWSRF and thus eligible under the
interim final rule and final rule. For
example, several commenters requested
that aquifer recharge projects, or other
groundwater protection and restoration
projects, be included as eligible uses of
SLFRF when certain aquifer recharge
projects that (1) implement a nonpoint
source pollution management
program 308 or (2) constitute reuse of
308 Specifically, this would include desalination
projects that decrease the burden on aquifers where
there is causal relationship between aquifer
withdrawals and saltwater intrusion if the projects
implement a nonpoint source pollution
Continued

4412 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations wastewater, stormwater, or subsurface
drainage water are in fact eligible uses
under the CWSRF. Furthermore, under
the DWSRF, eligible projects include
certain aquifer storage and recovery
systems for water storage.

Treasury Response: Eligible projects
articulated in the DWSRF and CWSRF
continue to be eligible uses of SLFRF
funds under the final rule. Recognizing
that recipients have faced challenges
interpreting eligible use categories
under the interim final rule or cross-
referencing EPA program materials to
interpret eligible project types, Treasury
is including in this Supplementary
Information additional information on
the types of projects eligible under the
DWSRF and CWSRF. Treasury
emphasizes that this further clarification
does not represent a change in
eligibility. Treasury encourages
recipients to reference EPA handbooks
for the DWSRF and CWSRF, which
provide further information and detail
about the types of projects eligible
under those programs and thus under
the final rule.

Eligible projects under the DWSRF.

Eligibilities under the DWSRF, the
interim final rule, and the final rule
include projects that address present or
prevent future violations of health -based
drinking water standards. These include
projects needed to maintain compliance
with existing national primary drinking
water regulations for contaminants with
acute and chronic health effects.

Projects to replace aging infrastructure
are also eligible uses if they are needed
to maintain compliance or further the
public health protection objectives of
section 1452 of the SDWA.3O9 The
following project categories are eligible
under the DWSRF, were eligible under
the interim final rule, and continue to
be eligible under the final rule:
(i) Treatment projects, including
installation or upgrade of facilities to
management program under section 319 of the
Clean Water Act. This could include projects in
which desalinated seawater is injected into the
aquifer to mitigate or prevent salt water intrusion,
as well as projects in which brackish water is
removed from an aquifer, desalinated, and returned
to the aquifer.
309 See 42 U.S.C. 300j-12(a)(2)(B) (limiting
financial assistance used by a public water system
to expenditures (including expenditures for
planning, design, siting, and associated
preconstruction activities, or for replacing or
rehabilitating aging treatment, storage, or
distribution facilities of public water systems, but
not including monitoring, operation, and
maintenance expenditures of a type or category
which the Administrator of the EPA has
determined, through guidance, will facilitate
compliance with national primary drinking water
regulations applicable to the system under 42
U.S.C. 300g-1 or otherwise significantly further the
health protection objectives of the SWDA); See also
40 CFR 35.3520(b).
improve the quality of drinking water to
comply with primary or secondary
standards and point of entry or central
treatment under section 1401(4)(B)(i)(III)
of the SDWA.
(ii) Transmission and distribution
projects, including installation or
replacement of transmission and
distribution pipes to improve water
pressure to safe levels or to prevent
contamination caused by leaks or breaks
in the pipes.
(iii) Source projects, including
rehabilitation of wells or development
of eligible sources to replace
contaminated sources.
(iv) Storage projects, including
installation or upgrade of eligible
storage facilities, including finished
water reservoirs, to prevent
microbiological contaminants from
entering a public water system.
(v) Consolidation projects, including
projects needed to consolidate water
supplies where, for example, a supply
has become contaminated or a system is
unable to maintain compliance for
technical, financial, or managerial
reasons.
(vi) Creation of new systems,
including those that, upon completion,
will create a community water system to
address existing public health problems
with serious risks caused by unsafe
drinking water provided by individual
wells or surface water sources. Eligible
projects are also those that create a new
regional community water system by
consolidating existing systems that have
technical, financial, or managerial
difficulties. Projects to address existing
public health problems associated with
individual wells or surface water
sources must be limited in scope to the
specific geographic area affected by
contamination. Projects that create new
regional community water systems by
consolidating existing systems must be
limited in scope to the service area of
the systems being consolidated.

Ineligible projects under the DWSRF.

Federally -owned public water systems
and for-profit noncommunity water
systems are not eligible to receive
DWSRF funds and therefore SLFRF
funds.310 The acquisition of water
rights, laboratory fees for routine
compliance monitoring, and operation
and maintenance expenses are not costs
associated with investments in
infrastructure and thus would not be
eligible under the final rule. 311 Projects
needed primarily to serve future
population growth are also ineligible
under the DWSRF; the treatment of such
projects under the final rule is discussed
31° See 40 CFR 35.3520(d)(1).
311 See id at § 35.3520(e)(2)—(4).
separately below under "Expansion of
Drinking Water Service." Projects
eligible under the DWSRF must be sized
only to accommodate a reasonable
amount of population growth expected
to occur over the useful life of the
project.

Eligible projects under the CWSRF.

The final rule continues to allow the use
of SLFRF funds for projects eligible
under the CWSRF, consistent with the
interim final rule. Under the CWSRF, a
project must meet the criteria of one of
the following CWSRF eligibilities to be
eligible for assistance. Section 603(c) of
the Clean Water Act (CWA) 312 provides
that the CWSRF can provide assistance:
(i) to any municipality, intermunicipal,
interstate, or state agency for construction of
publicly owned treatment works (as defined
in section 212 of the CWA); 313
(ii) for the implementation of a
management program established under
section 319 of the CWA; 314
(iii) for the development and
implementation of a conservation and
management plan under section 320 of the
CWA;315
(iv) for the construction, repair, or
replacement of decentralized wastewater
treatment systems that treat municipal
wastewater or domestic sewage. Eligible
projects include, but are not limited to, the
construction of new decentralized systems
(e.g., individual onsite systems and cluster
systems), as well as the upgrade, repair, or
replacement of existing systems.
(v) for measures to manage, reduce,
treat, or recapture stormwater or
subsurface drainage water. Publicly and
privately owned, permitted and
unpermitted projects that manage,
reduce, treat, or recapture stormwater or
subsurface drainage water are eligible.

For example, projects that are
specifically required by a Municipal
Separate Storm Sewer System (MS4)
permit are eligible, regardless of
ownership. Projects may include, but
are not limited to green roofs,
bioretention basins, roadside plantings,
porous pavement, and rainwater
harvesting.
(vi) to any municipality,
intermunicipal, interstate, or state
agency for measures to reduce the
demand for publicly owned treatment
works capacity through water
conservation, efficiency, or reuse.

Eligible projects include, but are not
limited to, the installation, replacement,
or upgrade of water meters; plumbing
fixture retrofits or replacement; and gray
water recycling. Water audits and water
conservation plans are also eligible.
312 33 U.S.C. 1383(c).
313 33 U.S.C. 1292.
314 33 U.S.C. 1329.
315 33 U.S.C. 1330.

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4413
Equipment to reuse effluent (e.g., gray
water, condensate, and wastewater
effluent reuse systems) is eligible.
(vii) for the development and
implementation of watershed projects
meeting the criteria set forth in section
122 of the CWA.316 Projects that
develop or implement a watershed pilot
project related to at least one of the six
areas identified in section 122 of the
CWA are eligible: Watershed
management of wet weather discharges,
stormwater best management practices,
watershed partnerships, integrated
water resource planning, municipality -
wide stormwater management planning,
or increased resilience of treatment
works.
(viii) to any municipality,
intermunicipal, interstate, or state
agency for measures to reduce the
energy consumption needs for publicly
owned treatment works. Projects may
include, but are not limited to, the
installation of energy efficient lighting,
HVAC, process equipment, and
electronic equipment and systems at
publicly owned treatment works.

Planning activities, such as energy
audits and optimization studies are also
eligible.
(ix) for reusing or recycling
wastewater, stormwater, or subsurface
drainage water. Projects involving the
reuse or recycling of wastewater,
stormwater, or subsurface drainage
water are eligible. This includes, as part
of a reuse project, the purchase and
installation of treatment equipment
sufficient to meet reuse standards. Other
eligible projects include, but are not
limited to, distribution systems to
support effluent reuse, including piping
the effluent on the property of a private
consumer, recharge transmission lines,
injection wells, and equipment to reuse
effluent (e.g., gray water, condensate,
and wastewater effluent reuse systems).
(x) for measures to increase the
security of publicly owned treatment
works. Security measures for publicly
owned treatment works might include,
but are not limited to, vulnerability
assessments, contingency/emergency
response plans, fencing, security
cameras/lighting, motion detectors,
redundancy (systems and power),
secure chemical and fuel storage,
laboratory equipment, securing large
sanitary sewers, and tamper -proof
manholes. The CWSRF cannot fund
operations and maintenance activities.

Therefore, maintaining a human
presence (i.e., security guards) and
monitoring activities are not eligible.
316 33 U.S.C. 1274.

Other Clarifications of DSWRF and
CWSRF Eligible Project Categories
Public Comment: Several commenters
requested that Treasury provide
clarification of the requirements
associated with use of SLFRF funds for
necessary investments in water and
sewer infrastructure.

Treasury Response: After release of
the interim final rule, Treasury clarified
in further guidance that, while
recipients must ensure that water and
sewer infrastructure projects pursued
are eligible under the final rule,
recipients are not required to obtain
project pre -approval from Treasury or
any other federal agency when using
SLFRF funds for necessary water and
sewer infrastructure projects unless
otherwise required by federal law. For
projects that are being pursued under
the eligibility categories provided
through the DWSRF or CWSRF
programs, project eligibilities are based
on federal project categories and
definitions for the programs and not on
each state's eligibility or definitions.

While reference in the final rule to the
DWSRF, CWSRF, or other federal water
programs is provided to assist recipients
in understanding the types of water and
sewer infrastructure projects eligible to
be funded with SLFRF, recipients do
not need to apply for funding from the
applicable state programs or through
any federal water program. Similarly,
besides eligible project categories, the
final rule does not incorporate other
program requirements or guidance that
attach to the DWSRF, CWSRF, or other
federal water programs. However, as
noted above, recipients should be aware
of other federal or state laws or
regulations that may apply to
construction projects or water and sewer
projects, independent of SLFRF funding
conditions, and that may require pre -
approval from another federal or state
agency.

Expanded Eligible Uses for Water and
Sewer Infrastructure
Summary
Public Comment: Many commenters
requested broader flexibility in the use
of SLFRF funds for water and sewer
infrastructure projects that are not
eligible under the DWSRF and CWSRF.

These commenters argued that localities
are best situated to identify the highest -
need water and sewer projects in their
communities. Several Tribal
government commenters noted that
Tribes have different water and sewer
infrastructure needs than states and
localities and that additional flexibility
in the use of funds would lift current
barriers to improving infrastructure on
Tribal lands.

To achieve additional flexibility,
commenters suggested a range of
options for broadening the eligible use
of SLFRF funds for necessary water and
sewer infrastructure. For example,
several commenters suggested Treasury
broaden the eligibilities provided under
the interim final rule to include project
types eligible under other federal water
and sewer programs.

Treasury Response: Treasury agrees
that additional flexibility for use of
SLFRF funds is warranted and is
providing expanded eligibilities as
described below, several of which
address specific areas of need outlined
by Tribal and rural communities.

As discussed below, Treasury has
incorporated into the final rule projects
that are eligible under certain programs
established by the EPA under the Water
Infrastructure Improvements for the
Nation Act (WIIN Act). Other water -
related grant programs cited by
commenters include projects that are
otherwise already covered by the final
rule, for example because they are
covered as eligible under the DWSRF or
the CWSRF, or projects that are
ineligible under the final rule because
they are beyond the scope of the
meaning of water and sewer projects for
purposes of ARPA. To minimize the
need for recipients of SLFRF funds to
cross reference eligibilities across
multiple federal programs, which may
exacerbate current challenges to
understanding eligibility under SLFRF,
Treasury is providing detailed
information related to expanded
eligibilities within the text of this
SUPPLEMENTARY INFORMATION for the
final rule.

Stormwater Infrastructure
Public Comment: Several commenters
requested that additional stormwater
infrastructure projects be included as
eligible uses of SLFRF funds under the
final rule. Commenters suggested that
culvert repair and resizing and
replacement of storm sewers is
necessary to address increased rainfall
brought about by a changing climate.

Other commenters noted that rural
communities that do not manage their
own sewer systems may rely on this
type of water infrastructure.

Treasury Response: The CWSRF
includes a broad range of stormwater
infrastructure projects, and as such
these projects were eligible under the
interim final rule and continue to be
eligible under the final rule. These
projects include gray infrastructure
projects, such as traditional pipe,
storage, and treatment systems. Projects

4414 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations that manage, reduce, treat, or recapture
stormwater or subsurface drainage water
are also eligible, including real-time
control systems for combined sewer
overflow management, and sediment
control. Culvert infrastructure projects
are eligible under the CWSRF if they (1)
implement a nonpoint source
management plan, (2) implement
National Estuary Program
Comprehensive Conservation and
Management Plan, or (3) implement a
stormwater management plan with the
goal of providing a water quality benefit.

Stormwater projects under the CWSRF
also encompass a number of eligible
green infrastructure categories, such as
green roofs, green streets, and green
walls, rainwater harvesting collection,
storage, management, and distribution
systems, real-time control systems for
harvested rainwater, infiltration basins,
constructed wetlands, including surface
flow and subsurface flow (e.g., gravel)
wetlands, bioretention/bioswales (e.g.,
bioretention basins, tree boxes),
permeable pavement, wetland, riparian,
or shoreline creation, protection, and
restoration, establishment or restoration
of urban tree canopy, and replacement
of gray infrastructure with green
infrastructure including purchase and
demolition costs.

In addition to the eligible uses under
the CWSRF, Treasury is expanding the
eligible uses under the final rule to
include stormwater system
infrastructure projects regardless of
whether there is an expected water
quality benefit from the project.

Treasury anticipates that this eligible
use will allow recipients to manage
increased volumes of stormwater as a
result of changes to the climate. For
example, the final rule now permits the
use of SLFRF funds for the repair,
replacement, or removal of culverts or
other road -stream crossing
infrastructure to the extent the purpose
of the project is to manage stormwater.

In addition, Treasury understands that
the repair, replacement, or removal of
culverts may necessitate the repair or
upgrade of roads. As noted in guidance
issued after the interim final rule,
recipients may use SLFRF funds for
road repairs and upgrades that interact
directly with an eligible stormwater
infrastructure project. All stormwater
infrastructure projects undertaken
should incorporate updated design
features and current best practices.

Private Wells and Septic Systems
Public Comment: Several commenters
requested that the scope of eligible
projects be expanded to allow for the
expenditure of SLFRF funds on private
wells or septic systems. Commenters
noted that wells may be contaminated
with dangerous substances, including
arsenic, lead, radon, and PFAS (per- and
polyfluoroalkyl). Commenters also
suggested that, because rural and
underserved communities are often
reliant on these infrastructure types for
their drinking water or wastewater
needs, lack of appropriate funding to
maintain these systems could present
health and safety issues that
disproportionately affect certain
communities.

Treasury Response: Consistent with
the CWSRF, the installation, repair, or
replacement of private septic units
continues to be an eligible use of SLFRF
funds under the final rule. For example,
eligible projects include those that
address groundwater contamination
resulting from faulty septic units and
those that would connect failing septic
systems to centralized wastewater
treatment. Consistent with the DWSRF,
connecting homes served by a private
well to a public water system is an
eligible use of SLFRF funds.

In addition, Treasury has provided in
the final rule that recipients may use
SLFRF funds for an expanded set of
infrastructure projects that improve
access to and provision of safe drinking
water for individuals served by
residential wells. Eligible projects under
this category include rehabilitation of
private wells, testing initiatives to
identify contaminants in wells, and
treatment activities and remediation
strategies that address contamination.

Remediating Lead in Water
Public Comment: Several commenters
emphasized the need to fully remediate
lead contamination, especially in
structures that serve the public or
populations like children that are
particularly vulnerable to the effects of
lead exposure, such as schools and
daycares. Many American households
and an estimated 400,000 schools and
childcare centers currently lack safe
drinking water.317
Treasury Response: The replacement
of lead service lines, up to premise
plumbing, is an eligible use under the
DWSRF and continues to be an eligible
use of SLFRF funds. Such projects are
eligible regardless of the pipe material
of the replacement lines and ownership
of the property on which the service
line is located. Lead service line
replacement projects can serve
households, schools, or any other
317The White House, Updated Fact Sheet:

Bipartisan Infrastructure Investment and Jobs Act
(August 2, 2021), https://www.whitehouse.gov/
briefing-room/statements-releases/2021/08/02/
updated fact -sheet -bipartisan -infrastructure -
investment -and jobs -act/.
entities. Given the lifelong impacts of
lead exposure for children and the
widespread prevalence of lead service
lines, Treasury encourages recipients to
consider projects to replace lead service
lines.

In addition, Treasury is providing in
the final rule that for lead service line
replacement projects, recipients must
replace the full length of the service
line, and not just a partial portion of the
service line. Some water utilities, when
replacing service lines, will only replace
the "public portion" of the service line
and physically slice through the lead
service line at the public/private line.

This action can result in elevated
drinking water lead levels for some
period of time after replacement,
suggesting the potential for harm, rather
than benefit during that time period.318
Requiring replacement of the full length
of the service line is also consistent with
the requirements of the EPA's Lead and
Copper Rule Revisions for water
systems that have an action level
exceedance for lead 319 and certain other
water systems.32o
Treasury is expanding eligible uses of
SLFRF funds to include infrastructure
projects eligible under EPA grant
programs authorized by the WIIN
Act.321 Eligible projects under these
programs include the installation or re -
optimization of corrosion control
treatment, replacing lead service lines,
replacing galvanized pipes downstream
of a lead service line (other than lead
pipes within a home as discussed
below), and maintaining an inventory of
the drinking water system's service
lines. Water quality testing, compliance
monitoring, and remediation activities
in schools and other childcare facilities,
as well as activities necessary to
respond to a contaminant, are eligible
uses of SLFRF funds.322 Remediation
31s See EPA Science Advisory Board, Evaluation
of the Effectiveness of Partial Lead Service Line
Replacements, (September 2011), https://
www. a pa.gov/sd wa/scien ce-ad visory-board-
evaluation-effectiveness-partial-lead-service-]ine-
replacements (advising against partial lead service
line replacement).
319 Environmental Protection Agency, supra note
188.
32° Environmental Protection Agency, National
Primary Drinking Water Regulations: Lead and
Copper Rule Revisions, 86 FR 4198. 40 CFR 141.84,
and preamble at 4215, January 15, 2021, https://
www.federalregister.gov/d/2020-28691; scheduled
to become effective December 16, 2021,
Environmental Protection Agency, 86 FR 31939,
https://wvvw.federalregister.gov/d/2021-12600 .
321 Eligible uses of funds include those eligible
under the Small, Underserved, and Disadvantaged
Communities Grant (Section 2104), Reduction in
Lead Exposure via Drinking Water Grant Program
(Section 2105) and Lead Testing in School and
Child Care Program Drinking Water Grant Program
(Section 2107).
322 Such testing and remediation programs would
be an eligible use of SLFRF funds given that they