Beaumont City Council
May 7, 2024

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4415
activities such as replacement of
faucets, internal plumbing, and fixtures
in schools and childcare facilities are
also an eligible use of SLFRF funds.

Consistent with the EPA programs,
replacement of lead pipes within a
home is not eligible under the final rule
because the vast majority of lead
contamination cases can be solved by
replacing lead service lines (including
on public and private property) and
faucets and fixtures themselves. As
such, replacement of lead pipes within
a home would not be considered a cost-
effective means for achieving the
desired level of service and thus would
not be a "necessary" investment. The
provision of bottled water is also not an
eligible use of SLFRF funds under this
eligible use category, as it is not an
investment in infrastructure. However,
bottled water in areas with an action
level exceedance for lead in water may
be an eligible use of SLFRF funds under
a separate eligible use category for
"remediation of lead paint and other
lead hazards;" see Assistance to
Households in Public Health and
Negative Economic Impacts.

Water filtration systems are eligible
under the EPA grant programs and the
final rule as long as they are installed as
a permanent part of a facility's system
and not intended for temporary use.

Conducting remediation, follow-up
monitoring, and conducting public
education and outreach about the
availability of infrastructure programs,
such as water testing and fixture
replacement programs funded with
SLFRF funds or otherwise, are also
eligible projects. Finally, recipients
should note that "remediation of lead
paint and other lead hazards" is a
separate eligible use category and a
broader range of programs and services
may be eligible under that section,
including investments that are not
infrastructure; see the eligible use for
"remediation of lead paint and other
lead hazards" in section Assistance to
Households in Public Health and
Negative Economic Impacts.

Dams and Reservoirs
Public Comment: Many commenters
requested that Treasury broaden
eligibilities to include dams and
reservoirs, infrastructure that
commenters noted may in its current
state be unsafe and could put
surrounding communities at risk. Some
would help a recipient determine whether an
infrastructure project, such as a lead line
replacement, is necessary. In contrast, as mentioned
above, the costs of continual testing that is part of
a drinking water or wastewater facilities' operating
costs would not be considered part of an
infrastructure project.
commenters argued that dams and
reservoirs play an important role in
providing municipal water supply and
water to irrigate farmland, including in
areas impacted by recent droughts.

Other commenters noted that a large
number of dams are currently classified
as high -hazard structures, the failure of
which would have severe consequences
for public safety and the local
environment. With respect to reservoirs,
commenters articulated that changing
climate conditions have necessitated
upgrades to reservoir infrastructure to
ensure existing facilities can meet the
local water needs of a community.

Commenters noted that communities
facing drought may also need to adjust
or enhance reservoirs to maintain
adequate water supply.

In contrast, several commenters
suggested that infrastructure projects
related to dams and reservoirs should
not be considered eligible uses of SLFRF
funds. These commenters noted that
alternate sources of funding exist for
dam and reservoir projects and that
dams and reservoir infrastructure could
result in negative impacts to Tribal
communities and negative
environmental impacts, including harm
to wildlife habitats.

Treasury Response: Treasury
understands that many dams and
reservoirs in need of rehabilitation are
dams and reservoirs whose primary
purpose is to provide drinking water. As
discussed above, SLFRF funds are
available for projects related to the
provision of drinking water. Moreover,
since issuance of the interim final rule,
the EPA has adopted a class deviation
from the DWSRF regulations that
permits such dam and reservoir
rehabilitation projects in certain
circumstances.323 In approving this
class deviation, the EPA recognized that
many dams used for drinking water are
aging and deteriorating and pose a
public health risk to communities; that
current dam conditions do not meet
state safety standards; and that reservoir
capacity has diminished and requires
dredging to meet drinking water needs
of the existing population.

Treasury's final rule provides that
funds may be used for rehabilitation of
dams and reservoirs if the primary
purpose of the dam or reservoir is for
drinking water supply and the
rehabilitation project is necessary for
continued provision of drinking water
323 See EPA, Approval of Class Exception from
the Regulatory Prohibitions on the Use of Drinking
Water State Revolving Fund for Rehabilitation of
Dams and Reservoirs (July 14, 2021), available at
https://www . epa.gov/system/files/documents/2021-
07/dwsrf-class-deviation-dam-reservoir-rehab-2021_
O.pdf.
supply. In considering whether a dam or
reservoir project is necessary for the
provision of drinking water supply, a
recipient may take into consideration
future population growth in certain
circumstances, as discussed under
"Expansion of Drinking Water Service
Infrastructure" below, but the project
must in any case be designed to support
no more than a reasonable level of
projected increased need. The recipient
must also determine that the project is
cost-effective, i.e., that there are not
significantly superior alternatives that
are available, taking into consideration
the relative costs and benefits of the
project as compared to those
alternatives.

This change to the final rule would
permit a wide variety of projects.324 The
limitation in the final rule to
rehabilitation of existing dams and
reservoirs reflects the scope of the EPA
class deviation referenced above and
Treasury's understanding of the
significant need for investments in
rehabilitation to address deterioration of
dams and the diminished capacity of
reservoirs. Further, Treasury expects
that in many cases it would be
considerably more difficult to
demonstrate that construction of a new
dam or reservoir would be necessary for
the purpose of the provision of drinking
water than is the case for rehabilitation
of dams and reservoirs already serving
that purpose for a particular population,
particularly given opportunities to meet
drinking water needs through water
reuse and conversation efforts. For these
reasons, and given that the relatively
short period of availability of the funds
makes new dam and reservoir
construction with these funds less
likely, Treasury has limited the scope of
the final rule to dam and reservoir
rehabilitation projects.

As discussed above, Treasury has
determined that ARPA does not
authorize the use of SLFRF funds for
uses other than the provision of
drinking water and the management of
wastewater and storm water. As such,
the final rule does not include
infrastructure projects related to dams
and reservoirs as eligible uses of SLFRF
funds unless they meet the conditions
discussed above.
324 As noted in the EPA's class deviation,
examples of dam rehabilitation projects include
spillway reconstruction or repair; dam resurfacing,
patching, or other structural repairs, including
minimal height increases if needed to maintain the
structural integrity of the dam; grouting for seepage
control or liquefaction remediation (e.g., epoxy
resin, asphalt, or rock); repair or replacement of
drainage systems; and seismic stability efforts (e.g.,
anchors). Examples of reservoir rehabilitation
projects include sedimentation dredging and
reservoir lining.

4416 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations Public Comment: Several commenters
requested that the removal of dams and
associated habitat restoration should be
eligible uses of SLFRF funds, noting that
in some cases, dam removal will
improve water quality while removing
long-term operational expenses for the
recipient.

Treasury Response: Dam removal
projects and associated stream and
habitat restoration projects are eligible
uses of the CWSRF and continue to be
eligible under the final rule when the
removal implements either a nonpoint
source management program plan or a
National Estuary Program
Comprehensive Conservation and
Management Plan or when the removal
will provide a water quality benefit.

Habitat restoration projects more
generally may also be eligible under the
CWSRF and the final rule if they
constitute a form of stormwater
infrastructure.

Expansion of Drinking Water Service
Infrastructure
Public Comment: Commenters asked
for the ability to use funds for drinking
water projects for the purpose of
meeting needs arising from future
growth, which, given the restrictions
applicable to the DWSRF, was not
permitted under the interim final rule.

Treasury Response: As provided for in
the SDWA, the DWSRF is meant to
serve the public health needs of the
existing population. The EPA regulation
implementing the DWSRF program
provides that projects needed primarily
to serve future population growth are
not eligible uses of the DWSRF. A
project that is intended primarily to
address public health or regulatory
compliance issues for the existing
service population may be sized for a
"reasonable" amount of population
growth over the useful life of the
project.325
ARPA does not include the same
limitation as the SDWA. Accordingly,
the final rule provides that recipients
may use SLFRF funds for projects that
are needed to support increased
population in certain cases. ARPA
limits projects to those investments that
are "necessary." As discussed above,
Treasury interprets this to mean that the
investments must be (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
325 See 40 CFR 35.3520(6)(5).
available alternatives. For this eligible
use category, expansion of drinking
water service infrastructure, the project
must also be projected to be sustainable
over its estimated useful life.

Investments must be determined to be
necessary when they are initiated.

Accordingly, Treasury is clarifying in
the final rule that the need identified for
a water or sewer project may include a
need arising from reasonable
expectations of future population
growth, provided that it is necessary at
the time the investment is initiated for
the recipient to make the investment to
meet this growth. For example, a
recipient expecting increased
population during the period of
performance may install a drinking
water treatment plant to meet that
growth. In addition, a recipient
expecting increased population growth
outside the period of performance may
install the treatment plant if the
planning and construction timeline for
the project would require work to begin
during the performance period in order
to meet the expected population growth.

A recipient may install transmission
lines as part of the development of new
housing occurring during the period of
performance. In this case, the housing
development must be in progress; a
recipient may not use the SLFRF funds
to install a water main, for example, to
an undeveloped tract in the expectation
that in the future that tract will be
developed with housing, because there
would be no need for that investment to
be made at the time it is initiated.

For the reasons discussed above, if a
project is undertaken to address
expected growth 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. 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. A drinking water project that is
designed to address a growing
population cannot be considered a
necessary investment if the source of
drinking water will cease to be available
to meet the population's needs before
the end of the estimated useful life of
the project. In such a case, a recipient
should consider alternative sources for
drinking water. See "Interpretation of
Necessary Investments and Water and
Sewer Infrastructure" above for more
information.

Non -Federal Matching Requirements for
Authorized Bureau of Reclamation
Projects
The Infrastructure Investment and
Jobs Act amends sections 602(c) and
603(c) of the Social Security Act to add
an additional eligible use of SLFRF
funds, providing that SLFRF funds
"may be used for purposes of satisfying
any non -Federal matching requirement
required for [an authorized Bureau of
Reclamation project]." 326
This amendment permits the use of
SLFRF funds to meet non-federal
matching requirements of any
authorized Bureau of Reclamation
project, regardless of whether the
underlying project would be an eligible
use of SLFRF funds under the water and
sewer infrastructure eligible use
category. These amendments are
effective as of March 11, 2021, as if
included in the ARPA at the time of its
enactment.327 Treasury will provide
further guidance to recipients on the
scope of Bureau of Reclamation water
projects and expenses covered by this
provision.

Floodplain Management and Flood
Mitigation Projects
Public Comment: Several commenters
requested that projects to address
floodwater, including floodplain
management and flood mitigation
projects, be included as an eligible use
of SLFRF funds. Within this category of
floodplain management and flood
mitigation infrastructure, several
commenters requested that the
installation of levees, flood walls, sea
walls, elevation projects, dredging, or
nature -based flood mitigation projects
be included as eligible projects.

Treasury Response: Treasury notes
that some floodplain management and
flood mitigation infrastructure projects,
including green infrastructure designed
to protect treatment works from flood
waters and flood impact are currently
eligible under the CWSRF and therefore
continue to be eligible under the final
rule.

Treasury has not included floodplain
management and flood mitigation
projects more generally as eligible under
the final rule. Although floodplain
management and flood mitigation are
functions of many state and local
governments, they are not the sort of
generally -provided essential services
included within the meaning of water
326 See Public Law 117-58, 40909(a) —(b) (Nov. 15,
2021).
327 See Public Law 117-58 §40909(c).

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4417
and sewer projects under the ARPA, as
discussed above.

Irrigation
Public Comment: Some commenters
requested that irrigation projects be an
eligible use because they consider such
projects to be critical infrastructure.

Several commenters supported this
request by noting that irrigation systems
may be used to replenish aquifers and
recharge wells, in addition to delivering
water for irrigation. One commenter also
noted that the national irrigation system
is antiquated and in need of repair.

Treasury Response: Some irrigation
projects were eligible under the interim
final rule and continue to be eligible
under the final rule as a result of their
inclusion as eligible projects under the
CWSRF. For example, water efficient
irrigation equipment that reduces the
runoff of nutrients and implements a
management program established under
section 319 of the CWA and/or a
conservation and management plan
under section 320 of the CWA are
eligible uses under the CWSRF and
therefore continue to be an eligible use
of SLFRF funds under the final rule.

Likewise, projects to receive and
distribute reclaimed water for irrigation
systems or other agricultural use are
eligible under the CWSRF and therefore
continue to be an eligible use under the
final rule. Unlike projects for the
improvement of irrigation systems
generally, these reclaimed water
projects are related to wastewater
treatment and stormwater management,
which are within the scope of the
meaning of water and sewer
infrastructure for purposes of ARPA.

Treasury considered commenter
requests for inclusion of additional
irrigation infrastructure and determined
that irrigation projects more generally
are not permitted under the final rule.

Although these types of projects may be
water -related infrastructure, they are not
the sort of generally -provided essential
services included within the meaning of
water and sewer projects under ARPA,
as discussed above.

Consumer Incentive Programs
Public Comment: One commenter
requested that consumer incentive
programs in the areas of water use
efficiency, conservation, green
infrastructure, reuse, and other
distributed solutions be an allowable
use of SLFRF.

Treasury Response: The DWSRF and
CWSRF eligibilities include the
development and implementation of
incentive and educational programs that
address and promote water
conservation, source water protection,
and efficiency related to infrastructure
improvements, e.g., incentives such as
rebates to install green infrastructure
such as rain barrels or promote other
water conservation activities. Treasury
clarifies that such project types were
eligible under the interim final rule and
continue to be eligible under the final
rule.

2. Broadband Infrastructure
Under the ARPA, recipient
governments may use SLFRF funds to
make "necessary investments in . . .
broadband infrastructure." In the
Supplementary Information to the
interim final rule, Treasury interpreted
necessary investments in infrastructure
as investments "designed to provide an
adequate minimum level of service and
[that] are unlikely to be made using
private sources of funds." Treasury
explained that, with respect to
broadband specifically, such necessary
investments include projects that
"establish [] or improve [] broadband
service to underserved populations to
reach an adequate level to permit a
household to work or attend school, and
that are unlikely to be met with private
sources of funds."
Summary of Interim Final Rule, Public
Comments, and Treasury Response
Summary of Interim Final Rule: In
implementing the ARPA, the interim
final rule provided that eligible
broadband infrastructure investments
are limited to those that are designed to
provide service to unserved or
underserved households or businesses,
defined as those that lack access to a
wireline connection capable of reliably
delivering at least minimum speeds of
25 Mbps download and 3 Mbps upload.

The interim final rule also provided that
eligible projects under the SLFRF are
limited to those that are designed to
deliver, upon project completion,
service that reliably meets or exceeds
symmetrical upload and download
speeds of 100 Mbps. In instances where
it would not be practicable for a project
to deliver such service speeds because
of the geography, topography, or
excessive costs associated with such a
project, the interim final rule provided
that the project would be required to be
designed to deliver, upon project
completion, service that reliably meets
or exceeds 100 Mbps download speed
and between at least 20 Mbps and 100
Mbps upload speeds and be scalable to
a minimum of 100 Mbps symmetrical
for download and upload speeds.

In addition, Treasury, in the
Supplementary Information to the
interim final rule, encouraged recipients
to pursue a number of other objectives.

First, Treasury encouraged recipients to
prioritize investments in fiber-optic
infrastructure wherever feasible and
focus on projects that deliver a physical
broadband connection by prioritizing
projects that achieve last -mile
connections. Second, Treasury
encouraged recipients to integrate
affordability options into their program
design. Third, Treasury encouraged
recipients to prioritize support for local
networks owned, operated, or affiliated
with local governments, nonprofits, and
cooperatives. Fourth, Treasury
encouraged recipients to avoid investing
in locations with existing agreements to
build reliable wireline service with
minimum speeds of 100 Mbps
download and 20 Mbps upload by
December 31, 2024, in order to avoid
duplication of efforts and resources.

Finally, following release of the interim
final rule, Treasury provided further
guidance clarifying some aspects of
broadband infrastructure eligibility,
specifically on flexibility for recipients
to determine eligible areas to be
served,328 middle -mile projects,329 pre -
project development costs,33o
broadband connections to schools or
libraries,331 and the applicability of the
National Environmental Policy Act
(NEPA) and the Davis -Bacon Act.332
Summary of Public Comments:

Treasury received several comments on
the interim final rule's requirements
regarding eligible areas for investment
and build -to speed standards, as well as
Treasury's encouragements in the
Supplementary Information of the
interim final rule. Many commenters
found the interim final rule's
requirement to limit projects to those
designed to provide service to unserved
or underserved households or
businesses to be appropriately focused
on hard -to -reach areas. In contrast, other
commenters argued that this
requirement was too restrictive and that
it would limit the ability for some
recipients, particularly local
governments, to invest in broadband
infrastructure.

Separately, some commenters
supported the interim final rule's
requirement that eligible projects be
built to reliable speeds of 100 Mbps
symmetrical, with an exception for areas
where it was impracticable, and
encouragement that projects be built
with fiber-optic infrastructure, while a
328 See FAQ 6.8, 6.9, 6.11. Coronavirus State and
Local Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
h om e. treasury.gov/system/files/136/SLFRPFAQ. p d f.
329 See FAQ 6.10. Id.
339 See FAQ 6.12. Id.
331 See FAQ 6.16. Id.
332 See FAQ 6.4, 6.17. Id.

4418 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations few others argued that the interim final
rule should remain technology -neutral
and that lower speed standards would
be more appropriate for today's usage
needs.

Summary of Treasury Response: In
response to the comments, the final rule
expands eligible areas for investment by
requiring recipients to invest in projects
designed to provide service to
households and businesses with an
identified need for additional
broadband infrastructure investment,
which would include but not be limited
to a lack of broadband service reliably
delivering certain speeds. In addition, as
discussed further below, the final rule
further supports the expansion of
affordable access to broadband service
for households by requiring that
recipients use a provider that
participates in a qualifying affordability
plan. Treasury encourages recipients to
prioritize projects that are designed to
provide service to locations not
currently served by a wireline
connection that reliably delivers at least
100 Mbps of download speed and 20
Mbps of upload speed.

The final rule maintains the interim
final rule's requirement that eligible
projects be designed to, upon
completion, reliably meet or exceed
symmetrical 100 Mbps download and
upload speeds. As was the case under
the interim final rule, in cases where it
is not practicable, because of the
excessive cost of the project or
geography or topography of the area to
be served by the project, eligible
projects may be designed to reliably
meet or exceed 100 Mbps download
speed and between at least 20 Mbps and
100 Mbps upload speed and be scalable
to a minimum of 100 Mbps download
speed and 100 Mbps upload speed.

Treasury continues to encourage
recipients to prioritize investments in
fiber-optic infrastructure wherever
feasible and to focus on projects that
will achieve last -mile connections,
whether by focusing directly on funding
last -mile projects or by ensuring that
funded middle -mile projects have
commitments in place to support new
and/or improved last -mile service.

The final rule requires recipients to
address the affordability needs of low-
income consumers in accessing
broadband networks funded by SLFRF,
given that such a project cannot be
considered a necessary investment in
broadband infrastructure if it is not
affordable to the population the project
would serve. Recipients must require
the service provider for a completed
broadband infrastructure investment
project that provides service to
households to either participate in the
Federal Communications Commission's
(FCC) Affordable Connectivity Program
(ACP), or otherwise provide access to a
broad -based affordability program to
low-income consumers in the proposed
service area of the broadband
infrastructure that provides benefits to
households commensurate with those
provided under the ACP.

Treasury also recognizes the
importance of affordable broadband
access for all consumers beyond those
that are low-income. As part of their
project selection process, recipients are
encouraged to consult with the
community on the general affordability
needs of the target markets in the
proposed service area. Additionally,
recipients are encouraged to require that
services provided by a broadband
infrastructure project include at least
one low-cost option offered without
data usage caps and at speeds that are
sufficient for a household with multiple
users to simultaneously telework and
engage in remote learning. Recipients
will be required to report speed, pricing,
and any data allowance information as
part of mandatory reporting to Treasury.

The final rule also clarifies that
subsidies to households and
communities impacted by the pandemic
to access the internet, broadband
adoption programs, digital literacy
programs, and device programs are
eligible programs to respond to the
public health and negative economic
impacts of the pandemic under sections
602(c)(1)(A) and 603(c)(1)(A). See
section Assistance to Households in
Negative Economic Impacts.

Treasury continues to encourage
recipients to prioritize support for
broadband networks owned, operated
by, or affiliated with local governments,
nonprofits, and cooperatives. In
addition, to the extent recipients are
considering deploying broadband to
locations where there are existing
enforceable federal or state funding
commitments for reliable service at
speeds of at least 100 Mbps download
speed and 20 Mbps upload speed,
recipients must ensure that SLFRF
funds are designed to address an
identified need for additional
broadband investment that is not met by
existing federal or state funding
commitments. Recipients must also
ensure that SLFRF funds will not be
used for costs that will be reimbursed by
the other federal or state funding
streams. Further, Treasury highlights
that recipients are subject to the
prohibition on use of grant funds to
procure or obtain certain
telecommunications and video
surveillance services or equipment as
outlined in 2 CFR 200.216 and 2 CFR
200.471 and clarifies that modernization
of cybersecurity for existing and new
broadband networks are eligible uses of
funds under sections 602(c)(1)(D) and
603(c)(1)(D).

Finally, this Supplementary
Information to the final rule
incorporates and confirms guidance
issued by Treasury following the
interim final rule regarding middle -mile
projects,333 pre -project development
costs,334 broadband connections to
schools or libraries,33e and applicability
of the National Environmental Policy
Act (NEPA) and Davis -Bacon Act.336
The remainder of this section
provides additional details on the final
rule. Specifically, these sections
address: (1) Eligible areas for
investment; (2) build -to speed
standards; (3) affordability; (4) public
networks; (5) duplication of efforts and
resources; (6) cybersecurity; and (7) use
of funds to meet non-federal match
under the Infrastructure Investment and
Jobs Act.

Eligible Areas for Investment
The interim final rule limited eligible
broadband investments to projects
focused on delivering service to
unserved or underserved locations,
defined as households or businesses
that lack access to a wireline connection
capable of reliably delivering at least
minimum speeds of 25 Mbps download
and 3 Mbps upload. This targeted
approach was generally consistent with
certain speed thresholds used in other
federal programs to identify eligible
areas for federal investment in
broadband infrastructure, such as the
FCC's Rural Digital Opportunity Fund
(RDOF) program and the National
Telecommunication and Information
Administration's (NTIA's) Broadband
Infrastructure Program, and generally
aligns with the FCC's benchmark for an
"advanced telecommunications
capability" for wireline broadband
services.

Public Comment: Many commenters
discussed the disadvantages of such an
approach. Some commenters, including
several local government recipients,
argued that limiting investments to
locations without access to reliable
wireline 25/3 Mbps 337 was too
333 See FAQ 6.10. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
h om e. treasury.gov/system/files/136/SLFRPFAQ. p d f.
334 See FAQ 6.12. Id.
335 See FAQ 6.16. Id.
336 See FAQ 6.4, 6.17. Id.
337In the remainder of this Supplementary
Information, "25/3 Mbps" refers to broadband
infrastructure that is designed to reliably meet or
exceed at least 25 Mbps download speeds and 3

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4419
restrictive because some urban
jurisdictions are already mostly or
entirely covered by a network with at
least 25/3 Mbps speeds yet lack
widespread broadband adoption for
various reasons. Commenters suggested
that recipients would benefit from
greater flexibility to provide necessary
investments in broadband access in
areas that are nominally covered by
speeds of at least 25/3 Mbps, such as to
provide affordable broadband access in
low-income areas or to address service
quality and reliability issues. Further,
commenters argued that Treasury's
requirement that new projects meet
minimum reliable speeds of 100 Mbps
symmetrical was inconsistent with the
requirement that broadband
infrastructure projects focus on those
with access to significantly lower
speeds, and further noted that several
states have already expanded the focus
of their broadband programs beyond
those without reliable access to speeds
of 25/3 Mbps. Commenters argued that
if the limitation to unserved and
underserved households and businesses
were maintained, the definition of
unserved and underserved households
and businesses should be revised to
include households and businesses
currently served by higher standards.

Commenters proposed a number of
alternative cutoff speeds, including 25/
25 Mbps, 50/10 Mbps, and 100 Mbps
symmetrical. Others expressed support
for providing flexibility for recipients to
make their own determination on
eligible areas for investment. These
commenters referenced studies
indicating that 25/3 Mbps is inadequate
for today's modern household or
business needs.

Some commenters advocated for
unserved and underserved areas to be
prioritized while providing flexibility
for recipients to serve areas beyond
those designated as unserved or
underserved. Reflecting the perceived
restrictiveness of the interim final rule
approach, some commenters asked for
assurance that projects conducted under
other categories of SLFRF eligible uses,
specifically to respond to the public
health and negative economic impacts
of the pandemic under sections
602(c)(1)(A)—(C) and 603(c)(1)(A)—(C),
were not barred by the presence of 25/
3 Mbps service, including "gap
networks," which are networks
designed to offer low-cost or no -cost
internet access for lower -income
Mbps upload speeds. "100 Mbps" symmetrical
refers to broadband infrastructure that is designed
to reliably meet or exceed at least 100 Mbps
download speeds and 100 Mbps upload speeds.
households with low broadband
adoption rates.

Commenters suggested additional
factors to be incorporated in the
consideration of locations that are
eligible to be served. Many commenters
suggested that affordability should be
considered a key factor when
determining whether a community has
access to broadband, as the presence of
25/3 Mbps service does not necessarily
mean the service is financially
accessible to the area's residents.

Commenters noted that surveys indicate
that affordability, not lack of coverage,
is the most significant barrier for most
Americans who do not have robust
broadband service in their households.

Some advocated that the final rule allow
for investments in areas with existing
reliable wireline access at or above
25/3 Mbps as long as existing broadband
service has been unaffordable for a
certain segment of the population;
others advocated that Treasury presume
eligibility when investments are made
in certain areas, such as Qualified
Census Tracts or neighborhoods with
persistent poverty, or are made by Tribal
governments. Separately, some
commenters noted that Treasury should
provide more clarification on what
constitutes a "reliabl[e]" connection,
including providing details as to
latency, jitter, and other technical
specifications that would meet that
standard, and what it means for certain
technologies, such as copper and other
outdated technologies, to be deemed
presumptively unreliable.

Other commenters supported the
interim final rule's approach on eligible
areas for investment or suggested
tightening eligibility even further. They
argued that higher speed thresholds
beyond 25/3 Mbps would likely lead to
investments in or building of new
broadband infrastructure in areas
already served by broadband at speeds
these commenters considered sufficient;
these areas, commenters suggested, are
less in need of federal assistance and
permitting investments here could
divert funding away from rural areas to
more densely populated areas.

Treasury Response: The final rule
expands eligible areas for investment by
requiring recipients to invest in projects
designed to provide service to
households and businesses with an
identified need for additional
broadband infrastructure investment.

Recipients have flexibility to identify a
need for additional broadband
infrastructure investment: Examples of
need include lack of access to a
connection that reliably meets or
exceeds symmetrical 100 Mbps
download and upload speeds, lack of
affordable access to broadband service,
or lack of reliable broadband service.

Recipients are encouraged to prioritize
projects that are designed to provide
service to locations not currently served
by a wireline connection that reliably
delivers at least 100 Mbps of download
speed and 20 Mbps of upload speed, as
many commenters indicated that those
without such service constitute hard -to -
reach areas in need of subsidized
broadband deployment.

Households and businesses with an
identified need for additional
broadband infrastructure investment do
not have to be the only ones in the
service area served by an eligible
broadband infrastructure project.

Indeed, serving these households and
businesses may require a holistic
approach that provides service to a
wider area, for example, in order to
make ongoing service of certain
households or businesses within the
service area economical.

Consistent with further guidance
issued by Treasury,338 in determining
areas for investment, recipients may
choose to consider any available data,
including but not limited to
documentation of existing broadband
internet service performance, federal
and/or state collected broadband data,
user speed test results, interviews with
community members and business
owners, reports from community
organizations, and any other
information they deem relevant.

In evaluating such data, recipients
may take into account a variety of
factors, including whether users
actually receive internet service at or
above the speed thresholds at all hours
of the day, whether factors other than
speed such as latency, jitter, or
deterioration of the existing connections
make their user experience unreliable,
and whether the existing service is
being delivered by legacy technologies,
such as copper telephone lines
(typically using Digital Subscriber Line
technology) or early versions of cable
system technology (DOCSIS 2.0 or
earlier),339 and other factors related to
338 See FAQ 6.11. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home.treasuly.gov/system/fiIes/136/SLFRPFAQ.pdf.
339 Legacy technologies such as copper telephone
lines (typically using Digital Subscriber Line
technology) and early versions of cable system
technology (DOCSIS 2.0 or earlier) typically lag on
speeds, latency, and other factors, as compared to
more modern technologies like fiber-optic. See, e.g.,
https://www.fcc.gov/sites/default/files/tech_
transitions_network_u pgrades_that_may_affect_
your_service.pdf (comparing copper to fiber and
noting that copper wire networks have "limited
speeds," are "susceptible to signal interference/
loss," and have a "relatively short life"); https://
Continued

4420 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations the services to be provided by the
project. In addition, recipients may
consider the actual experience of
current broadband customers when
making their determinations; whether
there is a provider serving the area that
advertises or otherwise claims to offer
broadband at a given speed is not
dispositive.

Build -To Speed Standards
The interim final rule provided that a
recipient may use funds to make
investments in broadband infrastructure
that is designed to, upon completion,
reliably meet or exceed symmetrical 100
Mbps download and upload speeds. In
cases where it is not practicable,
because of the excessive cost of the
project or the geography or topography
of the area to be served by the project,
eligible projects may be designed to
reliably meet or exceed 100 Mbps
download speed and between at least 20
Mbps and 100 Mbps upload speed, so
long as it is scalable to a minimum of
100 Mbps download speed and 100
Mbps upload speed. Relatedly, Treasury
in the SUPPLEMENTARY INFORMATION to
the interim final rule encouraged
recipients to prioritize investments in
fiber-optic infrastructure wherever
feasible and to prioritize projects that
achieve last -mile connections.

Public Comment: Many commenters
discussed the advantages of setting
minimum symmetrical download and
upload speeds of reliable 100 Mbps as
the speed threshold for new projects.

Some commenters indicated support for
the interim final rule's standard as it
takes into account growing demands on
internet use resulting from pandemic
broadband usage and suggested that
such a standard will help to ensure that
networks built with SLFRF funds
remain valuable for years to come, even
as demands continue to accelerate,
particularly on upload speeds. Some
also indicated that the interim final rule
standard has the effect of prioritizing
the use of fiber-optic infrastructure to
deliver such speeds, which some noted
was a "gold standard" future -proof
technology, although some commenters
noted that other technologies like fixed
wireless have been shown to deliver
such speeds in certain circumstances.

Other commenters suggested that 100
Mbps symmetrical speeds were
unnecessary given current broadband
data. fcc.gov/download/measuring-broadband-
america/2020/2020-Fixed-Measuring-Broadband-
America-Report.pdf (comparing fiber with DSL and
cable technologies on a number of dimensions);
https://www.eff.org/wp/case fiber-home-today-why-
fiber-su perior-medi um -21 st-cen tury-broadban d
(providing a technical background comparing fiber
technology to other legacy technologies).
usage needs and that such high
standards may have the potential to
slow down expansion to unserved or
underserved rural areas. Some argued
that setting this symmetrical threshold
may limit the type of technologies that
can be used, thereby decreasing
competition and limiting flexibility to
recipients whose communities might be
better served by technologies such as
wireless solutions or inexpensive gap
networks. Commenters suggested
alternate minimum speeds, ranging from
25/3 Mbps (which some argued best
balances reaching all communities and
maximizing the impact of federal funds)
to 100/20 Mbps (which some argued
best serves the typical broadband usage
patterns of households and businesses,
including new pandemic -driven needs).

A few commenters suggested a higher
minimum speed, such as gigabit speeds,
advocating that such speeds were
necessary for a network to last at least
a decade.

Many commenters supported the
interim final rule's lower speed
standards for projects where it is
impracticable to meet minimum reliable
speeds of 100 Mbps symmetrical, as it
provides flexibility for recipients to
invest in hard -to -reach areas, such as
those in mountainous regions. A few
commenters indicated that Treasury
should more clearly define the
characteristics of a location eligible for
this exception. Some indicated that the
minimum standard for all new projects
should be 100 Mbps symmetrical. In
contrast, others argued that scalability to
100 Mbps symmetrical should not be a
requirement to meet today's demands,
particularly in hard -to -reach areas.

Some commenters requested that
Treasury clarify eligibility for middle -
mile projects as these projects
potentially provide connectivity to far-
reaching areas, while other commenters
suggested that last -mile projects
generally require more capital
investment and are therefore most in
need of government support.

Treasury Response: The final rule
maintains the interim final rule's
requirement that eligible projects be
designed to, upon completion, reliably
meet or exceed symmetrical 100 Mbps
download and upload speeds, with the
interim final rule's exception for
projects where it is impracticable to
build to such speeds due to excessive
cost, geography, or topography of the
area to be served by the project. Given
the build time associated with
broadband infrastructure projects, these
standards will enable SLFRF funds to
fund lasting infrastructure that will be
able to accommodate increased network
demand once the network is
complete,34o while providing flexibility
for certain locations to meet lower speed
standards where 100 Mbps symmetrical
speeds are impracticable.

To illustrate the accelerating need for
higher upload speeds, by one measure,
mean upload speeds as of October 2021
increased to 75.21 Mbps as compared to

62.11 Mbps a year earlier,341
Jurisdictions are increasingly
responding to the growing demands of
their communities for high speeds; for
example, Illinois requires 100 Mbps
symmetrical service as the construction
standard for their state broadband grant
programs. The 100 Mbps symmetrical
standard accounts for increased
pandemic internet usage and provides
adequate upload speeds for individuals
and businesses to accommodate
interactive applications such as virtual
learning and videoconferencing, while
also helping ensure that funding is
responsibly used to provide a true and
lasting benefit for years to come.

Treasury continues to encourage
recipients to prioritize investments in
fiber-optic infrastructure wherever
feasible, as such advanced technology
enables the next generation of
application solutions for all
communities and is capable of
delivering superior, reliable
performance and is generally most
efficiently scalable to meet future
needs.342 In designing these projects,
recipients should ensure that the
broadband infrastructure provides
"reliable" service at required speeds
and are not required to rely on
providers' advertised speeds in their
assessments.

Consistent with further guidance
issued by Treasury,343 while recipients
are permitted to make investments in
"middle -mile" connections that
otherwise satisfy the requirements of the
final rule, Treasury continues to
encourage recipients to focus on
340 Using the Federal Communications
Commission (FCC) Broadband Speed Guide, a
household with two telecommuters and two to
three remote learners today is estimated to need 100
Mbps download to work simultaneously. See
Federal Communications Commission, Broadband
Speed Guide, available at https://www.fcc.gov/
consumers/guides/broadband-speed-guide (last
visited October 28, 2021).
341 United States' Mobile and Broadband Internet
Speeds—Speedtest Global Index, available at
https://www.speedtest.net/global-index/united-
states#fixed.
342 Bennett Cyphers, The Case for Fiber to the
Home, Today: Why Fiber is a Superior Medium for
21st Century Broadband, Electronic Frontier
Foundation (October 16, 2019), https://www.eff.org/
wp/case fiber -home -today -why fiber -superior -
medium -21 st-century-broadband.
343 See FAQ 6.10, 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.

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4421
projects that will achieve last -mile
connections —whether by focusing
directly on funding last -mile projects or
by ensuring that funded middle -mile
projects have commitments in place to
support new and/or improved last -mile
service.

Affordability
The interim final rule encouraged
recipients to consider ways to integrate
affordability options into their program
design but did not require recipients to
take particular actions. The interim final
rule also provided that assisting
households with internet access and
digital literacy is an eligible use of
SLFRF funds under sections
602(c)(1)(A) and 603(c)(1)(A) to respond
to the negative economic impacts of
COVID-19.

Public Comment: Many commenters
suggested that Treasury provide
recipients with a broader set of tools to
tackle what the commenters
characterized as an affordability crisis in
the broadband sector. As noted above,
some commenters proposed that
Treasury consider affordability when
determining whether an area is
unserved or underserved by broadband.

Some commenters indicated that the
final rule should allow for the
construction of broadband networks in
low-income neighborhoods including
low-cost or no -cost gap networks, even
in areas with existing service at the
speeds required under the interim final
rule. Other commenters voiced support
for direct subsidies to low-income
communities to afford broadband
service, which would provide
additional incentives for providers to
serve these communities.

Treasury Response: In response to
many commenters that highlighted the
importance of affordability in providing
meaningful access to necessary
broadband infrastructure, the final rule
provides additional requirements to
address the affordability needs of low-
income consumers in accessing
broadband networks funded by SLFRF.

Recipients must require the service
provider for a completed broadband
infrastructure investment project that
provides service to households to:
❑ Participate in the Federal
Communications Commission's (FCC)
Affordable Connectivity Program (ACP);
or
❑ Otherwise provide access to a
broad -based affordability program to
low-income consumers in the proposed
service area of the broadband
infrastructure that provides benefits to
households commensurate with those
provided under the ACP.

Recipients must require providers to
participate in or provide access to these
programs through the life of the ACP.

This requirement will no longer apply
once the SLFRF-funded broadband
infrastructure is no longer in use.

Furthermore, Treasury also recognizes
the importance of affordable broadband
access for all consumers beyond those
that are low income. As part of their
project selection process, recipients are
encouraged to consult with the
community on the general affordability
needs of the target markets in the
proposed service area. Additionally,
recipients are encouraged to require that
services provided by a broadband
infrastructure project include at least
one low-cost option offered without
data usage caps at speeds that are
sufficient for a household with multiple
users to simultaneously telework and
engage in remote learning. Treasury will
require recipients to report speed,
pricing, and any data allowance
information as part of their mandatory
reporting to Treasury.

Further, Treasury is clarifying that, as
a response to the public health and
negative economic impacts of the
pandemic, recipients may provide
households and communities impacted
by the pandemic with subsidies to help
pay for internet service, digital literacy
programs, broadband adoption
programs, and device programs that
provide discounted or no -cost devices
for low-income households to access the
internet. For further discussion of this
eligible use category, see the section
internet Assistance in Assistance to
Households in Public Health and
Negative Economic Impacts.

Public Networks
The interim final rule encouraged
recipients to prioritize support for local
networks owned, operated, or affiliated
with local governments, nonprofits, and
cooperatives.

Public Comment: Many commenters
voiced their support for Treasury's
encouragement that recipients work
with governmental or community
entities to establish local networks,
arguing that they have been shown to
effectively provide broadband access to
areas that would otherwise be left with
unaffordable or insufficient service.

These commenters suggested that, since
these entities are less driven by
financial returns to investment than
private providers, in some
circumstances they may be able to
provide robust service at a lower price
as compared to private providers, along
with potentially increasing local
competition in a service area.

Other commenters argued against
Treasury's encouragement, remarking
that private businesses have a robust
track record of serving hard -to -reach
customers. These commenters argued
that commercial providers have greater
technical and operational expertise in
deploying and operating broadband
networks and may be able to construct
broadband networks with greater
efficiency. Additionally, some
commenters argued that providing what
they considered an unfair competitive
advantage for government- or
community -owned or operated
networks may hurt consumers over
time.

Treasury Response: The final rule
maintains the interim final rule's
encouragement for recipients to
prioritize support for broadband
networks owned, operated by, or
affiliated with local governments,
nonprofits, and cooperatives, given that
these networks have less pressure to
generate profits and a commitment to
serve entire communities.344 This
encouragement provides flexibility for
recipients to select providers that best
fit their needs, while noting the critical
role that networks owned, operated, or
affiliated with local governments and
community organizations can play in
providing sufficient coverage, affordable
access, or increased competition in the
broadband sector.

Duplication of Efforts and Resources
Public Comment: Some commenters
raised concerns that Treasury's
encouragement in the interim final rule
that recipients avoid funding projects in
locations with an existing agreement to
provide service that reliably delivers
100/20 Mbps by December 31, 2024 was
too restrictive. Commenters noted that
many plans do not always lead to a
successful and complete deployment, as
issues may arise that prevent such
infrastructure from deploying on time or
at all, and that several existing federal
grants were designed and awarded
before the onset of the COVID-19
pandemic and do not meet the critical
broadband needs highlighted by the
pandemic. Other commenters argued
that Treasury's encouragement to avoid
duplication of resources should be
strengthened, as investing in areas with
existing agreements would be an
inefficient duplication of efforts.

Treasury Response: Given the final
rule's revised requirements on eligible
areas for investment, this
344 The Executive Office of the President,
Community -Based Broadband Solutions (January
2015), https://obamawhitehouse.archives.gov/sites/
default/files/docs/community-based_broadband
report_by_executive_office_of the president.pdf.

4422 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations Supplementary Information to the final
rule also modifies the interim final
rule's requirements around duplication
of resources. Since recipients must
ensure that the objective of the
broadband projects is to serve locations
with an identified need for additional
broadband investment, the final rule
provides that, to the extent recipients
are considering deploying broadband to
locations where there are existing
enforceable federal or state funding
commitments for reliable service at
speeds of at least 100 Mbps download
speed and 20 Mbps upload speed,
recipients must ensure that SLFRF
funds are designed to address an
identified need for additional
broadband investment that is not met by
existing federal or state funding
commitments. Recipients must also
ensure that SLFRF funds will not be
used for costs that will be reimbursed by
the other federal or state funding
streams.

Cybersecurity
Public Comment: Several commenters
expressed concern about the
cybersecurity of new broadband projects
funded with SLFRF funds and urged
Treasury to prohibit recipients from
utilizing SLFRF funds to procure
equipment from certain providers from
the People's Republic of China that may
pose a national security risk. These
commenters pointed out that the 2019
National Defense Authorization Act
(NDAA) and the FCC's Universal
Service Fund have similar prohibitions.

Further, several commenters requested
that Treasury explicitly include
cybersecurity costs as an eligible use for
broadband infrastructure investment
given the growing threat of cyber-attacks
and cyber-intrusions into the nation's
infrastructure.

Treasury Response: Treasury
highlights that investments in
broadband infrastructure must be
carried out in ways that comply with
applicable federal laws, including the
2019 NDAA. Among other requirements
contained in 2 CFR part 200, 2 CFR
200.216 implements certain provisions
of the NDAA and contains prohibitions
on the use of federal financial assistance
to procure or obtain certain
telecommunications and video
surveillance services or equipment
provided or produced by designated
entities, including certain entities
owned or controlled by the People's
Republic of China. In addition, 2 CFR
200.471 provides that certain
telecommunications and video
surveillance costs associated with 2 CFR
200.216 are unallowable.

Further, the final rule allows for
modernization of cybersecurity for
existing and new broadband
infrastructure as an eligible use under
sections 602(c)(1)(D) and 603(c)(1)(D) as
such investments are necessary for the
reliability and resiliency of broadband
infrastructure.345 Recipients may
provide necessary investments in
cybersecurity, including modernization
of hardware and software, for existing
and new broadband infrastructure
regardless of their speed delivery
standards. The final rule maintains the
interim final rule's provision that allows
for broader modernization of
cybersecurity, including hardware,
software, and protection of critical
infrastructure as an eligible provision of
government services, to the extent of
revenue loss due to the pandemic,
under sections 602(c)(1)(C) and
603(c)(1)(C).

Use of Funds To Meet Non -Federal
Match Under the Infrastructure
Investment and Jobs Act
The Infrastructure Investment and
Jobs Act specifies that, except as
otherwise provided, an entity using
funding under section 60102 of the law
for broadband deployment "shall
provide, or require a subgrantee to
provide, a contribution, derived from
non -Federal funds (or funds from a
Federal regional commission or
authority) . . . of not less than 25
percent of project costs." 346 It further
states that the matching contribution
may include funds provided to an
eligible entity or subgrantee under the
American Rescue Plan Act for the
purpose of deployment of broadband
service, which includes funds provided
under the SLFRF program.

SLFRF and the program established
under section 60102 of the
Infrastructure Investment and Jobs Act
are separate programs with separate
requirements. While section 60102
allows states and other eligible entities
to use SLFRF funds as the source of
matching funds for broadband
deployment, the requirements of the
SLFRF program still apply. As such,
recipients that use SLFRF funds to meet
the section 60102 matching requirement
will continue to be subject to the
requirements of the SLFRF program.
345 For more on the importance of cybersecurity
to the reliability and resiliency of broadband
networks, see: Federal Communications
Commission, https://docs.fcc.gov/public/
attachments/FCC-10-63A1.doc; Brookings Institute,
Protecting the Cybersecurity of America's Networks
(February 11, 2021), https://www.brookings.edu/
blog/techtank/2021/02 /11 /protecting-the-
cybersecurity-of-americas-networks/.
346 See Infrastructure Investment and Jobs Act,
Public Law 117-58 (2021).

III. Restrictions on Use
While recipients have considerable
flexibility to use funds to address the
diverse needs of their communities,
some restrictions on use of funds apply.

The ARPA includes two statutory
provisions that further define the
boundaries of the statute's eligible uses.

First, section 602(c)(2)(A) of the Social
Security Act provides that states and
territories may not "use the funds . . .
to either directly or indirectly offset a
reduction in . . . net tax revenue . . .
resulting from a change in law,
regulation, or administrative
interpretation during the covered period
that reduces any tax . . . or delays the
imposition of any tax or tax increase."
Second, sections 602(c)(2)(B) and
603(c)(2) prohibit all recipients, except
Tribal governments, from using funds
for deposit into any pension fund. These
restrictions support use of funds only
for the congressionally permitted
purposes described in the Eligible Uses
section by providing a backstop against
the use of funds for purposes outside of
the eligible use categories provided for
in the statute.

In addition to the restrictions on use
of funds provided for in the ARPA
statute, the interim final rule noted that
several uses of funds would be
ineligible under any eligible use
category, including as a response to the
public health and negative economic
impacts of the pandemic or as a
"government service" under the
revenue loss eligible use category.

Specifically, use of funds for debt
service, to replenish financial reserves,
or to satisfy an obligation arising from
a judicial settlement or judgment were
ineligible uses of funds under the
eligible use categories for public health
and negative economic impacts and
revenue loss. These restrictions apply to
all recipients.

Recipients should note that
restrictions on use of funds for debt
service, to replenish financial reserves,
or to satisfy an obligation arising from
a judicial settlement or judgment apply
to all eligible use categories, not just the
eligible use categories in which they
were discussed in the interim final rule.

Recipients are also subject to other
restrictions on use of funds in the
ARPA, the Award Terms and
Conditions, and other federal laws. As
discussed further below, uses of funds
may not conflict with the overall
statutory purpose of the ARPA to reduce
the spread of COVID-19. Per the Award
Terms and Conditions, recipients must
adopt and abide by policies to prevent
conflicts of interest. Finally, recipients
are reminded that other federal laws

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4423 also apply to uses of funds, including
environmental and civil rights laws.

To enhance clarity, this
SUPPLEMENTARY INFORMATION for the
final rule consolidates these restrictions
on use of funds into one section and
makes clear that they apply to all
eligible use categories and any use of
funds under the program by recipients
to whom each specific restriction
applies.

This section discusses the
aforementioned restrictions, public
comments received, and Treasury's
response to these comments. For clarity,
Treasury has divided the following
discussion into (A) statutory restrictions
under the ARPA, which include (1)
offsetting a reduction in net tax revenue,
and (2) deposits into pension funds, and
(B) other restrictions on use, which
include (1) debt service and
replenishing reserves, (2) settlements
and judgments, and (3) general
restrictions.

A. Ineligible Uses of Funds Under the
ARPA Statute

1. Offset a Reduction in Net Tax
Revenue
For states and territories (recipient
governments 347), section 602(c)(2)(A)—
the offset provision —prohibits the use
of SLFRF funds to directly or indirectly
offset a reduction in net tax revenue
resulting from a change in law,
regulation, or administrative
interpretation 348 during the covered
period. If a state or territory uses SLFRF
funds to offset a reduction in net tax
revenue resulting from a change in law,
regulation, or interpretation, the ARPA
provides that the state or territory must
repay to Treasury an amount equal to
the lesser of (i) the amount of the
applicable reduction attributable to the
impermissible offset and (ii) the amount
of SLFRF funds received by the state or
territory. A state or territory that uses
SLFRF funds to offset a reduction in net
tax revenue does not forfeit its entire
allocation of SLFRF funds (unless it
misused the full allocation to offset a
reduction in net tax revenue) or any
non-SLFRF funding.

The interim final rule implements
these conditions by establishing a
framework for states and territories to
determine the cost of changes in law,
regulation, or interpretation that reduce
tax revenue and to identify and value
347In this sub -section, "recipient governments"
refers only to states and territories. In other
sections, "recipient governments" refers more
broadly to eligible governments receiving funding
from the SLFRF.
348 For brevity, this phrase is referred to as
"changes in law, regulation, or interpretation" for
the remainder of this SUPPLEMENTARY INFORMATION.
the sources of funds that will offset—
i.e., cover the cost of —any reduction in
net tax revenue resulting from such
changes. The interim final rule
recognizes three sources of funds that
may offset a reduction in net tax
revenue other than SLFRF funds:

Organic revenue growth, increases in
revenue due to policy changes (e.g., an
increase in a tax rate), and certain cuts
in spending.

Specifically, the interim final rule
establishes a step-by-step process for
determining whether, and the extent to
which, SLFRF funds have been used to
offset a reduction in net tax revenue,
based on information reported by the
recipient government:

L First, each year, each recipient
government will identify and value the
changes in law, regulation, or
interpretation that would result in a
reduction in net tax revenue, as it would
in the ordinary course of its budgeting
process. The sum of these values in the
year for which the government is
reporting is the amount it needs to "pay
for" with sources other than SLFRF
funds (total value of revenue reducing
changes).

Second, the interim final rule
recognizes that it may be difficult to
predict how a change would affect net
tax revenue in future years and,
accordingly, provides that if the total
value of the changes in the year for
which the recipient government is
reporting is below a de minimis level,
as discussed below, the recipient
government need not identify any
sources of funding to pay for revenue
reducing changes and will not be
subject to recoupment.
❑ Third, a recipient government will
consider the amount of actual tax
revenue recorded in the year for which
it is reporting. If the recipient
government's actual tax revenue is
greater than the amount of tax revenue
received by the recipient for the fiscal
year ending 2019, adjusted annually for
inflation, the recipient government will
not be considered to have violated the
offset provision because there will not
have been a reduction in net tax
revenue.
❑ Fourth, if the recipient
government's actual tax revenue is less
than the amount of tax revenue received
by the recipient government for the
fiscal year ending 2019, adjusted
annually for inflation, in the reporting
year the recipient government will
identify any sources of funds that have
been used to permissibly offset the total
value of covered tax changes other than
SLFRF funds. These are:
0 State or territory tax changes that
would increase any source of general
fund revenue, such as a change that
would increase a tax rate; and
o Spending cuts in areas not being
replaced by SLFRF funds.

The recipient government will
calculate the value of revenue reduction
remaining after applying these sources
of offsetting funding to the total value of
revenue reducing changes —that is, how
much of the tax change has not been
paid for. The recipient government will
then compare that value to the
difference between the baseline and
actual tax revenue. A recipient
government will not be required to
repay to Treasury an amount that is
greater than the recipient government's
actual tax revenue shortfall relative to
the baseline (i.e., fiscal year 2019 tax
revenue adjusted for inflation). This
"revenue reduction cap," together with
Step 3, ensures that recipient
governments can use organic revenue
growth to offset the cost of revenue
reductions.
❑ Finally, if there are any amounts
that could be subject to recoupment,
Treasury will provide notice to the
recipient government of such amounts
along with an explanation of such
amounts. This process is discussed in
greater detail in section Remediation
and Recoupment of this Supplementary
Information.

Together, these steps allow Treasury
to identify the amount of reduction in
net tax revenue that both is attributable
to covered changes and has been
directly or indirectly offset with SLFRF
funds.

Overview of Comments: Many
commenters supported the framework
established under the interim final rule.

These commenters argued that the offset
provision, and the interim final rule's
implementation of the offset provision,
was essential to ensuring SLFRF funds
are used in a manner consistent with the
statute's defined eligible uses and, in
particular, to support the use of SLFRF
funds to build public sector capacity.

Several commenters argued that the
framework should be made more
restrictive; for example, some comments
advocated that the offset provision be
applied to local governments.

Other commenters argued that the
offset provision and the interim final
rule's implementation of the offset
provision is too restrictive, with some
asserting that the offset provision
prohibits states from making changes to
reduce taxes. Many of these commenters
argued that the offset provision presents
constitutional concerns. These
commenters asserted that the offset
provision is ambiguous and the
restriction is unrelated to the purpose of
the ARPA. These commenters also

4424 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations argued that the generous amount of
SLFRF funds provided to those
governments gave recipient
governments little choice as to whether
to accept the SLFRF funds and, as a
result, the offset provision is coercive.

In describing these concerns and
arguments, several of these commenters
referenced litigation regarding the offset
provision.349 Many of these commenters
also expressed concern regarding the
interim final rule's implementation of
the offset provision. Some of these
commenters argued that Treasury lacked
the authority to implement the
provision, asserting that the significance
of the provision required Congress to
make an explicit delegation of
rulemaking authority and provide
clearer principles by which Treasury
should implement the provision.

Finally, one commenter argued that the
offset provision should only apply if the
recipient expressly and intentionally
uses SLFRF funds to offset a reduction
in revenue, arguing that the term
"offset" implies a deliberate use SLFRF
funds to "pay for" a tax cut.

As discussed in the interim final rule,
the offset provision does not prevent a
recipient government from enacting a
broad variety of tax changes. Rather, the
offset provision prevents a recipient
government from using SLFRF funds to
offset a revenue reduction resulting
from a tax cut. A recipient government
would only be considered to have used
SLFRF funds to offset a reduction in net
tax revenue resulting from changes in
law, regulation, or interpretation if, and
to the extent that, the recipient
government could not identify sufficient
funds from sources other than SLFRF
funds to offset the reduction in net tax
revenue. Only if sufficient funds from
other sources cannot be identified to
cover the full cost of the reduction in
net tax revenue resulting from changes
in law, regulation, or interpretation, will
the remaining amount not covered by
these sources be considered to have
been offset by SLFRF funds, in
contravention of the offset provision.

Consistent with the statutory text, the
approach taken in the interim final rule
recognizes that, because money is
fungible, even if SLFRF funds are not
explicitly or directly used to cover the
costs of changes that reduce net tax
revenue, those funds may be used in a
manner inconsistent with the statute by
indirectly being used to substitute for
the state's or territory's funds that
349 See, e.g., State of West Virginia v. U.S.

Department of the Treasury, No. 7:21—cv-00465—
LSC, 2021 WL 2952863 (N.D. Ala. Jul. 14, 2021);
State of Ohio v. Yellen, No. 1:21—cv-181, 2021 WL
2712220 (S.D. Ohio Jul. 1, 2021).
would otherwise have been needed to
cover the costs of the reduction. As
discussed below, the scope of changes
in law, regulation, or interpretation is
further limited to those that the
recipient government voluntarily
enacted during the covered period.

Congress has the authority under the
Spending Clause in Article I, section 8
of the Constitution to specify the
permissible and impermissible uses of
federal grants. The Supreme Court has
repeatedly "upheld Congress's authority
to condition the receipt of funds on the
States' complying with restrictions on
the use of those funds, because that is
the means by which Congress ensures
that the funds are spent according to its
view of the `general Welfare.' " 350 "The
power to keep a watchful eye on
expenditures . . . is bound up with
congressional authority to spend in the
first place." 351 Assertions that the
amount of SLFRF funds are sufficiently
large to be coercive are inconsistent
with the Supreme Court's reasoning in
NFIB, which distinguished between
conditions placed on new federal funds
and conditions placed on existing
federal funds and not based on the size
of funds.352 Further, the conditions
placed on the use of SLFRF funds under
the ARPA—both the eligible uses and
additional limitations on deposits into
pension funds and the offset
provision —were well known to
recipient governments prior to recipient
governments requesting to receive
SLFRF funds. Finally, the ARPA
provides Treasury with the express
authority "to issue such regulations as
may be necessary or appropriate to carry
out" section 602, which includes the
offset provision.

A number of commenters expressed
concern regarding the burden associated
with complying with the offset
provision and the interim final rule.

Similarly, other commenters argued that
the framework provided in the interim
final rule complicated implementation
35° National Fed'n of Indep. Bus. v. Sebelius
(NFIB), 567 U.S. 519, 580 (2012) (plurality opinion);
see, e.g., South Dakota v. Dole, 483 U.S. 203, 206-
208 (1987); Gruver v. Louisiana Bd. of Supervisors
for Louisiana State Univ. Agric. & Mech. Coll., 959
F.3d 178, 183 (5th Cir.), cert. denied, 141 S. Ct. 901
(2020). For additional discussion of these issues,
see, e.g., Brief Reply for Appellants, Ohio v. Yellen,
No. 21-3787 (6th Cir. Oct. 26, 2021).
351 Sabri V. United States, 541 U.S. 600, 608
(2004).
352 The new federal funds offered by the
Affordable Care Act totaled $100 billion per year.

Even the dissenting Justices agreed that "Congress
could have made just the new funding provided
under the ACA contingent on acceptance of the
terms of the Medicaid Expansion," although they
disagreed with the majority about whether that
funding condition was severable. NFIB at 687-688
(joint dissent).
of the offset provision. Treasury took
several steps to minimize burden for
recipient governments in the interim
final rule. For example, the interim final
rule incorporates the types of
information and modeling already used
by states and territories in their own
fiscal and budgeting processes. By
incorporating existing budgeting
processes and capabilities, states and
territories will be able to assess and
evaluate the relationship of tax and
budget decisions to uses of SLFRF funds
based on information they likely have or
can readily obtain. This approach
ensures that recipient governments have
the information they need to understand
the implications of their decisions
regarding the use of SLFRF funds —and,
in particular, whether they are using the
funds to directly or indirectly offset a
reduction in net tax revenue resulting
from a change in law, regulation, or
interpretation, making the funds
potentially subject to recoupment. To
further reduce burden, Treasury is
considering whether the scope of
reporting requirements can be further
tailored.

As described in greater detail below,
Treasury is finalizing its
implementation of the offset provision
largely without change. This approach
is consistent with the text of the ARPA.

The remainder of this section discusses
and responds to comments on specific
aspects of the framework.

1. Definitions
Covered change. The offset provision
is triggered by a reduction in net tax
revenue resulting from "a change in
law, regulation, or administrative
interpretation." Consistent with this
language, the interim final rule defines
a "covered change" to include any final
legislative or regulatory action, a new or
changed administrative interpretation,
and the phase -in or taking effect of any
statute or rule where the phase -in or
taking effect was not prescribed prior to
the start of the covered period. Thus, the
offset provision applies only to actions
for which the change in policy occurs
during the covered period; it excludes
regulations or other actions that
implement a change or law
substantively enacted prior to March 3,
2021. For example, covered changes do
not include a change in rate that is
triggered automatically and based on
statutory or regulatory criteria in effect
prior to the covered period.353 Changed
353 For example, a state law that sets its earned
income tax credit (EITC) at a fixed percentage of the
federal EITC will see its EITC payments
automatically increase —and thus its tax revenue
reduced —because of the federal government's
expansion of the EITC in the ARPA See, e.g., Tax

Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations 4425 administrative interpretations would
not include corrections to replace prior
inaccurate interpretations; such
corrections would instead be treated as
changes implementing legislation
enacted or regulations issued prior to
the covered period. The operative
change in those circumstances is the
underlying legislation or regulation that
occurred prior to the covered period.

Moreover, only changes within the
control of the state or territory are
considered covered changes. Finally,
covered changes do not include changes
that simply conform with recent
changes in federal law (including those
to conform to recent changes in federal
taxation of unemployment insurance
benefits and taxation of loan forgiveness
under the Paycheck Protection
Program).

Scope of Covered Changes
Public Comment: Several commenters
argued that the definition of covered
change, and thus the limitations of the
offset provision, should apply to
subsidies for businesses. Similarly,
other commenters requested that
Treasury clarify that the offset provision
applies to tax abatements and
reductions in corporate taxes, even if
administered by a sub -unit of the
recipient government. Citing to
empirical research and other evidence,
these commenters argued that these
types of economic development policies
were poorly administered, reduced
public sector capacity, and were
ineffective at achieving stated objectives
of creating jobs, increasing income, and
increasing economic growth. On the
other hand, some commenters argued
that, because subsidies were
economically similar to some tax cuts,
neither action should be considered a
covered change and subject to the offset
provision. Finally, other commenters
requested that Treasury clarify whether
covered changes must be broad -based
policies or whether administrative
decisions applicable to individuals
would be considered covered changes.

Treasury Response: Section
602(c)(2)(A) applies to any change 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." Accordingly, and consistent
with this statutory text, the final rule
applies to covered changes that reduce
any tax, which can include tax
abatements, but does not apply to loans,
Policy Center, How do state earned income tax
credits work?, https://www.taxpolicycenter.org/
briefing-book/how-do-state-earned-income-tax-
credits-work/ (last visited May 9, 2021).
grants, or other types of interventions
that do not reduce tax revenue.354 In
addition, by including changes in
regulation or administrative
interpretation, in addition to changes in
law, within the scope of the offset
provision, the ARPA recognizes that a
recipient government may make a
covered change through its legislature or
may delegate the authority to make a
covered change including, but not
limited to, to a sub -unit of government.

Treasury has revised the definition of
"covered change" in the final rule using
the statutory language above to make
clear that the offset provision only
applies to such changes in law,
regulation, or administrative
interpretation. With respect to the
question of whether covered changes
could include administrative decisions
applicable to individuals, as discussed
above, a covered change includes a
change in law, regulation, or
administrative interpretation that
reduces any tax. Such changes may
apply to one or more individuals or
entities, provided that —consistent with
the statutory text —they result from a
change in law, regulation, or
administrative interpretation.

Prior Enactment and Phase -In
Public Comment: A number of
commenters expressed concern, or
requested clarification, regarding
changes that were enacted prior to the
covered period but take effect or phase -
in during the covered period. Several
commenters argued that the definition
of covered change should include
changes that were made prior to the
covered period but that phase -in during
the covered period.

Treasury Response: As discussed
above, the offset provision is triggered
by a reduction in net tax revenue
resulting from "a change in law,
regulation, or administrative
interpretation" made during the covered
period. Consistent with the statutory
text, "covered change" is defined to
include any final legislative or
regulatory action, a new or changed
administrative interpretation, and the
phase -in or taking effect of any statute
or rule where the phase -in or taking
effect was not prescribed prior to the
start of the covered period.

Conformity
Public Comment: A number of
commenters requested clarification on
the scope of covered changes.

Specifically, several commenters
354 Assistance must be consistent with eligible
uses of SLFRF funds. See section Eligible Uses of
this SUPPLEMENTARY INFORMATION.
requested clarification on the scope of
changes that would be considered as
conforming to recent changes in federal
law. These commenters requested that
Treasury clarify whether actions to
selectively conform with federal law
would be considered covered changes
and requested clarification regarding the
extent to which changes would be
considered "recent." For example, these
commenters requested clarification
regarding conformance with the Global
Intangible Low -Taxed Income provision
of the 2017 Tax Cuts and Jobs Act. Some
commenters further argued that changes
that selectively conform or decouple
from the Internal Revenue Code should
be included within scope of covered
changes and thus subject to the offset
provision.

Treasury Response: The final rule
maintains the treatment of changes that
simply conform with recent changes in
federal law, such as those to conform to
recent changes in federal taxation of
unemployment insurance benefits and
taxation of loan forgiveness under the
Paycheck Protection Program 355 and
including other changes over the past
several years. Regardless of the
particular method of conformity and the
effect on net tax revenue, Treasury
views such changes as permissible
under the offset provision.

Accordingly, and for the reasons
discussed above, Treasury is
maintaining the definition of covered
change without change.

Tax revenue. The interim final rule's
definition of "tax revenue" is based on
the Census Bureau's definition of taxes,
used for its Annual Survey of State
Government Finances.35e It provides a
consistent, well -established definition
with which states and territories will be
familiar and is consistent with the
approach taken in section Revenue Loss
of this SUPPLEMENTARY INFORMATION
describing the implementation of
sections 602(c)(1)(C) and 603(c)(1)(C) of
the Social Security Act regarding
revenue loss. A number of commenters
expressed concern and requested
clarification regarding the definition of
"tax revenue." These comments and
responses are discussed in section
Revenue Loss of this Supplemental
Information and, for the reasons
discussed above, Treasury is finalizing
the definition of tax revenue without
ass See Statement on State Fiscal Recovery Funds
and Tax Conformity, April 7, 2021, available at
https://home.treasury.gov/news/press-releases/
1Y0113.
355 U.S. Census Bureau, Annual Survey of State
and Local Government Finances Glossary, https://
www.census.gov/programs-surveys/state/about/
glossary.html (last visited Apr. 30, 2021).

4426 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations change and maintaining a consistent
definition of "tax revenue." 357
Baseline. For purposes of measuring a
reduction in net tax revenue, the interim
final rule measures actual changes in tax
revenue relative to a revenue baseline
(baseline). The baseline is calculated as
fiscal year 2019 (FY 2019) tax revenue
indexed for inflation in each year of the
covered period, with inflation
calculated using the Bureau of
Economic Analysis's Implicit Price
Deflator.358
Public Comment: Some commenters
expressed concern regarding the choice
of FY 2019 as the baseline, arguing that
the choice lacked justification and
would make the offset provision more
restrictive as applied to recipient
governments that experienced a decline
in revenue independent of making any
covered changes.

Treasury Response: Measuring a
"reduction" in net tax revenue requires
identification of a baseline. In other
words, a "reduction" can be assessed
only by comparing two amounts. The
Act defines "covered period" to begin
on March 3, 2021, and thus the baseline
year must end prior to March 3, 2021.

As discussed in the interim final rule,
FY 2019 is the last full fiscal year prior
to the COVID-19 public health
emergency, and thus is consistent with
the statutory definition and does not
include the extraordinary effects of the
pandemic that began in 2020. Further,
as discussed above, the interim final
rule recognizes three potential ways that
a recipient government may offset or
"pay for" a reduction in net tax revenue
due to a covered change: Increases in
taxes, decreases in spending, and
organic revenue growth. U.S. gross
domestic product rebounded to exceed
its pre -pandemic level in 2021,359
suggesting that an FY 2019 pre -
357 As discussed in section Revenue Loss of this
Supplementary Information, for purposes of
measuring revenue lost due to the pandemic under
sections 602(c)(1)(C) and 603(c)(1)(C), recipients
must adjust the amount of revenue lost to reflect
changes that resulted from a tax increase or
decrease. These adjustments do not apply to or
affect the definition of tax revenue.
358 U.S. Department of Commerce, Bureau of
Economic Analysis, GDP Price Deflator, https://
www.bea.gov/data/pricesdnflation/gdp-price-
deflator (last visited Apr. 30, 2021). The FY 2019
baseline revenue is adjusted annually for inflation
to allow for direct comparison of actual tax revenue
in each year (reported in nominal terms) to baseline
revenue in common units of measurement; without
inflation adjustment, each dollar of reported actual
tax revenue would be worth less than each dollar
of baseline revenue expressed in 2019 terms.
359 Economy Statement by Catherine Wolfram,
Acting Assistant Secretary for Economy Policy, for
the Treasury Borrowing Advisory Committee
November 1, 2021 (Nov. 1, 2021), available at
https://home.treasuty.gov/news/press-releases/
jy0453.
pandemic baseline is a reasonable
comparator for future revenue levels
and provides recipients with flexibility
to identify organic growth as a
permissible offset. Finally, this baseline
year is consistent with the approach
directed by sections 602(c)(1)(C) and
603(c)(1)(C), which identify the "most
recent full fiscal year of the [state,
territory, or Tribal government] prior to
the emergency" as the comparator for
measuring revenue loss. For these
reasons, Treasury is finalizing the
definition of "baseline" without change.

The interim final rule includes several
other definitions that are applicable to
the implementation of the offset
provision, such as the term "reporting
year." 360 Commenters did not express
concern regarding other definitions in
the interim final rule.

2. Framework
The interim final rule provides a step-
by-step framework, to be used in each
reporting year, to determine whether a
state or territory used SLFRF funds to
offset a reduction in net tax revenue.

Consistent with section 602(c)(2) and
the interim final rule, the final rule
applies to states and territories:
(1) Covered changes that reduce tax
revenue. Under the interim final rule, a
recipient government identifies and
values covered changes that the
recipient government predicts will have
the effect of reducing tax revenue in a
given reporting year, similar to the way
it would in the ordinary course of its
budgeting process. The interim final
rule states that the value of these
covered changes may be reported based
on estimated values produced by a
budget model, incorporating reasonable
assumptions, that aligns with the
recipient government's existing
approach for measuring the effects of
fiscal policies, and that measures these
effects relative to a current law baseline.

If the recipient would prefer, the
covered changes may also be reported
based on actual values using a statistical
methodology to isolate the change in
year -over -year revenue attributable to
the covered change(s), relative to the
current law baseline prior to the
change(s).361 Further, estimation
approaches may not use dynamic
methodologies that incorporate the
369 One commenter requested clarification that
references to fiscal year refer to the fiscal year of
the recipient. "Reporting year" is defined in the
interim final rule and final rule to mean "a single
year or partial year within the covered period,
aligned to the current fiscal year of the State or
Territory during the covered period."
361 By permitting recipient governments to use
actual or estimated values, the interim final rule
and final rule provide flexibility to recipients and
thus minimizes burden.
projected effects of macroeconomic
growth because macroeconomic growth
is accounted for separately in the
framework.

Estimation
Public Comment: A number of
commenters expressed concern that
estimating the value of covered changes
required a number of assumptions and
that the actual effects of covered
changes on tax revenue would be
difficult to predict. Several commenters
expressed support for the interim final
rule's approach to dynamic scoring
methodologies, and one commenter
argued that the final rule should
prohibit the use of prior cash balances
in calculations of permissible tax cuts.

Treasury Response: Treasury
recognizes that estimating the effects of
covered changes requires assumptions
and that many other factors influence
the amount of tax revenue received. The
interim final rule addresses these
concerns in several ways. First, in
general and where possible, reporting
should be produced by the agency of the
recipient government responsible for
estimating the costs and effects of fiscal
policy changes. This approach offers
recipient governments the flexibility to
determine their reporting methodology
based on their existing budget scoring
practices and capabilities. In addition,
by relying on scoring methodologies
that do not incorporate projected effects
of macroeconomic growth, the
estimation of the value of covered
changes relies on fewer assumptions
and thus provide greater consistency
among states and territories. Finally, as
discussed below, the interim final rule
includes a de minimis threshold, below
which the sum of covered changes will
be deemed not to have any revenue -
reducing effects.

Timing of the Impact of Covered
Changes
Public Comment: Several commenters
expressed concern that recipient
governments, to evade the offset
provision, may backload the costs of
certain covered changes outside of the
covered period, and advocated that
covered changes be instead evaluated as
the net present value in the year that the
covered change is enacted. These
commenters argued that some tax cuts
could have effects on tax revenue for
many decades or could be structured to
take effect after the end of the covered
period.

Treasury Response: As discussed in
section Timeline for Use of SLFRF
Funds, SLFRF funds must be used to
cover costs incurred prior to December
31, 2024. Accordingly, SLFRF funds

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Specifically, under this approach, a
recipient would only be required to
report information to the extent needed
to determine whether SLFRF funds had
been used to offset a reduction in net tax
revenue. For example, a recipient
government would be required to report
364 See Reporting Guidance, Section C.11,
available at https://home.treasury.gov/system/files/
136/SLFRF-Compliance-and-Reporting-
Guidance.pdf.

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

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

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

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

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

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

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

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

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

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

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

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

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

B. Other Restrictions on Use of Funds

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

4430 Federal Register/Vol. 87, No. 18 /Thursday, January 27, 2022 /Rules and Regulations government services to the extent of
revenue loss.3ss
As explained in greater detail below,
Treasury, in the final rule, has retained
these restrictions and is clarifying that
these restrictions on the use of SLFRF
funds apply to all eligible use
categories.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Allocations and Eligibility
Public Comment: Many commenters
provided feedback on specific allocation
calculations and eligibility of local
governments for NEU funding.
372 Treasury's Update on Interpretation for the 75
Percent Budget Cap Calculation can be found at:
https://home . treasury.gov/system/files/136/NEU-
Update-75-Percent-Budget-Cap. pd f.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Recipients have two options for
estimating this amount: They may
estimate the subsidy cost (i.e., net
present value of estimated cash flows)
or the discounted cash flow under
current expected credit losses (i.e.,
CECL method). See further guidance
issued by Treasury for further
explanation.38o
Public Comment: Many commenters
asked for further clarification on the
treatment of loans and the calculation of
"costs incurred." Some commenters
requested that grants made for eligible
activities prior to December 31, 2024 to
a revolving loan fund, an economic
development corporation, a land bank,
or a similar facility should be
considered obligated and expended at
the time of the grant. This would allow
funds to be expended by the grantee
beyond the covered period and for
funds returned to the grantee to be re-
invested in further uses outside of the
covered period.

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

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

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

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

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

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

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

SLFRF funds beyond those that are
available under sections 602(c)(1)(C) or
603(c)(1)(C) of the Social Security Act
for the provision of government services
may not be used to meet the non-federal
match or cost -share requirements of
other federal programs other than as
specifically provided for by statute. For
example, as discussed in other sections
of this final rule, section 40909 of the
Infrastructure Investment and Jobs Act
provides that SLFRF funds may be used
to meet the non-federal match
requirements of any authorized Bureau
of Reclamation project, and section
60102 of the Infrastructure Investment
and Jobs Act provides that the SLFRF
may be used to meet the non-federal
match requirements of the broadband
infrastructure program authorized under
that section (see sections Water and
Sewer Infrastructure and Broadband
Infrastructure).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Analysis of Benefits
Relative to a pre -statutory baseline,
the SLFRF funds provide a combined
$350 billion to state, local, and Tribal
governments for fiscal relief and support
for costs incurred responding to the
COVID-19 pandemic. Treasury believes
that this transfer will generate
substantial additional economic
activity, although given the flexibility
accorded to recipients in the use of
funds, it is not possible to precisely
estimate the extent to which this will
occur and the timing with which it will
occur. Economic research has
demonstrated that state fiscal relief is an
efficient and effective way to mitigate
declines in jobs and output during an
economic downturn.390 Absent such
fiscal relief, fiscal austerity among state,
local, and Tribal governments could
exert a prolonged drag on the overall
economic recovery, as occurred
following the 2007-2009 recession.391
This final rule provides benefits
across several areas by implementing
the four eligible use categories, as
defined in statute: strengthening the
response to the COVID-19 public health
emergency and its negative economic
impacts; replacing lost revenue to ease
fiscal pressure on state, local, and Tribal
governments that might otherwise lead
to harmful cutbacks in employment or
government services; providing
premium pay to essential workers; and
making necessary investments in water,
sewer, and broadband infrastructure.

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

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

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

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

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

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

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

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

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

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

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

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

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

Defining Low and Moderate Income:

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

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

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

Treasury chose the second option.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reporting
Number
respondents per
p
Number
responses

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

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

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

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

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

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

PART 35 —PANDEMIC RELIEF

PROGRAMS

1. Revise Subpart A to read as follows:

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

35.1 Purpose.

35.2 Applicability.

35.3 Definitions.

35.4 Reservation of authority, reporting.

35.5 Use of funds.

35.6 Eligible uses.

35.7 Pensions.

35.8 Tax.

35.9. Compliance with applicable laws.

35.10. Recoupment.

35.11 Payments to States.

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

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

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

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

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

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

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

Covered benefits include, but are not
limited to, the costs of all types of leave
(vacation, family -related, sick, military,
bereavement, sabbatical, jury duty),
employee insurance (health, life, dental,
vision), retirement (pensions, 401(k)),
unemployment benefit plans (Federal
and State), workers' compensation
insurance, and Federal Insurance
Contributions Act taxes (which includes
Social Security and Medicare taxes).

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

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

COVID-19 means the Coronavirus
Disease 2019.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Secretary means the Secretary of the
Treasury.

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

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

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

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

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

Tribal enterprise means a business
concern:

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

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

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

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

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

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

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

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

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

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

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

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

No Written Justification required.

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

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

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

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

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