The final rule includes enumerated
eligible uses in disproportionately
impacted communities for developing
neighborhood features that promote
improved health and safety outcomes,
such as parks, green spaces, recreational
facilities, sidewalks, pedestrian safety
features like crosswalks,
201 projects that
increase access to healthy foods,
streetlights, neighborhood cleanup, and
other projects to revitalize public
spaces. Recipients seeking to use funds
for capital expenditures should refer to
the section Capital Expenditures in
General Provisions: Other, which
describes additional eligibility
standards that apply to uses of funds for
capital expenditures.
b. Vacant or abandoned properties.
As discussed above, the interim final
rule included enumerated eligible uses
for building stronger communities
through investments in housing and
neighborhoods in disproportionately
impacted communities. The interim
final rule also posed a question of
whether other potential uses in this
category, specifically ‘‘rehabilitation of
blighted properties or demolition of
abandoned or vacant properties,’’
address the public health or economic
impacts of the pandemic.
Public Comment: Several commenters
argued that programs or services to
address vacant or abandoned property
would respond to the public health and
negative economic impacts of the
pandemic in disproportionately
impacted communities. Some
commenters cited research suggesting
that living near such property is
correlated with worse physical health
and mental health outcomes, noted that
such properties pose an environmental
hazard, or argued that such properties
present a barrier to economic recovery.
These commenters suggested that
renovation or demolition of vacant or
abandoned property could benefit
community health and raise property
values. Other commenters
recommended that Treasury include an
enumerated eligible use for the
operation of land banks that redevelop
or renew vacant properties and land.
Treasury Response: As noted
throughout the final rule, the pandemic
underscored the importance of safe,
affordable housing and healthy
VerDate Sep<11>2014 19:24 Jan 26, 2022 Jkt 256001 PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 E:\FR\FM\27JAR2.SGM 27JAR2lotter on DSK11XQN23PROD with RULES2 4374 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 202 A state or locality may use its existing
classifications of what is considered vacant or
abandoned property under state law and local
ordinances, as well as any corresponding processes
for demolition, for these eligible uses. A recipient
without a definition of vacant or abandoned
property may refer to definitions used in the
Department of Housing and Urban Development’s
Neighborhood Stabilization Program (available at
the citations below); however, recipients should be
aware that other federal, state, or local requirements
may apply such as compliance with the Uniform
Relocation Act (see U.S. Department of Housing and
Urban Development, Real Estate Acquisition and
Relocation Overview in HUD Programs, https://
www.hudexchange.info/programs/relocation/
overview/#overview-of-the-ura (last visited
November 9, 2021) and other state and local
requirements like condemnation and code
enforcement. U.S. Department of Housing and
Urban Development, What is the definition of
vacant properties as referenced in NSP Eligible Use
E—Redevelop Demolished or Vacant Properties?
(October 2012), https://www.hudexchange.info/
faqs/programs/neighborhood-stabilization-program-
nsp/redevelopment/what-is-the-definition-of-
vacant-properties-as-referenced-in-nsp-eligible/.
U.S. Department of Housing and Urban
Development, What are the definitions of
abandoned and foreclosed? (October 2012), https://
www.hudexchange.info/faqs/programs/
neighborhood-stabilization-program-nsp/program-
requirements/eligible-activitiesuses/what-are-the-
definitions-of-abandoned-and-foreclosed/.
203 For analysis of vacancy rates considered low
or high, see, e.g., page 12 of Alan Mallach, The
Empty House Next Door, Lincoln Institute (May
2018), https://www.lincolninst.edu/publications/
policy-focus-reports/empty-house-next-door#
:∼:text=%E2%80%9CAlan%20Mallach%20is%20
the%20sage,through%20data%20and%20
model%20 practices. Recipients may determine the
appropriate geographic unit for which to analyze
vacancy rates (e.g., county, census tract) based on
their circumstances. As needed, recipients may
refer to the Current Population Survey/Housing
Vacancy Survey data series on Housing Vacancies
and Homeownership as one data source to assess
vacancy rates. See https://www.census.gov/housing/
hvs/index.html. Other data sources include the
American Community Survey five-year estimates,
for smaller geographic areas, or tabulations by the
Department of Housing and Urban Development
based on United States Postal Service Vacancy Data.
See, respectively, https://data.census.gov/cedsci/
table?q=DP04&tid=ACSDP5Y2019.DP04&
hidePreview=true or https://www.huduser.gov/
portal/datasets/usps.html.
204 See U.S. Environmental Protection Agency,
Large-Scale Residential Demolition, https://
www.epa.gov/large-scale-residential-demolition
(last visited November 9, 2021) for a primer on
requirements that may apply.
neighborhood environments to public
health and economic outcomes.
Treasury agrees with commenters that
high rates of vacant or abandoned
properties in a neighborhood may
exacerbate public health disparities, for
example through environmental
contaminants that contribute to poor
health outcomes or by contributing to
higher rates of crime. As such, certain
services for vacant or abandoned
properties are eligible to address the
public health and negative economic
impacts of the pandemic on
disproportionately impacted households
or communities. Eligible activities
include:
• Rehabilitation, renovation,
maintenance, or costs to secure vacant
or abandoned properties to reduce their
negative impact
• Costs associated with acquiring and
securing legal title of vacant or
abandoned properties and other costs to
position the property for current or
future productive use
• Removal and remediation of
environmental contaminants or hazards
from vacant or abandoned properties,
when conducted in compliance with
applicable environmental laws or
regulations
• Demolition or deconstruction of
vacant or abandoned buildings
(including residential, commercial, or
industrial buildings) paired with
greening or other lot improvement as
part of a strategy for neighborhood
revitalization
• Greening or cleanup of vacant lots,
as well as other efforts to make vacant
lots safer for the surrounding
community
• Conversion of vacant or abandoned
properties to affordable housing
• Inspection fees and other
administrative costs incurred to ensure
compliance with applicable
environmental laws and regulations for
demolition, greening, or other
remediation activities
Vacant or abandoned properties are
generally those that have been
unoccupied for an extended period of
time or have no active owner.
202 Such
properties may be in significant
disrepair (e.g., major structural defects;
lack of weather tight conditions; or lack
of useable plumbing, kitchen facilities,
electricity, or heating infrastructure (not
to include utilities currently out of
service or disconnected but able to be
reconnected and used)), or may be
declared unfit for inhabitants by a
government authority.
As noted above, demolition and
greening (or other structure or lot
remediation) of vacant or abandoned
properties, including residential,
commercial, or industrial buildings, is
an eligible use of funds. Treasury
encourages recipients to undertake these
activities as part of a strategy for
neighborhood revitalization and to
consider how the cleared property will
be used to benefit the disproportionately
impacted community. Activities under
this eligible use should benefit current
residents and businesses, who
experienced the pandemic’s impact on
the community.
Treasury encourages recipients to be
aware of potential impacts of demolition
of vacant or abandoned residential
properties. Demolition activities that
exacerbate the pandemic’s impact on
housing insecurity or lack of affordable
housing are not eligible uses of funds.
This risk is generally more acute in
jurisdictions with low or reasonable
vacancy rates and less acute in
jurisdictions with high or hyper-
vacancy.
203
Treasury presumes that demolition of
vacant or abandoned residential
properties that results in a net reduction
in occupiable housing units for low- and
moderate-income individuals in an area
where the availability of such housing is
lower than the need for such housing
would exacerbate the impacts of the
pandemic on disproportionately
impacted communities and that use of
SLFRF funds for such activities would
therefore be ineligible. This includes
activities that convert occupiable
housing units for low- and moderate-
income individuals into housing units
unaffordable to current residents in the
community. Recipients may assess
whether units are ‘‘occupiable’’ and
what the housing need is for a given
area taking into account vacancy rates
(as described above), local housing
market conditions (including conditions
for different types of housing like multi-
family or single-family), and applicable
law and housing codes as to what units
are occupiable. Recipients should also
take all reasonable steps to minimize the
displacement of persons due to
activities under this eligible use
category, especially the displacement of
low-income households or longtime
residents.
Recipients engaging in these activities
and other construction activities with
SLFRF funds should be mindful of the
provisions of the Uniform Relocation
Assistance and Real Property
Acquisition Policies Act of 1970, as
amended, 42 U.S.C. 4601, and the
Department of Transportation’s
implementing regulations, 49 CFR part
24, that apply to projects funded with
federal financial assistance, such as
SLFRF funds. Recipients should also be
aware of federal, state, and local laws
and regulations, outside of SLFRF
program requirements, that apply to this
activity. Recipients must comply with
the applicable requirements of the
Uniform Guidance regarding
procurement, contracting, and conflicts
of interest and must follow the
applicable laws and regulations in their
jurisdictions. Recipients must also
comply with all federal, state, and local
public health and environmental laws
or regulations that apply to activities
under this eligible use category,
204 for
example, requirements around the
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containing materials, lead paint, and
other harmful materials may apply, as
well as environmental standards for any
backfill materials used at demolition
sites. Treasury encourages recipients to
consult and apply best practices from
the Environmental Protection Agency as
well.
Recipients must evaluate each
subrecipient’s risk of noncompliance
with federal statutes, regulations, and
the terms and conditions of the
subaward related to safely and properly
conducting activities under this eligible
use. This may include checking for any
past violations recorded by state or local
environmental, workplace safety,
licensing, and procurement agencies, as
well as regular reviews for suspensions,
debarments, or stop work orders.
Recipients must establish rigorous
oversight and internal controls
processes to monitor compliance with
any applicable requirements, including
compliance by subrecipients.
4. Addressing educational disparities.
The interim final rule included an
enumerated eligible use for addressing
educational disparities in
disproportionately impacted
communities and outlined some
enumerated eligible services under this
use. These enumerated uses included
early learning services, assistance to
high-poverty school districts to advance
equitable funding across districts and
geographies, and educational and
evidence-based services to address the
academic, social, emotional, and mental
health needs of students. Addressing the
many dimensions of resource equity—
including equitable and adequate school
funding; access to a well-rounded
education; well-prepared, effective, and
diverse educators and staff; and
integrated support services—can also
begin to mitigate the impact of COVID–
19 on schools and students and can
close long-standing gaps in educational
opportunity. As discussed above, in the
final rule, early learning services and
addressing the impacts of lost
instructional time for K–12 students are
enumerated eligible uses for impacted
communities, not just
disproportionately impacted
communities.
Public Comment: Treasury received
some comments in this category.
Generally, commenters expressed
agreement with the elements of the
interim final rule regarding use of funds
for addressing educational disparities.
Some commenters had questions about
whether a few specific uses of funds
qualified under this category. For
example, commenters inquired about
whether the funds could be used for
behavioral health in a school setting or
cultural language classes.
Treasury Response: Treasury is
maintaining these enumerated eligible
uses in the final rule, which are now
organized under the heading of
‘‘services to address educational
disparities.’’ Treasury reiterates that
these uses include addressing
educational disparities exacerbated by
COVID–19, including but not limited to:
increasing resources for high-poverty
school districts, educational services
like tutoring or afterschool programs,
summer education and enrichment
programs, and supports for students’
social, emotional, and mental health
needs. This also includes responses
aimed at addressing the many
dimensions of resource equity—
including equitable and adequate school
funding; access to a well-rounded
education; well-prepared, effective, and
diverse educators and staff; and
integrated support services—in order to
close long-standing gaps in educational
opportunity.
Further, Treasury is clarifying that
improvements or new construction of
schools and other educational facilities
or equipment are eligible capital
expenditures for disproportionately
impacted communities. Recipients
seeking to use funds for capital
expenditures should refer to the section
Capital Expenditures in General
Provisions: Other for additional
eligibility standards that apply to uses
of funds for capital expenditures.
Treasury notes that services to
promote healthy childhood
environments, including childcare,
early learning services, and home
visiting programs that serve infants and
toddlers, is a separate category of
enumerated eligible uses for households
impacted by the pandemic (see eligible
uses for ‘‘promoting healthy childhood
environments’’). Similarly, education
services to address the impact of lost
instructional time during the pandemic
are a separate eligible use category for
households impacted by the pandemic;
when providing these services,
recipients may presume that any K–12
student who lost access to in-person
instruction for a significant period of
time has been impacted by the
pandemic and is thus eligible for
responsive services (see eligible uses for
‘‘addressing the impact of lost
instructional time’’).
Proposed Additional Enumerated
Eligible Uses Not Incorporated
The interim final rule posed a
question on what other types of services
or costs Treasury should consider as
eligible uses to respond to the
disproportionate public health or
negative economic impacts of COVID–
19 on low-income populations and
communities.
In response, commenters proposed a
wide variety of additional
recommended enumerated eligible uses
to assist disproportionately impacted
households, ranging from general
categories of services (e.g., long-term
investments to remediate long-term
disparities) to highly specific examples
of services (e.g., a specific type of
healthcare equipment). As discussed
above, Treasury is including several
additional categories of enumerated
eligible uses in the final rule in response
to public comments.
Given the large number and diversity
of SLFRF recipients, Treasury’s
approach to assistance to households in
disproportionately impacted
communities in the final rule aims to
provide enumerated eligible uses that
respond to disproportionate impacts of
the pandemic experienced widely in
many jurisdictions across the country
and are intended to simplify and clarify
these enumerated eligible uses. At the
same time, Treasury recognizes that the
impacts of the pandemic vary over time,
by jurisdiction, and by population; as
such, the final rule provides flexibility
for recipients to identify additional
disproportionate impacts to additional
households or classes of households and
pursue programs and services that
respond to those disproportionate
impacts.
In the final rule, Treasury has not
chosen to include as enumerated uses
all uses proposed by commenters; given
the significant range, and in some cases
highly specific nature, of the proposed
uses Treasury was not able to assess that
the proposed uses would respond to
disproportionate impacts experienced in
many jurisdictions across the country,
supporting an enumerated eligible use
available to all recipients
presumptively. However, the final rule
continues to provide a framework to
allow recipients to identify and respond
to additional disproportionate impacts
(for details, see section General
Provisions: Structure and Standards).
Some types of proposed additional
enumerated eligible uses for assistance
to households in disproportionately
impacted communities were
recommended by several commenters:
• Capital expenditures. Many
commenters recommended that capital
expenditures on many different types of
public and private facilities be
enumerated eligible uses. For clarity,
Treasury has addressed all comments on
the eligibility of capital expenditures on
property, facilities, or equipment in one
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System, Monetary Policy Report (June 12, 2020),
https://www.federalreserve.gov/monetarypolicy/
2020-06-mpr-summary.htm.
206 U.S. Small Business Administration, Office of
Advocacy, Small Businesses Generate 44 Percent of
U.S. Economic Activity (Jan. 30, 2019), https://
advocacy.sba.gov/2019/01/30/small-businesses-
generate-44-percent-of-u-s-economic-activity/.
207 Joseph R. Biden, Remarks by President Biden
on Helping Small Businesses (Feb. 22, 2021),
https://www.whitehouse.gov/briefing-room/
speechesremarks/2021/02/22/remarks-by-president-
bidenon-helping-small-businesses/.
208 Daniel Wilmoth, U.S. Small Business
Administration Office of Advocacy, The Effects of
the COVID–19 Pandemic on Small Businesses, Issue
Brief No. 16 (Mar. 2021), available at https://
cdn.advocacy.sba.gov/wp-content/uploads/2021/
03/02112318/COVID-19-Impact-On-Small-
Business.pdf.
209 U.S. Census Bureau, Small Business Pulse
Survey, https://portal.census.gov/pulse/data/ (last
visited December 7, 2021).
210 Olivia S. Kim et al., Revenue Collapses and
the Consumption of Small Business Owners in the
Early Stages of the COVID–19 Pandemic (Nov.
2020), https://www.nber.org/papers/w28151.
211 See, e.g., Board of Governors of the Federal
Reserve System, Report to Congress on the
Availability of Credit to Small Businesses (Sept.
2017), available at https://www.federalreserve.gov/
publications/2017-september-availability-of-credit-
to-small-businesses.htm.
212 Alexander W. Bartik et al., The Impact of
COVID–19 on small business outcomes and
expectations, PNAS 117(30): 17656–66 (July 28,
2020), available at https://www.pnas.org/content/
117/30/17656.
213 Robert Fairlie, The impact of COVID–19 on
small business owners: Evidence from the first
3 months after widespread social-distancing
restrictions, Journal of economics & management
strategy (August 27, 2020), https://doi.org/10.1111/
jems.12400.
214 U.S. Small Business Administration, The
Effects of the COVID–19 Pandemic on Small
Businesses (March 2021), https://cdn.advocacy.
sba.gov/wp-content/uploads/2021/03/02112318/
COVID-19-Impact-On-Small-Business.pdf.
215 Robert Fairlie, supra note 213.
216 Federal Reserve Bank of Atlanta. 2019. Small
Business Credit Survey 2019 Report on Minority-
Owned Firms. December. fedsmallbusiness.org/
survey/2019/report-on-minority-owned-firms.
217 Ding, Lei, and Alvaro Sanchez. 2020. What
Small Businesses Will Be Impacted by COVID–19?
Federal Reserve Bank of Philadelphia.
philadelphiafed.org/covid-19/covid-19-equity-in-
recovery/what-small-businesses-will-be-impacted.
218 Lucas Misera, An Uphill Battle: COVID–19’s
Outsized Toll on Minority-Owned Firms, Federal
Reserve Bank of Cleveland (October 8, 2020),
https://www.clevelandfed.org/newsroom-and-
events/publications/community-development-
briefs/db-20201008-misera-report.aspx.
219 Robert Fairlie, A. Robb, D. Robinson, Black
and White: Access to Capital among Minority-
Owned Startups, NBER Working Paper 28154
(November 2020), https://www.nber.org/papers/
w28154.
section (see section Capital
Expenditures in General Provisions:
Other).
• Equity funds. Several commenters
recommended that Treasury permit
SLFRF funds to be deposited into an
equity fund to support long-term racial
and economic equity investments. The
eligibility of such use would depend on
the specific structure and uses of funds.
Under the statute, SLFRF funds can
only support costs incurred until
December 31, 2024; see section
Timeline for Use of SLFRF Funds in
Program Administration Provisions.
Further, recipients may calculate the
cost incurred with respect to
investments in revolving loan funds
based on the methodology described in
section Treatment of Loans in Program
Administration Provisions. Projects
funded by a revolving loan fund using
SLFRF funds would also need to be
eligible uses of SLFRF funds.
• Environmental quality and climate
resilience. Several commenters
recommended eligible uses to enhance
environmental quality, remediate
pollution, promote recycling or
composting, or increase energy
efficiency or electrical grid resilience.
Whether these projects respond to the
disproportionate impacts of the
pandemic on certain communities
would depend on the specific issue they
address and its nexus to the public
health and economic impacts of the
pandemic.
b. Assistance to Small Businesses
Background
The pandemic has severely impacted
many businesses, with small businesses
hit especially hard. Small businesses
make up nearly half of U.S. private-
sector employment
205 and play a key
role in supporting the overall economic
recovery as they are responsible for two-
thirds of net new jobs.
206 Since the
beginning of the pandemic, however,
400,000 small businesses have closed,
with many more at risk.
207 Sectors with
a large share of small business
employment have been among those
with the most drastic drops in
employment.
208 The negative outlook
for small businesses has continued: As
of November 2021, approximately 66
percent of small businesses reported
that the pandemic has had a moderate
or large negative effect on their
business, and over a third expect that it
will take over 6 months for their
business to return to their normal level
of operations.
209
This negative outlook is likely the
result of many small businesses having
faced periods of closure and having seen
declining revenues as customers stayed
home.
210 In general, small businesses
can face greater hurdles in accessing
credit,
211 and many small businesses
were already financially fragile at the
outset of the pandemic.
212
While businesses everywhere faced
significant challenges during the
pandemic, minority-owned and very
small businesses have faced additional
obstacles. Between February and April
2020, the number of actively self-
employed Black business owners
decreased by 41 percent.
213 During that
same time period, Asian and Latino
business owners decreased by 26 and 32
percent, respectively, compared to a 17
percent decrease in white business
owners.
214 Female business owners also
saw significant impacts, with businesses
owned by women falling by 25
percent.
215
Many of the disparities in how
minority business owners experienced
the pandemic are rooted in systemic
issues present even before the
pandemic. For example, before the
economic downturn, only 12 percent of
Black-owned businesses and 19 percent
of Hispanic-owned businesses had
annual earnings of over $1 million
compared to 31 percent of white-owned
businesses.
216 Minority-owned
businesses were also overrepresented in
industries hit hardest by the economic
downturn (e.g., services, transportation
and warehousing, healthcare and social
assistance, administrative and support
and waste management, and
accommodation and food services).
217
Approximately 22 percent of all
minority-owned business fell into the
hardest hit industries compared to 13
percent of nonminority-owned
businesses.
218
Although disparities in annual
revenue are not a direct indication of a
business’s ability to weather an
economic downturn, they do highlight
other disparities that make it more
challenging for these businesses to
survive the effects of the pandemic.
Black-owned startups, for example, face
larger challenges in raising capital,
including securing business loans.
219
Summary of the Interim Final Rule and
Final Rule Structure
Summary of Interim Final Rule: As
discussed above, small businesses faced
significant challenges in covering
payroll, mortgages or rent, and other
operating costs as a result of the public
health emergency and measures taken to
contain the spread of the virus. Under
Sections 602(c)(1)(A) and 603(c)(1)(A),
recipients may ‘‘respond to the public
health emergency or its negative
economic impacts,’’ by, among other
things, providing ‘‘assistance to . . .
small businesses.’’ Accordingly, the
interim final rule allowed recipients to
provide assistance to small businesses
to address the negative economic
impacts faced by those businesses. A
VerDate Sep<11>2014 19:24 Jan 26, 2022 Jkt 256001 PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 E:\FR\FM\27JAR2.SGM 27JAR2lotter on DSK11XQN23PROD with RULES2 4377 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations ‘‘small business’’ is defined as 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).
Specifically, the interim final rule
provided that recipients may provide
assistance to small businesses to adopt
safer operating procedures, weather
periods of closure, or mitigate financial
hardship resulting from 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;
• Loans, grants, or in-kind assistance
to implement COVID–19 prevention or
mitigation tactics; and
• Technical assistance, counseling, or
other services to assist with business
planning needs.
The interim final rule further
provided that recipients may consider
additional criteria to target assistance to
businesses in need, including small
businesses. Such criteria may include
businesses facing financial insecurity,
substantial declines in gross receipts
(e.g., comparable to measures used to
assess eligibility for the Paycheck
Protection Program), or other economic
harm due to the pandemic, as well as
businesses with less capacity to weather
financial hardship, such as the smallest
businesses, those with less access to
credit, or those serving underserved
communities. The interim final rule also
indicated that recipients should
consider local economic conditions and
business data when establishing such
criteria. Finally, the interim final rule
posed a question on whether there are
other services or costs that Treasury
should consider as eligible uses to
respond to the disproportionate impacts
of COVID–19 on low-income
populations and communities.
Final Rule Structure: Consistent with
the interim final rule approach, the final
rule provides a non-exhaustive list of
enumerated eligible uses for assistance
to small businesses that are impacted or
disproportionately impacted by the
pandemic. Further, within Assistance to
Small Business, a recipient may also
identify a negative economic impact
experienced by small businesses and
design and implement a response to that
negative economic impact, beyond the
uses specifically enumerated in the final
rule, according to the standard
described in the section Standards:
Identifying a Negative Economic Impact.
A recipient may also identify small
businesses that have been
disproportionately impacted by the
public health emergency and design and
implement a program that responds to
the source of that disproportionate
impact.
Consistent with other eligible use
categories to respond to the public
health and economic impacts of the
pandemic, recipients may identify and
serve small businesses that experienced
a negative economic impact or
disproportionate impact due to the
pandemic, as described in the section
Standards for Identifying Other Eligible
Populations. For example, to identify
impacted small businesses, a recipient
may consider whether the small
businesses faced challenges in covering
payroll, mortgage or rent, or other
operating costs as a result of the public
health emergency and measures taken to
contain the spread of the virus. In order
to ease administrative burden, the final
rule presumes that small businesses
operating in QCTs, small businesses
operated by Tribal governments or on
Tribal Lands, and small businesses
operating in the U.S. territories were
disproportionately impacted by the
pandemic.
Reorganizations and Cross-
References: As detailed above, Treasury
has re-categorized some uses of funds in
the final rule to provide greater clarity.
For discussion of assistance to small
businesses and impacted industries to
implement COVID–19 mitigation and
prevention strategies, see section
COVID–19 Mitigation and Prevention in
Public Health.
Small Businesses Eligible for Assistance
Public Comment: Treasury received
many comments about the general
benefits or drawbacks of use of SLFRF
funds to provide assistance to small
businesses. Some commenters suggested
that SLFRF funds should be available to
assist all small businesses, rather than
only businesses that experienced direct
negative economic impacts due to the
public health emergency. Other
commenters argued that aid to small
businesses should be narrowed in the
final rule, asserting that SLFRF funds
should instead focus on assistance to
households or building public sector
capacity.
Treasury also received comments
requesting clarification of the types of
small businesses eligible for assistance.
For example, some commenters
requested clarification about whether
microbusinesses were included in the
definition of small business. Comments
also suggested that self-employed
individuals and Tribal enterprises be
classified as small businesses,
respectively. Commenters argued that
these types of small businesses are more
common among low-income and
minority businessowners and serve as
important institutions in underserved
communities.
Finally, some commenters suggested
that Treasury permit broader
enumerated eligible uses to assist small
businesses in disproportionately
impacted communities and generally
strengthen economic growth in these
communities. These commenters
recommended that Treasury presume
small businesses operating in QCTs are
disproportionately impacted and
eligible for broader enumerated uses.
Treasury Response: As discussed in
the section Designating a Negative
Economic Impact, in the final rule,
recipients must identify an economic
harm caused or exacerbated by the
pandemic on a small business or class
of small businesses to provide services
that respond.
As discussed above, programs or
services in this category must respond
to a harm experienced by a small
business or class of small businesses as
a result of the public health emergency.
To identify impacted small businesses
and necessary response measures,
recipients may consider impacts such as
lost revenue or increased costs,
challenges covering payroll, rent or
mortgage, or other operating costs, the
capacity of a small business to weather
financial hardships, and general
financial insecurity resulting from the
public health emergency.
Recognizing the difficulties faced by
small businesses in certain
communities, the final rule presumes
that small businesses operating in QCTs,
small businesses operated by Tribal
governments or on Tribal Lands, and
small businesses operating in the U.S.
territories were disproportionately
impacted by the pandemic. This
presumption parallels the final rule’s
approach to assistance to households,
reflecting the more severe pandemic
impacts in underserved communities
and creating a parallel structure across
different categories of eligible uses to
make the structure simpler for
recipients to understand and navigate.
Treasury notes that recipients may
also designate a class of small
businesses that experienced a negative
economic impact or disproportionate
negative economic impact (e.g.,
microbusinesses, small businesses in
certain economic sectors), design an
intervention to fit the impact, and
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owned and controlled by a Tribal government are
not considered affiliates of the Tribal government
and are not considered affiliates of other businesses
owned by the Tribal government because of their
common ownership by the Tribal government or
common management, as described in 13 CFR
121.103(b)(2). This definition is consistent with the
Small Business Administration (SBA) HUBZone
definition of a ‘‘small business concern’’ relating to
Tribal governments as well as how Tribal
enterprises are defined for the State Small Business
Credit Initiative (SSBCI).
document that the individual entity is a
member of the class. Additional
information about this framework is
included in the section General
Provisions: Structure and Standards.
Further, Treasury is maintaining the
interim final rule definition of ‘‘small
business,’’ which used the Small
Business Administration’s (SBA)
definition of fewer than 500 employees,
or per the standard for that industry, as
defined by SBA. This definition
includes businesses with very few
employees, self-employed individuals,
and Tribally owned businesses.
220
Finally, Treasury notes that recipients
may award SLFRF funds to many
different types of organizations,
including small businesses, to function
as a subrecipient in carrying out eligible
uses of funds on behalf of a recipient
government. In this case, a small
business need not have experienced a
negative economic impact in order to
serve as a subrecipient. See section
Distinguishing Subrecipients versus
Beneficiaries for more detailed
discussion of interactions with
subrecipients, in contrast to
beneficiaries of assistance.
Enumerated Eligible Uses for Assistance
to Small Businesses
Public Comment: Treasury received
comments requesting clarification of the
types of assistance available to small
businesses. For example, one
commenter suggested that outdoor
dining be an eligible use for SLFRF
funds as assistance to small businesses.
Other commenters asked for
clarification about how SLFRF funds
could be used to support new
businesses and start-ups.
Several commenters requested
clarification of whether and how
recipients may provide services to
business districts or downtown areas,
particularly those that exist in whole or
in part within a QCT, and requested
reduced documentation of the specific
negative economic impact for the
businesses operating within those areas.
These commenters argued in favor of
allowing redevelopment or other
support, including capital investments,
in business districts that were
negatively impacted by COVID–19.
Several commenters also argued that
funds should be available to support
and grow microbusinesses, or
businesses with five or fewer
employees, which are more likely to be
owned by women and people of color.
Treasury Response: In the final rule,
Treasury is maintaining and clarifying
the enumerated eligible uses of funds
for assistance to small businesses that
are impacted or disproportionately
impacted by the pandemic.
Impacted small businesses.
Specifically, Treasury is maintaining
enumerated eligible uses from the
interim final rule for assistance to
impacted small businesses. These
include but are not limited to:
• Loans or grants to mitigate financial
hardship such as declines in revenues
or impacts of periods of business
closure, for example by supporting
payroll and benefits costs, costs to retain
employees, mortgage, rent, or utilities
costs, and other operating costs;
• Loans, grants, or in-kind assistance
to implement COVID–19 prevention or
mitigation tactics (see section Public
Health for details on these eligible uses);
and
• Technical assistance, counseling, or
other services to assist with business
planning needs.
Treasury acknowledges a range of
potential circumstances in which
assisting small businesses could be
responsive to the negative economic
impacts of COVID–19, including for
small businesses startups and
microbusinesses and individuals
seeking to start small or
microbusinesses. For example:
• As noted above, a recipient could
assist small business startups or
microbusinesses with additional costs
associated with COVID–19 mitigation
tactics; see section Public Health for
details on these eligible uses.
• A recipient could identify and
respond to a negative economic impact
of COVID–19 on new small business
startups or microbusinesses; for
example, if small business startups or
microbusinesses in a locality faced
greater difficulty accessing credit than
prior to the pandemic or faced increased
costs to starting the business due to the
pandemic or if particular small
businesses or microbusinesses had lost
expected startup capital due to the
pandemic.
• The interim final rule also
discussed, and the final rule maintains,
eligible uses that provide support for
individuals who have experienced a
negative economic impact from the
COVID–19 public health emergency,
including uses that provide job training
for unemployed individuals. These
initiatives also may support small
business start-ups, microbusinesses, and
individuals seeking to start small or
microbusinesses.
Disproportionately impacted small
businesses. Additionally, Treasury
agrees with commenters that
disproportionately impacted small
businesses may benefit from additional
assistance to address the sources of that
disparate impact.
As such, the final rule provides a
broader set of enumerated eligible uses
for disproportionately impacted small
businesses and/or small businesses in
disproportionately impacted business
districts. Recipients may use SLFRF
funds to assist these businesses with
certain capital investments, such as
rehabilitation of commercial properties,
storefront improvements, and fac¸ade
improvements. Recipients may also
provide disproportionately impacted
microbusinesses additional support to
operate the business, including
financial, childcare, and transportation
supports.
Recipients could also provide
technical assistance, business
incubators, and grants for start-ups or
expansion costs for disproportionately
impacted small businesses. Note that
some of these types of assistance are
similar to those eligible to respond to
small businesses that experienced a
negative economic impact (‘‘impacted’’
small businesses). However, because the
final rule presumes that some small
businesses were disproportionately
impacted, these enumerated eligible
uses can be provided to those
businesses without any specific
assessment of whether they individually
experienced negative economic impacts
or disproportionate impacts due to the
pandemic.
Cross-References: Recipients
providing assistance to small businesses
for capital expenditures (i.e.,
expenditures on property, facilities, or
equipment) should also review the
section Capital Expenditures in General
Provisions: Other, which describes
eligibility standards that apply to capital
expenditures. Recipients should also
note that services to address vacant or
abandoned commercial or industrial
properties are addressed in section
Vacant or Abandoned Properties in
Assistance to Households.
Loans to Small Businesses
Public Comment: Treasury received
many comments requesting clarification
on using SLFRF funds to establish funds
that provide loans to small businesses.
For example, commenters sought
clarification of how eligible use
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Francisco, Impacts of COVID–19 on Nonprofits in
the Western United States (May 2020), https://
www.frbsf.org/community-development/files/
impact-of-covid.
222 Philanthropy and COVID–19: Measuring one
year of giving, Candid and the Center for Disaster
Philanthropy. (2021), https://www.issuelab.org/
resources/38039/38039.pdf.
223 Id.
224 Elizabeth T. Boris et al., Nonprofit Trends and
Impacts 2021, Urban Institute (October 7, 2021),
https://www.urban.org/research/publication/
nonprofit-trends-and-impacts-2021/view/full_
report.
225 Id.
226 Chelsea Newhouse, COVID–19 JOBS UPDATE,
NOVEMBER 2021: Nonprofits add just 5,000 jobs in
November, Center for Civil Society Studies at Johns
Hopkins University (December 10, 2021), http://
ccss.jhu.edu/november-2021-jobs/.
227 Elizabeth T. Boris et al. supra note 224 at p.
38. 228 § 35.3 Definitions.
229 The ARPA also states under ‘‘Transfer
Authority’’ that a Recipient may transfer funds to
a private nonprofit organization such as those
defined in paragraph (17) of section 401 of the
McKinney-Vento Homeless Assistance Act (42
U.S.C. 11360(17). See 602 & 603(c)(3) of the Social
Security Act. See section Transfers of Funds for
additional information on other types of entities,
including other forms of nonprofits, that may
receive transfers.
230 While not stated specifically in the interim
final rule, the Department does not require or have
a preference as to the payment structure for
recipients that transfer funds to subrecipients (e.g.,
advance payments, reimbursement basis, etc.).
Ultimately, recipients must comply with the
eligible use requirements and any other applicable
laws or requirements and are responsible for the
actions of their subrecipients or beneficiaries.
requirements and applicable dates for
SLFRF funds would apply to third party
organizations (like economic
development organizations) who receive
SLFRF funds in order to establish a loan
fund. In addition, commenters
requested clarification on what
requirements apply to loan programs
with available funds remaining after
December 31, 2024.
Treasury Response: SLFRF funds may
be used to make loans, including to
small businesses, provided that the loan
is an eligible use, and the cost of the
loan is tracked and reported in
accordance with Treasury’s Compliance
and Reporting Guidance. Funds that are
unobligated after December 31, 2024
must be returned to Treasury. See
section Treatment of Loans for more
information about using SLFRF funds
for loan programs.
c. Assistance to Nonprofits
Background: Nonprofits have faced
significant challenges because of the
pandemic, including increased demand
for services and changing operational
needs.
221 Prior to the pandemic, the
median U.S. nonprofit reported that it
had six months of cash on hand.
222 This
varied by sector, however, with some
sectors like disaster relief organizations
reporting a median of 17 months cash
on hand, and others, like mental health
and crisis intervention organizations
reporting only three months.
223
Evidence suggests that the pandemic
has damaged the financial health of
nonprofits, with small nonprofits,
which tend to rely more heavily on
donations than large nonprofits,
reporting relatively larger declines in
donations — 42 percent versus 29
percent, respectively.
224 Among
nonprofits that collect fees for services,
the median revenue amount collected
from such fees fell by 30 percent from
2019 to 2020, with arts organization
experiencing a 50 percent decline.
225
Nonprofits also experienced significant
job losses. While employment in the
nonprofit sector has recovered from its
low point in 2020, as of November 2021,
the sector remained 485,000 jobs below
its pre-pandemic level.
226 In addition,
some nonprofits may have experienced
declines in volunteer staffing during the
pandemic.
227
At the same time, nonprofits provide
a host of services for their communities,
including helping Americans weather
the multitude of challenges presented
by the pandemic. The ARPA and the
interim final rule recognized this
dichotomy—nonprofits as entities that
have themselves been negatively
impacted by the pandemic and as
entities that provide services that
respond to the public health and
negative economic impacts of the
pandemic on households and others
—by creating two roles for nonprofits.
First, under Sections 602(c)(1)(A) and
603(c)(1)(A), recipients may ‘‘respond to
the public health emergency or its
negative economic impacts,’’ by, among
other activities, providing ‘‘assistance to
. . . nonprofits.’’ The interim final rule
defined assistance to nonprofits to
include ‘‘loans, grants, in-kind
assistance, technical assistance or other
services, that responds to the negative
economic impacts of the COVID–19
public health emergency,’’ and
‘‘nonprofit’’ to mean a tax-exempt
organization under Section 501(c)(3) of
the U.S. Internal Revenue Code.
228
Second, as discussed above, ARPA
and the interim final rule provided that
nonprofit organizations may also receive
funds as subrecipients of a recipient
government (i.e., a government that
received SLFRF funds); subrecipients
carry out an eligible use of SLFRF funds
on behalf of a recipient government
(e.g., a recipient government that would
like to provide food assistance to
impacted households may grant funds
to a nonprofit organization to carry out
that eligible use). Recipients generally
have wide latitude to award funds to
many types of organizations, including
nonprofit or for-profit organizations, as
subrecipients to carry out eligible uses
of funds on their behalf. For further
information on distinguishing between
beneficiaries and subrecipients, as well
as the impacts of the distinction on
reporting and other requirements, see
section Transfers of Funds and section
Distinguishing Subrecipients versus
Beneficiaries under the Public Health
and Negative Economic Impacts eligible
use category.
229
Reorganization and Cross-References:
Under the interim final rule, assistance
to disproportionately impacted
communities was a separate, stand-
alone category. The final rule
reorganizes the disproportionate impact
analysis within the sections Assistance
to Households, Assistance to Small
Business, and Assistance to Nonprofits
to better articulate how recipients can
serve disproportionately impacted
beneficiaries in each of those categories.
As detailed above in the Public Health
subsection, in response to public
comments describing uncertainty on
which eligible use category should be
used to assess different potential uses of
funds, Treasury has re-categorized some
uses of funds in the final rule to provide
greater clarity. For discussion of
assistance to nonprofits to implement
COVID–19 mitigation and prevention
strategies, see section COVID–19
Mitigation and Prevention in Public
Health.
Recipients providing assistance via
nonprofits involving capital
expenditures (i.e., expenditures on
property, facilities, or equipment)
should also review the section Capital
Expenditures in General Provisions:
Other, which describes eligibility
standards for these expenditures.
Recipients providing assistances in the
form of loans should review the section
Treatment of Loans.
Public Comment: Eligible Assistance
to Impacted and Disproportionately
Impacted Nonprofits: A few
commenters asked Treasury to be more
explicit in the final rule that recipients
may use funds to provide relief directly
to nonprofit organizations and to
explain how nonprofits might qualify
themselves for assistance and what
expenses SLFRF funds may be used to
cover.
230 Commenters requested that
Treasury note that the pandemic is
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difference between nonprofits as beneficiaries and
nonprofits as subrecipients. It is not meant to limit
the types of relationships that a recipient may enter
into with a nonprofit as permitted under the
Uniform Guidance.
232 See sections 602(c)(3) and 603(c)(3) of the
Social Security Act. See also Section 401 of the
McKinney-Vento Homeless Assistance Act (42
U.S.C. 11360(17), which defines a ‘‘private
nonprofit organization.’’
leading to a changing financial
landscape for nonprofits.
Treasury Response: Eligible
Assistance to Impacted and
Disproportionately Impacted
Nonprofits: The interim final rule
provided for, and the final rule
maintains, the ability for recipients to
provide direct assistance to nonprofits
that experienced public health or
negative economic impacts of the
pandemic. Specifically, recipients may
provide direct assistance to nonprofits if
the nonprofit has experienced a public
health or negative economic impact as
a result of the pandemic. For example,
if a nonprofit organization experienced
impacts like decreased revenues or
increased costs (e.g., through reduced
contributions or uncompensated
increases in service need), and a
recipient provides funds to address that
impact, then it is providing direct
assistance to the nonprofit as a
beneficiary under Subsection (c)(1) of
Sections 602 and 603. Direct assistance
may take the form of loans, grants, in-
kind assistance, technical assistance, or
other services that respond to the
negative economic impacts of the
COVID–19 public health emergency.
A recipient may identify a negative
economic impact experienced by a
nonprofit, or class of nonprofits, and
design and implement a response to that
negative economic impact, see section
Standards: Designating a Negative
Economic Impact. The final rule
provides a non-exhaustive list of
enumerated eligible uses for assistance
to nonprofits that are impacted or
disproportionately impacted by the
pandemic.
A recipient may also identify a class
of nonprofits that have been
disproportionately impacted by the
public health emergency and design and
implement a program that responds to
the source of that disproportionate
impact. For example, a recipient may
determine that nonprofits offering after-
school programs within its jurisdiction
were disproportionately impacted by
the pandemic due to the previous in-
person, indoors nature of the work and
the nonprofits’ reliance on fees received
for services (e.g., attendance fees). The
recipient might then design an
intervention to assist those nonprofits in
adapting their programming (e.g., to
outdoor or online venues), their revenue
structure (e.g., adapting the fee for
service structure or developing expertise
in digital donation campaigns), or both.
Additional information about this
framework is included in General
Provisions: Structure and Standards. In
order to ease administrative burden, the
final rule presumes that nonprofits
operating in QCTs, operated by Tribal
governments or on Tribal Lands, or
operating in the U.S. territories were
disproportionately impacted by the
pandemic.
To summarize, a recipient may
determine that certain nonprofits were
impacted by the pandemic or were
disproportionately impacted by the
pandemic and provide responsive
services.
Public Comment: Beneficiaries and
Subrecipients: As noted elsewhere in
this final rule, Treasury received
multiple comments expressing
uncertainty on how to categorize a
particular activity in the eligible use
categories. For instance, some
commenters requested that recipients be
able to use SLFRF funds for certain
expenses incurred by nonprofits (e.g.,
unemployment charges) as a response to
a public health or negative economic
impact to that nonprofit; others asked if
nonprofits providing certain services
(e.g., social services) made them eligible
for direct assistance. Commenters also
requested that Treasury acknowledge
that engagement directly with nonprofit
organizations in low-income
communities and communities of color
may allow the recipient to better assess
economic harms in these areas.
Treasury Response: Beneficiaries and
Subrecipients: Treasury recognizes that
many nonprofits play important roles in
their communities, and some may have
experienced public health or negative
economic impacts during the pandemic.
As such, under the interim final rule
and the final rule, nonprofits may be
impacted by the pandemic and receive
assistance as a beneficiary, as described
above, and/or be a subrecipient
providing services on behalf of a
recipient.
231
Specifically, the interim final rule
also allowed for, and the final rule
maintains, the ability for the recipient to
transfer, e.g., via grant or contract, funds
to nonprofit entities to carry out an
eligible use on behalf of the recipient.
Treasury notes that recipients may
award SLFRF funds to many different
types of organizations to carry out
eligible uses of funds and serve
beneficiaries on behalf of a recipient
government (e.g., assisting in a
vaccination campaign, operating a job
training program, developing affordable
housing). When a recipient provides
funds to an organization to carry out
eligible uses of funds and serve
beneficiaries, the organization becomes
a subrecipient. In this case, a nonprofit
need not have experienced a negative
economic impact in order to serve as a
subrecipient.
In the context of SLFRF, nonprofits of
all types may be subrecipients. Treasury
is not restricting the types of nonprofits
that can operate as subrecipients, rather
allowing recipients to decide what form
best meets the needs of their
community. Therefore, a ‘‘nonprofit’’
that is acting as subrecipient could
include, but is not limited to, a
nonprofit as that term is defined in
paragraph (17) of section 401 of the
McKinney-Vento Homeless
Assistance.
232 See section
Distinguishing Subrecipients versus
Beneficiaries for further information.
Additional guidance on determining
subrecipient status may be found in the
Uniform Guidance.
233
Recipients may transfer funds to
subrecipients in several ways, including
advance payments and on a
reimbursement basis. Ultimately,
recipients must comply with the eligible
use requirements and any other
applicable laws or requirements and are
responsible for the actions of their
subrecipients or beneficiaries.
As part of accepting the Award Terms
and Conditions for SLFRF, each
recipient agreed to maintain a conflict-
of-interest policy consistent with 2 CFR
200.318(c) that is applicable to all
activities funded with the SLFRF award.
Pursuant to this requirement, decisions
concerning SLFRF funds must be free of
undisclosed personal or organizational
conflicts of interest, both in fact and in
appearance. Recipients may avoid
conflicts of interest in providing
assistance to nonprofits or making
subrecipient awards by, inter alia,
making aid available to nonprofits on
generally applicable terms or utilizing a
competitive grant process, respectively.
A recipient may not use control over
SLFRF funds for their own private gain.
Furthermore, no employee, officer, or
agent may participate in the selection,
award, or administration of a contract
supported by a federal award if he or
she has a real or apparent conflict of
interest.
Public Comment: Definition of
Nonprofit: Treasury also received
several requests to expand the definition
of nonprofits so that other tax-exempt
entities (e.g., 501(c)(7)s, 501(c)(9)s,
501(c)(19)s, nonprofits with ‘‘historical
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235 Treasury considered expanding the definition
of nonprofit to include 501(c)(6) organizations, as
Congress later did in the Coronavirus Response and
Consolidated Appropriations Act of 2021, but
ultimately decided to retain the original CARES Act
definition. To the extent impacted by the pandemic,
501(c)(6) organizations may be eligible to receive
funds to support eligible uses that align with their
overall purpose (e.g., tourism promotion in aid of
an impacted industry).
236 Coronavirus State and Local Fiscal Recovery
Funds, 86 FR at 26795.
237 For a definition of ‘‘Tribal development
districts,’’ please see FAQ 2.9 at the following:
Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, as of July 19, 2021;
https://home.treasury.gov/system/files/136/
SLFRPFAQ.pdf.
significance’’) could be eligible for
direct assistance as beneficiaries.
Treasury Response: Definition of
Nonprofit: The final rule expands the
definition of nonprofits to mean
501(c)(3) organizations and 501(c)(19)
organizations.
234 The 501(c)(3)
classification includes a wide range of
organizations with varying charitable or
public service-oriented goals (e.g.,
housing, food assistance, job training).
As discussed above, these nonprofit
organizations often experienced
hardship due to increased needs for
services combined with decreased
donations and other sources of funding.
In response to comments, Treasury has
expanded the definition of nonprofit to
include 501(c)(19) organizations, which
includes veterans’ organizations, to
provide recipients more flexibility and
in alignment with the definition of
nonprofit adopted by the CARES Act,
wherein 501(c)(3)s and 501(c)(19)s were
eligible for assistance.
235
Public Comment: Reporting
Requirements: One commenter asked
Treasury to clarify if nonprofits that
receive direct assistance as beneficiaries
are required to comply with guidelines
and reporting requirements.
Treasury Response: Reporting
Requirements: Nonprofits that receive
direct assistance as beneficiaries are not
subrecipients under SLFRF and are
therefore not required to comply with
SLFRF reporting requirements.
However, the recipient must comply
with SLFRF reporting requirements,
which would require reporting
obligations and expenditures for
assistance to nonprofits. The recipient
may also choose to establish other forms
of reporting or accountability as a part
of the recipient’s direct assistance
program.
A nonprofit entity that receives a
transfer from a recipient is a
subrecipient. Per the Uniform Guidance,
subrecipients must adhere to the same
requirements as recipients. Therefore, a
nonprofit subrecipient may only receive
funds to carry out an eligible use of
SLFRF funds and must comply with any
reporting and compliance requirements.
Note that recipients are ultimately
responsible for reporting information to
Treasury and must collect any necessary
information from their subrecipients to
complete required reporting.
d. Aid to Impacted Industries
The interim final rule allowed for
‘‘aid to tourism, travel, and hospitality,
and other impacted industries’’ that
responds to the negative economic
impacts of the COVID–19 public health
emergency. In designating other
impacted industries, Treasury specified
that recipients should consider the
‘‘extent of the economic impact as
compared to tourism, travel, and
hospitality’’ and ‘‘whether impacts were
due to the COVID–19 pandemic, as
opposed to longer-term economic or
industrial trends unrelated to the
pandemic.’’
236 Treasury identified
declines in employment and revenue as
possible metrics to compare the
economic impact on a particular
industry relative to the tourism, travel,
and hospitality industries.
Treasury further provided that aid
should be limited to businesses,
attractions, business districts, and Tribal
development districts
237 that were
operating prior to the pandemic and
affected by required closures and other
efforts to contain the pandemic.
Examples of eligible aid include
assistance to implement COVID–19
mitigation and infection prevention
measures, aid to support safe reopening
of businesses in these industries, as well
as aid for a planned expansion or
upgrade of tourism, travel, and
hospitality facilities delayed due to the
pandemic. The interim final rule and
Treasury’s subsequent Compliance and
Reporting Guidance also required
governments to publicly report
assistance provided to private-sector
businesses under this eligible use and
maintain records of their assessments to
facilitate transparency and
accountability.
Reorganization and Cross-References:
As detailed above, Treasury has re-
categorized some uses of funds in the
final rule to provide greater clarity. In
the interim final rule, aid to impacted
industries to implement COVID–19
mitigation and prevention strategies was
categorized under Aid to Impacted
Industries; the final rule addresses these
items under the section COVID–19
Mitigation and Prevention in Public
Health. Recipients should also be aware
of the difference between beneficiaries
of assistance and subrecipients when
working with impacted industries; for
further information, see section
Distinguishing Subrecipients versus
Beneficiaries.
Designating an Impacted Industry
Public Comment: Many commenters
requested greater clarity on how to
designate ‘‘other impacted industries’’
within their jurisdiction. Commenters
requested greater specificity as to the
metrics used to measure impact, with
some suggesting metrics such as the
change in the size of an industry’s
workforce due to the pandemic, as well
as consideration of whether and why
employees are choosing to return to
work at slower rates in certain
industries. One commenter asked if this
meant nearly every industry was
‘‘disproportionately impacted.’’ Some
commenters encouraged Treasury to
focus on industries most negatively
impacted by the pandemic, including
disallowing across-the-board business
subsidies to businesses that were not
negatively impacted by the pandemic
and saw revenue or profit growth. Other
commenters asked for flexibility for
recipients to determine impacted
industries based on their local
knowledge of the economic landscape.
Treasury Response: The final rule
maintains the interim final rule’s
approach of allowing recipients to
designate impacted industries outside
the travel, tourism, and hospitality
industries, and, in response to
comments, provides greater clarity as to
how recipients may designate such
impacted industries.
Sections 602(c)(1)(A) and 603(c)(1)(A)
recognize that the tourism, travel, and
hospitality industries are severely
negatively impacted by the pandemic.
Under the final rule, recipients may
provide eligible aid (described in further
detail herein) to the tourism, travel, and
hospitality industries. Treasury
considers Tribal development districts,
which are commercial centers for Tribal
hospitality, gaming, tourism, and
entertainment and can include Tribal
enterprises, as part of the tourism,
travel, and hospitality industries that
have been severely hit by the pandemic.
Therefore, Treasury reaffirms that Tribal
development districts are considered
impacted industries and recipients may
provide eligible aid to them.
To identify other industries
comparably impacted to the tourism,
travel, and hospitality industries,
recipients should undertake a two-step
process: Identifying an industry and
determining whether that industry is
comparably impacted.
VerDate Sep<11>2014 19:24 Jan 26, 2022 Jkt 256001 PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 E:\FR\FM\27JAR2.SGM 27JAR2lotter on DSK11XQN23PROD with RULES2 4382 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 238 Once an industry is designated as impacted,
aid should be generally broadly available to
businesses in the industry that qualify. Recipients
should document how they defined the scope of
their industry and how they determined that the
industry was impacted. For states and territories,
this includes documenting their justification for
defining a constituent industry with greater
geographic precision than state or territory-wide.
239 National Leisure & Hospitality supersector
employment data can be found on the U.S. Bureau
of Labor Statistics website: U.S. Bureau of Labor
Statistics, Leisure and Hospitality, https://
www.bls.gov/iag/tgs/iag70.htm (last visited
December 7, 2021).
First, recipients should identify an
industry to be assessed. In identifying
this industry, the final rule provides
recipients the flexibility to define its
substantive or geographic scope.
238
Recipients may identify a broad sector
that encompasses a number of sub-
industries, or they may identify a
specific sub-industry to be assessed. For
example, a recipient may identify
‘‘personal care services’’ as an industry,
or they may identify a more specific
category within the ‘‘personal care
services’’ industry (e.g., barber shops) as
an industry. In defining the industry,
Treasury encourages recipients to define
narrow and discrete industries eligible
for aid. Recipients are not required to
follow, but may consider following,
industry classifications under the North
American Industry Classification
System (NAICS). Treasury notes that the
larger and more diverse the sector, the
more difficult it may be to demonstrate
that the larger and less specific sector is
negatively impacted in the same way
given the scale and diversity of
businesses within it.
State or territory recipients may also
define a constituent industry with
greater geographic precision than state
or territory-wide. For example, a state
may identify a particular industry in a
certain region of the state that was
negatively impacted by the pandemic,
even if the same industry in the rest of
the state did not see a meaningful
negative economic impact from the
pandemic. State recipients oversee large
and diverse industries, sometimes with
differences in economic activity
between geographic regions. Allowing
greater geographic precision allows
recipients to target aid to those that
need it most, ensuring that state
averages do not conceal hard-hit areas
in their state.
Second, to determine whether the
industry is ‘‘impacted,’’ recipients
should compare the negative economic
impacts of the public health emergency
on the identified industry to the impacts
observed on the travel, tourism, and
hospitality industries.
1. Simplified test. An industry is
presumed to be impacted if the industry
experienced employment loss of at least
8 percent.
Specifically, a recipient should
compare the percent change in the
number of employees of the recipient’s
identified industry and the national
Leisure & Hospitality sector in the three
months before the pandemic’s most
severe impacts began (a straight three-
month average of seasonally-adjusted
employment data from December 2019,
January 2020, and February 2020) with
the latest data as of the final rule release
(a straight three-month average of
seasonally-adjusted employment data
from September 2021, October 2021,
and November 2021).
239 The national
Leisure & Hospitality sector largely
represents the national travel, tourism,
and hospitality industries enumerated
in the statute. According to the Bureau
of Labor Statistics, employment has
fallen by approximately 8 percent for
the national Leisure & Hospitality sector
when comparing the most recent three-
month period available as of the date of
adoption of the final rule to the three-
month period immediately before the
public health emergency. Therefore, if
the identified industry has suffered an
employment loss of at least 8 percent,
the final rule presumes the industry to
be an ‘‘impacted industry.’’
For parity and simplicity, smaller
recipients without employment data
that measure industries in their specific
jurisdiction may use data available for a
broader unit of government for this
calculation (e.g., a county may use data
from the state in which it is located; a
city may use data for the county, if
available, or state in which it is located)
solely for purposes of determining
whether a particular industry is an
impacted industry.
2. If simplified test is not met. If an
industry does not satisfy the test above
or data are unavailable, the recipient
may still designate the industry as
impacted by demonstrating the
following:
a. The recipient can show that the
totality of relevant major economic
indicators demonstrate that the industry
is experiencing comparable or worse
economic impacts as the national
tourism, travel, and hospitality
industries at the time of the publication
of the final rule, and that the impacts
were generally due to the COVID–19
public health emergency. Example
economic indicators include gross
output, GDP, net profits, employment
levels, and projected time to restore
employment back to pre-pandemic
levels. Recipients may rely on available
economic data, government research
publications, research from academic
sources, and other quantitative sources
for this determination.
If quantitative data is unavailable, the
recipient can rely on qualitative data to
show that the industry is experiencing
comparable or worse economic impacts
as the national tourism, travel, and
hospitality industries, and the impacts
were generally due to the COVID–19
public health emergency. Recipients
may rely on sources like community
interviews, surveys, and research from
relevant state and local government
agencies.
As the public health emergency and
economic recovery evolves, recipients
should assess how industry impacts
shift over time. Impacted industries may
recover in a short period of time and no
longer face a negative economic impact;
in those circumstances, the recipient
should ensure that the extent and length
of aid is reasonably proportional to the
negative economic impact that is
experienced, as detailed further below
and in section General Provisions:
Structure and Standards. Recipients
may add to their list of impacted
industries by showing that the negative
economic impacts to the industry at the
time of the designation are comparable
to the negative economic impacts to the
national tourism, travel, and hospitality
sectors as of the date of the final rule
adoption, as detailed herein.
Eligible Aid
Public Comment: Commenters asked
for further clarification as to the
definition of eligible aid to an impacted
industry, with many requesting that a
broad range of aid be eligible. Examples
of aid that recipients asked to be
considered eligible include aid to
businesses to cover COVID–19
mitigation costs and planned
renovations or improvements to
tourism, travel, and hospitality
facilities, as well as marketing and in-
kind incentives to attract visitors.
Commenters also asked about the
eligibility of aid to broadly cover losses
incurred by facilities such as convention
centers and hotels due to the
pandemic’s economic impact.
Commenters also asked for further
clarification about the requirements
related to private-sector reporting.
Further, some commenters asked for
clarification about eligible aid to
impacted industries owned and
operated by Tribal governments,
including for Tribal construction
projects that have been delayed due to
the pandemic’s economic impacts, and
for deference to Tribal determinations of
negative economic impacts.
VerDate Sep<11>2014 19:24 Jan 26, 2022 Jkt 256001 PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 E:\FR\FM\27JAR2.SGM 27JAR2lotter on DSK11XQN23PROD with RULES2 4383 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 240 As part of accepting the Award Terms and
Conditions for SLFRF, each recipient agreed to
maintain a conflict-of-interest policy consistent
with 2 CFR 200.318(c) that is applicable to all
activities funded with the SLFRF award. Pursuant
to this policy, decisions concerning SLFRF must be
free of undisclosed personal or organizational
conflicts of interest, both in fact and in appearance.
Recipients may avoid conflicts of interest in
awarding aid to impacted industries by, inter alia,
making aid available to businesses in the industry
on generally applicable terms or utilizing a
competitive grant process. A recipient may not use
control over SLFRF for their own private gain.
Furthermore, no employee, officer, or agent may
participate in the selection, award, or
administration of a contract supported by a federal
award if he or she has a real or apparent conflict
of interest.
Treasury Response: In response to
commenters’ requests for clarification
on eligible aid, the final rule requires
that aid to impacted industries,
including to Tribal development
districts, be designed to address the
harm experienced by the impacted
industry.
First, recipients should identify a
negative economic impact, i.e., an
economic harm, that is experienced by
businesses in the impacted industry.
Second, recipients should select a
response that is designed to address the
identified economic harm resulting from
or exacerbated by the public health
emergency. Responses must also be
related and reasonably proportional to
the extent and type of harm
experienced; uses that bear no relation
or are grossly disproportionate to the
type or extent of harm experienced
would not be eligible uses. Recipients
should consider the further discussion
of this standard provided in the sections
Standards: Designating a Public Health
Impact and Standards: Designating a
Negative Economic Impact.
These responses may take the form of
direct spending by recipients to promote
an industry or support for businesses
within an ‘‘impacted’’ industry that
experienced a negative economic impact
(e.g., through a grant program).
Examples of eligible responses include:
• Aid to mitigate financial hardship
due to declines in revenue or profits by
supporting payroll costs and
compensation of returning employees
for lost pay and benefits during the
COVID–19 pandemic, as well as support
of operations and maintenance of
existing equipment and facilities, such
as rent, leases, and utilities;
• Aid for technical assistance,
counseling, and other services to assist
with business planning needs; and
• Aid to implement COVID–19
mitigation and infection prevention
measures, such as vaccination or testing
programs, is broadly eligible for many
types of entities, including travel,
tourism, hospitality, and other impacted
industries. Recipients providing aid to
impacted industries for COVID–19
public health measures should review
the section Assistance to Businesses to
Implement COVID–19 Strategies in
Public Health, which describes types of
eligible uses of funds in this category.
To address the identified harms,
responses (e.g., aid through a grant
program) should be generally broadly
available to all businesses within the
impacted industry to avoid the risk of
self-dealing, preferential treatment, and
conflicts of interest.
240 Treasury
encourages recipients to design aid
programs such that funds are first used
for operational expenses that are
generally recognized as ordinary and
necessary for the recipient’s operation,
such as payroll, before being used on
other types of costs. As noted in the
section General Standards: Structure
and Standards, uses of funds that do not
respond to the negative economic
impacts of the pandemic, such as
excessive compensation to employees,
is ineligible.
The final rule maintains the interim
final rule’s requirement that aid may
only be considered responsive to the
negative economic impacts of the
pandemic if it supports businesses,
attractions, and Tribal development
districts operating prior to the pandemic
and affected by required closures and
other efforts to contain the pandemic.
Further, to facilitate transparency and
accountability, the final rule maintains
the interim final rule’s requirement that
recipients publicly report assistance
provided to private-sector businesses
under this eligible use, including
tourism, travel, hospitality, and other
impacted industries, and its connection
to negative economic impacts of the
public health emergency. Recipients
also should maintain records to support
their assessment of how businesses
receiving assistance were affected by the
negative economic impacts of the public
health emergency and how the aid
provided responds to these impacts.
Recipients providing aid to impacted
industries for capital expenditures (i.e.,
expenditures on property, facilities, or
equipment), including Tribal
governments providing aid to Tribal
development districts, should also
review the section Capital Expenditures
in General Provisions: Other, which
describes eligibility standards that are
applicable to these expenditures,
depending on the type of aid. Recipients
providing assistance in the form of loans
should review the section Treatment of
Loans in Program Administration
Provisions.
4. General Provisions: Other
As noted above, the final rule
consolidates into a General Provisions
section several types of uses of funds; in
the interim final rule, the eligibility of
these uses of funds was discussed
within specific categories of eligible
uses for public health and negative
economic impacts. Treasury anticipates
that this re-organization will enhance
recipient clarity in assessing eligible
uses of funds. These General Provisions
apply across all uses of funds under
public health and negative economic
impacts.
Specifically, this section considers
eligible uses for:
• Public Sector Capacity and
Workforce, which includes several
separate and non-mutually exclusive
categories articulated in the interim
final rule: public health and safety staff;
rehiring state, local, and Tribal
government staff; expenses for
administering COVID–19 response
programs; expenses to improve the
efficacy of public health or economic
relief programs; and administrative
expenses caused or exacerbated by the
pandemic. Treasury recognizes that
these are closely related and frequently
overlapping categories. The final rule
treats them as a single purpose,
supporting public sector capacity, and
provides coordinated guidance on the
standards and presumptions that apply
to them.
• Capital Expenditures, which was
addressed only under Public Health in
the interim final rule. The final rule
moves this expense to General
Provisions and provides more clarity on
the eligibility of capital expenditures
across all aspects of the public health
and negative economic impacts eligible
use category.
• Distinguishing Subrecipients versus
Beneficiaries, which describes the
differences between these two
categories. Recipient governments
responding to the public health and
negative economic impacts of the
pandemic may provide assistance to
beneficiaries or execute an eligible use
of funds through a subrecipient; some
types of entities (e.g., nonprofits) could
fit into either category depending on the
specific purpose of the use of funds.
• Uses Outside the Scope of this
Category, which addresses uses of funds
that are ineligible or generally ineligible
under this eligible use category in the
interim final rule. These uses of funds
remain ineligible under the final rule,
but Treasury has re-categorized where
they are addressed, as described below.
VerDate Sep<11>2014 19:24 Jan 26, 2022 Jkt 256001 PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 E:\FR\FM\27JAR2.SGM 27JAR2lotter on DSK11XQN23PROD with RULES2 4384 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 241 In general, if an employee’s wages and salaries
are an eligible use of SLFRF funds, recipients may
treat the employee’s covered benefits as an eligible
use of SLFRF funds. For purposes of SLFRF funds,
covered benefits include costs of all types of leave
(vacation, family-related, sick, military,
bereavement, sabbatical, jury duty), employee
insurance (health, life, dental, vision), retirement
(pensions, 401(k)), unemployment benefit plans
(federal and state), workers compensation
insurance, and Federal Insurance Contributions Act
(FICA) taxes (which includes Social Security and
Medicare taxes). As described further in the section
Deposits into Pension Funds in Restrictions on Use,
that limitation on use does not apply to pension
contributions that are part of regular payroll
contributions for employees whose wages and
salaries are an eligible use of SLFRF funds.
242 Note that the interim final rule adapted prior
guidance issued for CRF that described these four
categories of employees; however, when listing the
specific occupations or types of employees in each
of these categories, the guidance collapses health
care and public health into one category titled
‘‘public health.’’ Therefore, the presumption
described around public health employees also
covers health care employees.
243 Note that this category encompasses both
public health and health care employees; both are
treated as public health employees for the purposes
of this eligible use category.
This section also addresses enumerated
eligible uses proposed by commenters
that Treasury has not incorporated into
the final rule.
Recipients should also note that the
Office of Management and Budget’s
(OMB) Uniform Administrative
Requirements, Cost Principles, and
Audit Requirements for Federal Awards
(commonly called the ‘‘Uniform
Guidance’’) generally applies to SLFRF.
a. Public Sector Capacity and Workforce
Public Safety, Public Health, and
Human Services Staff
Summary of Interim Final Rule:
Under the interim final rule, funds may
be used for payroll and covered
benefits
241 for public safety, public
health, health care, human services, and
similar employees
242 of a recipient
government, for the portion of the
employee’s time that is spent
responding to COVID–19. For
administrative convenience, the
recipient may consider public health
and safety employees to be entirely
devoted to responding to COVID–19,
and therefore their full payroll and
covered benefits eligible to be covered,
if the employee, or his or her operating
unit or division, is ‘‘primarily
dedicated’’ to responding to COVID–19,
meaning that more than half of the
employee, unit, or division’s time is
dedicated to responding to COVID–19.
Recipients may consider other
presumptions for assessing the extent to
which an employee, division, or
operating unit is responding to COVID–
19. Recipients must periodically
reassess their determination and
maintain records to support their
assessment, such as payroll records,
attestations from supervisors or staff, or
regular work product or
correspondence; recipients need not
track staff hours. The interim final rule
also posed a question on how long
recipients should be able to use funds
for staff responding to COVID–19 and
what other measures or presumptions
might Treasury consider to assess the
extent to which public sector staff are
engaged in COVID–19 response in an
easily administrable manner.
Treasury also provided further
guidance on the types of employees
covered by this category of eligible use,
specifically: ‘‘Public safety employees
would include police officers (including
state police officers), sheriffs and deputy
sheriffs, firefighters, emergency medical
responders, correctional and detention
officers, and those who directly support
such employees such as dispatchers and
supervisory personnel. Public health
employees
243 would include employees
involved in providing medical and other
health services to patients and
supervisory personnel, including
medical staff assigned to schools,
prisons, and other such institutions, and
other support services essential for
patient care (e.g., laboratory technicians,
medical examiner, or morgue staff) as
well as employees of public health
departments directly engaged in matters
related to public health and related
supervisory personnel. Human services
staff include employees providing or
administering social services; public
benefits; child welfare services; and
child, elder, or family care, as well as
others.’’
Public Comment: Measuring Time
Spent on COVID–19 Response: Treasury
received public comments on several
components of this eligible use category.
Many commenters argued that it poses
an administrative burden to identify the
extent to which staff are responding to
COVID–19 and to maintain records to
support that assessment. Largely citing
administrative burden in assessing
eligibility, several commenters
recommended revisions to the
administrative convenience that the full
payroll and covered benefits for public
health and safety staff ‘‘primarily
dedicated’’ to responding to COVID–19
may be paid with SLFRF funds. Some
commenters recommended presuming
that all public health and safety staff are
primarily dedicated to COVID–19
response, while others proposed that
public health and safety workers who
primarily serve QCTs or low- and
moderate-income areas be presumed to
be primarily dedicated to COVID–19
response, given the disproportionate
impacts of the pandemic in those
communities. Similarly, Tribal
communities recommended that their
public health staff be presumed eligible
due to the disproportionate impact of
the pandemic on their communities.
Some commenters proposed that they be
able to use the administrative
convenience for staff outside of public
health and safety that are responding to
COVID–19 (i.e., to be able to pay the full
payroll and covered benefits for any
staff ‘‘primarily dedicated’’ to COVID–
19 response).
Treasury Response: In the final rule,
Treasury is maintaining the approach in
the interim final rule, including
elaborations issued in further guidance,
but providing additional clarification on
its application, including methods to
apply the approach to minimize
administrative burden. Treasury notes
that recipients may assess the extent to
which staff are dedicated to responding
to COVID–19 through a variety of
means, including establishing
presumptions or assessing public health
and safety staff at the division or
operating unit level. For example, a
recipient could consider the amount of
time spent by employees in its public
health department’s epidemiology
division in responding to COVID–19
and, if a majority of its employees are
dedicated to responding to COVID–19,
determine that the entire division is
primarily dedicated to responding to
COVID–19. Treasury also clarifies that
recipients may use reasonable estimates
to establish administrable
presumptions; for example, a recipient
could estimate, based on discussions
with staff, the general share of time that
employees in a specific role or type of
position spend on COVID–19 related
tasks and apply that share of time to all
employees in that position.
Recipients are generally required to be
able to support uses of SLFRF funds as
eligible, including, in this instance,
maintenance of records to support an
assessment that public health and safety
staff are primarily dedicated to
responding to COVID–19. As noted
above, recipients may use reasonable
estimates to implement this provision.
Recipients should maintain records on
how they developed these estimates and
need not track staff hours. Treasury
notes that records retained can include
payroll records (e.g., the number and
type of staff in various positions),
attestations from supervisors or staff
(e.g., self-attestation of share of time
spent on COVID–19), or regular work
product or correspondence (e.g.,
calendars, email correspondence,
documents, and other electronic
VerDate Sep<11>2014 19:24 Jan 26, 2022 Jkt 256001 PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 E:\FR\FM\27JAR2.SGM 27JAR2lotter on DSK11XQN23PROD with RULES2 4385 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations records). Treasury anticipates that these
types of records are generally retained
in many government settings; recipients
should also consult the Award Terms
and Conditions for SLFRF funds for
requirements on length of record
retention. For example, a recipient
could establish a reasonable
presumption about the share of time
that an employee, division, or operating
unit is responding to COVID–19 and
simply retain those employees’
electronic records as a record to support
their assessment.
Public Comment: Public Health and
Safety Staff Primarily Dedicated to
COVID–19 Response: Some commenters
recommended expanding the
administrative convenience for public
health and safety staff primarily
dedicated to COVID–19 response to
further types of staff, to all public health
and safety staff, or to public health and
safety staff serving underserved areas.
Treasury Response: The interim final
rule recognized that COVID–19 response
continues to require substantial staff
resources and provides an
administrative convenience to make it
relatively simpler to identify the
eligibility of the types of workers—
public health and safety workers—
generally most involved in COVID–19
response. At the same time, many
public health and safety workers
perform roles unrelated to COVID–19;
coverage of all roles would be overbroad
compared to the workers responding to
COVID–19 in actuality. For this reason,
the final rule maintains the interim final
rule’s approach to permitting SLFRF
funds to be used for public health and
safety staff primarily dedicated to
responding to COVID–19. Finally, to the
extent that a greater proportion of public
health and safety staff time is needed to
respond to COVID–19 in
disproportionately impacted
communities, the ‘‘primarily dedicated’’
approach recognizes this increased
need.
Public Comment: Eligible Types of
COVID–19 Response: Some public
commenters also sought further
clarification on how to identify eligible
types of ‘‘COVID–19 response.’’ For
example, commenters requested
clarification on delineating COVID–19
response from general public health
response and defining COVID–19
response for public safety employees.
Treasury Response: Treasury is
clarifying that ‘‘responding to’’ COVID–
19 entails work needed to respond to
the public health or negative economic
impacts of the pandemic, apart from the
typical pre-pandemic job duties or
workload of an employee in a
comparable role, if one existed. For
example, responding to COVID–19 for a
public safety worker may entail working
in an emergency operations center to
coordinate pandemic-related supply
distribution, responding to an increased
volume of 911 calls, or implementing
COVID–19 prevention and mitigation
protocols in a carceral setting.
Public Comment: Eligible Employees:
Some commenters requested
clarification on the types of eligible
employees or expansion of eligible
employees to include additional types
of staff, including in behavioral health;
administrative, management, or
financial management positions; social
services; morgue staff; and nonprofit
staff supporting projects to undertake
eligible uses of funds under SLFRF.
Treasury Response: Treasury
provided further guidance on eligible
types of employees following the
interim final rule, which expressly
included social services and morgue
staff, and incorporates that guidance
into the final rule. In addition, Treasury
is clarifying that public health
‘‘employees involved in providing
medical and other health services to
patients and supervisory personnel’’
includes behavioral health services as
well as physical health services.
Treasury also is clarifying that this
provision only addresses employees of
the recipient government responding to
COVID–19. For discussion of eligible
expenses to administer SLFRF,
including eligible costs for subrecipients
performing eligible activities on behalf
of a recipient government, see section
Administrative Expenses in Program
Administration Provisions.
Finally, Treasury is clarifying that
indirect costs for administrative,
management, and financial management
personnel to support public health and
safety staff responding to COVID–19 are
not permissible under this provision,
given the relatively greater challenge of
differentiating the marginal increase in
staff time and workload due to
pandemic response for indirect versus
direct costs.
Public Comment: Time Period:
Finally, some commenters made
recommendations on the time period
during which this eligible use should be
available. Some commenters
recommended eligibility begin before
March 3, 2021, the period when
Treasury’s interim final rule permitted
recipients to begin to incur costs using
SLFRF funds; for discussion of this
topic, see section Timeline for Use of
SLFRF Funds in Program
Administration Provisions. As noted
above, Treasury also posed a question in
the interim final rule asking for how
long Treasury should maintain the
administrative convenience that SLFRF
funds may be used for the full payroll
and covered benefits of public health
and safety staff primarily dedicated to
COVID–19 response. Several
commenters recommended that
Treasury maintain this approach
throughout the program or through
December 31, 2024. Other commenters
requested clarification on whether
eligibility for this use of funds was tied
to the length of the state of emergency
or whether a jurisdiction has an active
state of emergency.
Treasury Response: In the final rule,
Treasury is clarifying that recipients
will be permitted to fund the full
payroll and covered benefits of public
health and safety staff primarily
dedicated to COVID–19 response
throughout the period of performance
for the SLFRF program, though
recipients should periodically reassess
their determination of primarily
dedicated staff, including as the public
health emergency and response evolves.
Government Employment and Rehiring
Public Sector Staff
The interim final rule permitted use
of funds for costs associated with
rehiring state, local, and Tribal
government staff in order to bolster the
government’s ability to effectively
administer services. Specifically,
recipients may pay for payroll, covered
benefits, and other costs associated with
the recipient increasing the number of
its employees up to the pre-pandemic
baseline, or the number of employees
that the recipient government employed
on January 27, 2020.
Public Comment: Many commenters
requested greater flexibility and
additional clarification on the
provision’s requirements, including the
pre-pandemic baseline and re-hiring
process. Some commenters requested
that the final rule allow for hiring above
the pre-pandemic baseline given
historic underinvestment in the public
sector workforce. Commenters suggested
a number of adjustments to the pre-
pandemic baseline, including adjusting
based on population or revenue growth,
while some recommended allowing
recipients to set their own hiring levels.
Others requested clarification on the
definition of the baseline and the re-
hiring process, including whether the
pre-pandemic baseline referred to
budgeted or filled positions and
whether new hires had to fill the same
roles as the previous hires. Commenters
also asked whether recipients need to
show if the reduction in number of
employees was due to the pandemic in
order to qualify for funding and
requested that workers dedicated to
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FTE’s time is dedicated to responding to the
COVID–19 public health emergency. Further, for
administrative convenience, the recipient may
consider public health and safety FTEs to be
entirely devoted to mitigating or responding to the
COVID–19 public health emergency if the FTE, or
his or her operating unit of division, is primarily
dedicated to responding to the COVID–19 public
health emergency. Recipients may also consider
other presumptions for assessing the extent to
which an FTE, division, or operating unit is
engaged in activities that respond to the COVID–19
public health emergency, provided that the
recipient reassesses periodically and maintains
records to support its assessment, such as payroll
records, attestations from supervisors or staff, or
regular work product or correspondence
demonstrating work on the COVID–19 response.
COVID–19 response be exempted from
the calculation of number of employees.
Many commenters also requested an
expanded set of eligible uses beyond
restoring their workforce up to the pre-
pandemic baseline. Commenters
requested that funding be able to be
used to avoid layoffs, provide back pay,
retain employees through pay increases
and other retention programs, or
reimburse salaries and benefits already
paid. Some commenters also requested
clarification as to whether recipients
can fund re-hired positions through the
period of performance and on the
definition of payroll and benefits. Other
commenters requested preferential
hiring for workers laid off, a strong
commitment to equity, and a
requirement that funds would not be
used to pay for contract or temporary
replacement workers during a labor
dispute.
Treasury Response: The final rule
allows for an expanded set of eligible
uses to restore and support public sector
employment. Eligible uses include
hiring up to a pre-pandemic baseline
that is adjusted for historic
underinvestment in the public sector,
providing additional funds for
employees who experienced pay cuts or
were furloughed, avoiding layoffs,
providing worker retention incentives,
and paying for ancillary administrative
costs related to hiring.
Restoring pre-pandemic employment.
In response to comments and
recognizing underinvestment in public
sector employment, the final rule
expands the ability to use SLFRF funds
to restore pre-pandemic employment.
Treasury is also clarifying how, and the
extent to which, recipients may use
SLFRF funds to rehire public
employees.
The final rule provides two options to
restore pre-pandemic employment,
depending on recipient’s needs. Under
the first and simpler option, recipients
may use SLFRF funds to rehire staff for
pre-pandemic positions that were
unfilled or were eliminated due the
pandemic without undergoing further
analysis. Under the second option, the
final rule provides recipients an option
to hire above the pre-pandemic baseline,
by adjusting the pre-pandemic baseline
for historical growth in public sector
employment over time, as well as
flexibility on roles for hire. Recipients
may choose between these options but
cannot use both.
To pursue the first option, recipients
may use SLFRF funds to hire employees
for the same positions that existed on
January 27, 2020 but that were unfilled
or eliminated as of March 3, 2021,
without undergoing further analysis. For
these employees, recipients may use
SLFRF funds for payroll and covered
benefit costs that are obligated by
December 31, 2024 and expended by
December 31, 2026, consistent with the
Uniform Guidance’s Cost Principles at 2
CFR part 200 Subpart E. This option
provides administrative simplicity for
recipients that would simply like to
restore pre-pandemic positions and
would not like to hire above the pre-
pandemic baseline.
To pursue the second option,
recipients should undergo the analysis
provided below. In short, this option
allows recipients to pay for payroll and
covered benefits associated with the
recipient increasing its number of
budgeted full-time equivalent
employees (FTEs) up to 7.5 percent
above its pre-pandemic employment
baseline, which adjusts for the
continued underinvestment in state and
local governments since the Great
Recession. State and local government
employment as a share of population in
2019 remained considerably below its
share prior to the Great Recession in
2007, which presented major risks to
recipients mounting a response to the
COVID–19 public health emergency.
The adjustment factor of 7.5 percent
results from estimating how much larger
2019 state and local government
employment would have needed to be
for the share of state and local
government employment to population
in 2019 to have been back at its 2007
level and is intended to correct for this
gap.
Recipients should complete the steps
described below. Recipients may choose
whether to conduct this analysis on a
government-wide basis or for an
individual department, agency, or
authority.
• Step One: Identify the recipient’s
budgeted FTE level on January 27, 2020.
This includes all budgeted positions,
filled and unfilled. This is called the
pre-pandemic baseline.
• Step Two: Multiply the pre-
pandemic baseline by 1.075 (that is, 1
+ adjustment factor). This is called the
adjusted pre-pandemic baseline.
• Step Three: Identify the recipient’s
budgeted FTE level on March 3, 2021,
which is the beginning of the period of
performance for SLFRF funds.
Recipients may, but are not required to,
exclude FTEs dedicated to responding
to the COVID–19 public health
emergency.
244 This is called the actual
number of FTEs.
• Step Four: Subtract the actual
number of FTEs from the adjusted pre-
pandemic baseline to calculate the
number of FTEs that can be hired and
covered by SLFRF funds.
Recipients may use SLFRF funds to
cover payroll and covered benefit costs
obligated by December 31, 2024, and
expended by December 31, 2026, up to
the number of FTEs calculated in Step
Four, consistent with the Uniform
Guidance’s Cost Principles at 2 CFR part
200 Subpart E. Recipients may only use
SLFRF funds for additional FTEs hired
over the March 3, 2021 level of
budgeted FTEs (i.e., the actual number
of FTEs); note again that recipients may
choose whether to conduct the analysis
of FTEs that can be covered by SLFRF
funds on a government-wide basis or for
an individual department, agency, or
authority.
These FTEs must have begun their
employment on or after March 3, 2021,
which is the beginning of the period of
performance. For administrative
convenience, recipients do not need to
demonstrate that the reduction in
number of FTEs was due to the COVID–
19 pandemic, as Treasury assumes the
vast majority of employment reductions
during this time were due to pandemic
fiscal pressures on state and local
budgets. Recipients do not need to hire
for the same roles that existed pre-
pandemic.
For illustration, consider a
hypothetical recipient with 1,000
budgeted FTEs on January 27, 2020 (950
filled FTE positions and 50 unfilled FTE
positions). The recipient’s pre-
pandemic baseline is 1000 FTEs; its
adjusted pre-pandemic baseline is 1,000
* 1.075 = 1075 FTEs. Now, assume that
on March 3, 2021, the recipient had 800
budgeted FTEs in total (795 filled FTE
positions and 5 unfilled FTE positions),
with 50 FTEs primarily dedicated to
responding to the COVID–19 public
health emergency. The recipient would
have the option of using either 800 FTEs
or 750 FTEs as its actual number of
FTEs for the calculation; assuming it
chooses the lower number, it would be
able to fund up to 325 FTEs with SLFRF
funds (that is, 1,075¥750 = 325 FTEs).
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Conditions for SLFRF, each recipient agreed to
maintain a conflict-of-interest policy consistent
with 2 CFR 200.318(c)112 that is applicable to all
activities funded with the SLFRF award. Pursuant
to this policy, decisions concerning SLFRF must be
free of undisclosed personal or organizational
conflicts of interest, both in fact and in appearance.
A recipient may not use control over SLFRF for
their own private gain. Furthermore, no employee,
officer, or agent may participate in the selection,
award, or administration of a contract supported by
a federal award if he or she has a real or apparent
conflict of interest.
Specifically, the recipient would be able
to use SLFRF to fund payroll and
covered benefits for up to 325 FTEs that
begin their employment on or after
March 3, 2021, for costs obligated by
December 31, 2024, and expended by
December 31, 2026, consistent with the
Uniform Guidance’s Cost Principles, as
long as SLFRF funds are used for
additional FTEs hired over the
recipient’s 750 FTE level (which is its
March 3, 2021 budgeted FTE level).
In hiring new employees, the final
rule encourages recipients to ensure a
diverse workforce. The final rule also
prohibits recipients from using funds to
temporarily fill positions during a labor
dispute, as this would not constitute
responding to the public health or
negative economic impacts of the
pandemic. Further, recipients must
ensure that its hiring practices do not
violate conflict-of-interest policies.
245
Total compensation for a hired
employee that is substantially in excess
of typical compensation for employees
of their experience and tenure within
the recipient’s government, without a
corresponding business case, may
indicate a potential conflict-of-interest
in fact or appearance.
Providing additional funding for
employees who experienced pay cuts
and furloughs. In recognition of the
economic hardship caused by pay cuts
and furloughs, additional funds may be
provided to employees who experienced
pay cuts or were furloughed since the
onset of the pandemic on January 27,
2020. Recipients must be able to
substantiate that the pay cut or furlough
was substantially due to the public
health emergency or its negative
economic impacts (e.g., fiscal pressures
on state and local budgets) and should
document their assessment. As a
reminder, this additional funding must
be reasonably proportional to the
negative economic impact of the pay cut
or furlough on the employee, which
would include taking into account
unemployment insurance (UI) benefits
that a furloughed employee may have
received during the furloughed period.
Treasury presumes that additional funds
beyond the difference in pay had the
employee not received a pay cut or been
furloughed would not be reasonably
proportional.
Recipients may also provide premium
pay to certain employees, as detailed
further in section Premium Pay.
Avoiding layoffs. Funds may be used
to maintain current compensation
levels, with adjustments for inflation, in
order to prevent layoffs that would
otherwise be necessary. Recipients must
be able to substantiate that layoffs were
likely in the absence of SLFRF funds
and would be substantially due to the
public health emergency or its negative
economic impacts (e.g., fiscal pressures
on state and local budgets) and should
document their assessment.
Retaining workers. Funds may be
used to provide worker retention
incentives, which are designed to
persuade employees to remain with the
employer as compared to other
employment options. Recipients must
be able to substantiate that the
employees were likely to leave
employment in the absence of the
retention incentive and should
document their assessment. For
example, a recipient may determine that
a retention bonus is necessary based on
the presence of an alternative
employment offer for an employee.
All worker retention incentives must
be narrowly tailored to need and should
not exceed incentives traditionally
offered by the recipient or compensation
that alternative employers may offer to
compete for the employees. Further,
because retention incentives are
intended to provide additional incentive
to remain with the employer, they must
be entirely additive to an employee’s
regular rate of wages and other
remuneration and may not be used to
reduce or substitute for an employee’s
normal earnings. Treasury will presume
that retention incentives that are less
than 25 percent of the rate of base pay
for an individual employee or 10
percent for a group or category of
employees are reasonably proportional
to the need to retain employees, as long
as the other requirements are met.
Ancillary administrative costs. Funds
may be used to pay for ancillary
administrative costs associated with
administering SLFRF-funded hiring and
retention programs detailed above,
including costs to publish job postings,
review applications, and onboard and
train new hires. For additional
information on administrative expenses,
see section Administrative Expenses in
Program Administration Provisions.
Effective Service Delivery:
Administrative Expenses
The interim final rule provided that
funds could be used for: ‘‘Expenses to
improve efficacy of public health or
economic relief programs:
Administrative costs associated with the
recipient’s COVID–19 public health
emergency assistance programs,
including services responding to the
COVID–19 public health emergency or
its negative economic impacts, that are
not federally funded.’’ In the final rule,
Treasury is clarifying that there are
several categories of eligible
administrative expenses.
First, recipients may use funds for
administrative costs to improve the
efficacy of public health or economic
relief programs through tools like
program evaluation, data analysis, and
targeted consumer outreach (see section
Effective Service Delivery: Program
Evaluation, Data, and Outreach).
Second, recipients may use funds for
administrative costs associated with
programs to respond to the public
health emergency and its negative
economic impacts, including programs
that are not funded by SLFRF or not
federally funded. In other words,
Treasury recognizes that responding to
the public health and economic impacts
of the pandemic requires many
programs and activities, some of which
are not funded by SLFRF. Executing
these programs effectively is a
component of responding to the public
health and negative economic impacts
of the pandemic.
Finally, recipients may use funds for
direct and indirect administrative costs
for administering the SLFRF program
and projects funded by the SLFRF
program. See section Administrative
Expenses in Program Administration
Provisions for details on this eligible use
category.
Effective Service Delivery: Program
Evaluation, Data, and Outreach
The Supplementary Information of
the interim final rule provided that
state, local and Tribal governments may
use SLFRF funds to improve the design
and execution of programs responding
to the COVID–19 pandemic and to
improve the efficacy of programs
addressing negative economic impacts.
The interim final rule included high-
level guidance about how SLFRF funds
could be used in this eligible use
category, including the use of targeted
consumer outreach, improvements to
data or technology infrastructure,
impact evaluations, and data analysis.
Since the publication of the interim
final rule, Treasury has also released
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State Standard of Excellence (August 2020), https://
2020state.results4america.org/2020_State-
Standard-of-Excellence.pdf.
247 Learning Agendas are systematic plans to
identify, prioritize, answer important questions
about programs and policies using analytic
techniques that are appropriate to the type of
question asked. For more information on learning
agendas, please see OMB Memorandum M–19–23,
available at: https://www.whitehouse.gov/wp-
content/uploads/2019/07/M-19-23.pdf and OMB
Memorandum M–21–27, available at: https://
www.whitehouse.gov/wp-content/uploads/2021/06/
M-21-27.pdf.
248 Evidence Clearinghouses are databases of
research in particular program areas. Frequently
these Clearinghouses identify evidence-based
programs, the strength of the evidence for those
programs, and provide contextual or supporting
information in easy to understand formats. Many
federal departments have developed rigorous and
helpful Clearinghouses that cover a wide range of
uses enumerated in this final rule as well as other
programs that may be responsive to public health
or negative economic impacts of the pandemic. For
more information on Clearinghouses, please see the
Compliance and Reporting Guidance: U.S.
Department of the Treasury, Recipient Compliance
and Reporting Responsibilities, as of November 5,
2021; https://home.treasury.gov/policy-issues/
coronavirus/assistance-for-state-local-and-tribal-
governments/state-and-local-fiscal-recovery-funds/
recipient-compliance-and-reporting-responsibilities.
249 See FAQ 2.19. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
In the case of courts specifically, this includes
‘‘implementing COVID–19 safety measures to
facilitate court operations, hiring additional court
staff or attorneys to increase speed of case
supplementary information on data
analysis, evidence building, and
program evaluation in the Compliance
and Reporting Guidance.
Public Comment: Treasury received
positive comments about the
opportunity to invest in data and
technology upgrades with SLFRF funds.
For example, one commenter noted that
investing in technology for better
connectivity, coupled with software and
hardware upgrades, will allow the
workforce to be more productive.
Treasury also received comments
seeking clarification on using funds for
investments in data and technology,
including whether upgrading
government websites to improve
community outreach and investing in
technologies that support social
distancing were eligible uses.
Treasury Response: Governments
with high capacity to use data and
evidence to administer programs are
more likely to be responsive to the
needs of their community, more
transparent about their community
impact, and more resilient to
emergencies such as the pandemic and
its economic impacts.
246 Treasury
recognizes that collecting high-quality
data and developing community-driven,
evidence-based programs requires
resources to hire and build the capacity
of staff, adopt new processes and
systems, and use new technology and
tools in order to effectively develop,
execute, and evaluate programs. As
such, Treasury is clarifying that
recipients may use SLFRF funds toward
the following non-exhaustive list of uses
to address the data, evidence, and
program administration needs of
recipients. Additional information may
be provided in the Compliance and
Reporting Guidance.
• Program evaluation and evidence
resources to support building and using
evidence to improve outcomes,
including development of Learning
Agendas
247 to support strategic
evidence building, selection of
evidence-based interventions, and
program evaluations including impact
evaluations (randomized control trials
and quasi-experimental designs) as well
as rapid-cycle evaluations, process or
implementation evaluations, outcome
evaluations, and cost-benefit analyses.
Recipients are encouraged to undertake
rigorous program evaluations when
practicable, assess the impact of their
programs by beneficiary demographics
(including race, ethnicity, gender,
income, and other relevant factors), and
engage with community stakeholders
(including intended beneficiaries) when
developing Learning Agendas and
designing evaluations to ensure that
programmatic, cultural, linguistic, and
historical nuances are accurately and
respectfully addressed.
Recipients are also encouraged to use
relevant evidence Clearinghouses,
248
among other sources, to assess the level
of evidence for their interventions and
identify evidence-based models that
could be applied in their jurisdiction
(meaning models with strong or
moderate evidence; see Compliance and
Reporting Guidance for details on these
terms).
• Data analysis resources to gather,
assess, and use data for effective policy-
making and real-time tracking of
program performance to support
effective implementation of SLFRF-
funded programs and programs that
respond to the public health emergency
and its negative economic impacts, or
which households, small businesses, or
impacted industries are accessing
during the pandemic that are funded by
other sources. These resources include
but are not limited to data gathering,
data cleaning, data analysis, data
infrastructure, data management, data
sharing, data transparency, performance
management, outcomes-based
budgeting, outcomes-based
procurement, and other data needs.
Treasury encourages the disaggregation
of data to identify disparate program
impacts and the use of cross-
jurisdictional data sharing to better
measure and implement government
programs.
• Technology infrastructure resources
to improve access to and the user-
experience of government information
technology systems, including upgrades
to hardware and software as well as
improvements to public-facing websites
or to data management systems, to
increase public access and improve
public delivery of government programs
and services (including in the judicial,
legislative, or executive branches).
• Community outreach and
engagement resources to support the
gathering and sharing of information in
ways that improve equity and effective
implementation of SLFRF-funded
programs and programs that respond to
the public health emergency and its
negative economic impacts, or which
households, small businesses, or
impacted industries are accessing
during the pandemic that are funded by
other sources. These methods include
but are not limited to community
meetings, online surveys, focus groups,
human-centered design activities,
behavioral science techniques, and
other community engagement tools.
• Capacity building resources to
support using data and evidence in
designing, executing, and evaluating
programs, including hiring public sector
staff, contractors, academics,
consultants, and others with expertise
in evaluation, data, technology, and
community engagement as well as
technical assistance support for public
sector staff, staff of subrecipients, and
community partners to support effective
implementation of SLFRF-funded
programs and programs that respond to
the public health emergency and its
negative economic impacts, or which
households, small businesses, or
impacted industries are accessing
during the pandemic that are funded by
other sources.
Administrative Needs Caused or
Exacerbated by the Pandemic
As described in guidance and the
interim final rule, SLFRF funds may be
used to address administrative needs of
recipient governments that were caused
or exacerbated by the pandemic.
Guidance following the interim final
rule included several examples of this,
for example, uses of funds to address
backlogs resulting from pandemic-
related shutdowns (e.g., backlogs in
court systems).
249 This also includes
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resolution are eligible uses.’’
using funds for increased repair or
maintenance needs to respond to
significantly greater use of public
facilities during the pandemic (e.g.,
increased use of parks resulting in
damage or increased need for
maintenance). Some commenters
expressed support for the ability to use
funds for these purposes. Treasury is
maintaining these enumerated eligible
uses in the final rule and clarifying that
capital expenditures such as technology
infrastructure to adapt government
operations to the pandemic (e.g., video-
conferencing software, improvements to
case management systems or data
sharing resources), reduce government
backlogs, or meet increased
maintenance needs are eligible.
b. Capital Expenditures
The interim final rule expressly
permitted use of funds for a limited
number of capital expenditures that
mostly pertained to COVID–19
prevention and mitigation. These
included capital investments in public
facilities to meet pandemic operational
needs, such as physical plant
improvements to public hospitals and
health clinics; adaptations to public
buildings to implement COVID–19
mitigation tactics; ventilation
improvements in congregate settings,
health care settings, or other key
locations; assistance to small businesses
and nonprofits and aid to impacted
industries to implement COVID–19
prevention or mitigation tactics, such as
physical plant changes to enable social
distancing. For disproportionately
impacted populations and communities,
the interim final rule also expressly
permitted development of affordable
housing to increase the supply of
affordable and high-quality living units.
Public Comment: Many commenters
supported the interim final rule’s
allowance of capital expenditures in
facilities to meet pandemic operational
needs but requested that the final rule
explicitly allow for a broader range of
capital expenditures. Commenters
expressed an interest in investing in
equipment, real property, and facilities
that they argued will yield lasting
benefits beyond the SLFRF period of
performance. Some commenters stated
that the approach in the interim final
rule limited the vast majority of capital
expenditures to governments that
experienced revenue loss under
Sections 602(c)(1)(C) and 603(c)(1)(C)
and that this approach may prevent
some governments from fully meeting
the needs of their residents. A few
commenters argued that Treasury
should limit use of funds on capital
expenditures not related to addressing a
direct pandemic harm, such as general
economic development or workforce
development, and some expressed
support for generally limiting capital
expenditures to those that address the
needs of low-income communities and
communities of color.
Many commenters requested that
capital expenditures related to direct
COVID–19 public health response be
included as enumerated eligible uses.
The requested types of expenditures
include improvements and construction
of hospitals and health clinics
(including behavioral health clinics), as
well as other health-related
infrastructure improvements, such as
improvements to medical equipment or
public health information technology.
These commenters stated that
investments in health and public health
systems are vital to ensuring critical
infrastructure necessary to respond to
continued impacts of COVID–19 or to
address disparities in health, due to lack
of access to health care, that contributed
to disproportionate impacts of COVID–
19 on some communities. Further, some
commenters requested that construction
or improvements of emergency
management and public safety facilities
be deemed eligible, citing that some of
these sites serve as remote vaccination
sites or are otherwise crucial to the
pandemic public health response.
Commenters also requested use of
funds for capital expenditures that
support community needs apart from
health care, such as new construction or
improvements to schools, affordable
housing (beyond presumed
disproportionately impacted
communities), childcare facilities, and
community centers; some suggested that
all types of projects permissible under
the Community Development Block
Grant Program should be eligible both
for policy and administrability reasons.
Further, some commenters also asked
for clarification as to whether parks and
recreational facilities are eligible if built
in certain disproportionately impacted
areas, as well as public transportation
infrastructure.
Finally, some commenters also
requested use of funds for capital
expenditures in government
administration buildings, such as public
courthouses, as well as technology
infrastructure that would allow for
remote delivery of public benefits.
Others also asked about whether funds
could be used to renovate vacant
business district buildings or
commercial spaces to spur economic
recovery.
Treasury Response: Capital
expenditures, in certain cases, can be
appropriate responses to the public
health and economic impacts of the
pandemic, in addition to programs and
services. Like other eligible uses of
SLFRF funds in this category, capital
expenditures should be a related and
reasonably proportional response to a
public health or negative economic
impact of the pandemic. The final rule
clarifies and expands how SLFRF funds
may be used for certain capital
expenditures, including criteria and
documentation requirements specified
in this section, as applicable.
Treasury provides presumptions and
guidelines for capital expenditures that
are enumerated earlier in sections
Public Health, Negative Economic
Impacts, and General Provisions: Other
under the Public Health and Negative
Economic Impact eligible use category
(‘‘enumerated projects’’), along with
capital expenditures beyond those
enumerated by Treasury. In addition to
satisfying the two-part framework in
Standards: Designating a Public Health
Impact and Standards: Designating a
Negative Economic Impact for
identifying and designing a response to
a pandemic harm, Treasury will require
projects with total expected capital
expenditure costs of $1 million or
greater to undergo additional analysis to
justify their capital expenditure.
Increased reporting requirements will be
required for projects that are larger in
size, as well as projects that are not
enumerated as eligible by Treasury,
with certain exceptions for Tribal
governments discussed below. Smaller
projects with total expected capital
expenditures below $1 million will not
be required to undergo additional
analysis to justify their capital
expenditure, as such projects will be
presumed to be reasonably proportional,
provided that they are responding to a
harm caused or exacerbated by the
public health emergency. These
standards and documentation
requirements are designed to minimize
administrative burden while also
ensuring that projects are reasonably
proportional and supporting Treasury’s
risk-based approach to overall program
management and monitoring.
This section provides (1) an overview
of general standards governing capital
expenditures; (2) presumptions on
capital expenditures, which help guide
recipients in determining whether the
expenditure meets the standards and the
associated documentation requirements;
and (3) additional standards and
requirements that may apply.
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Overview of General Standards
In considering whether a capital
expenditure would be eligible under the
public health and negative economic
impacts eligible use category, recipients
must satisfy the requirements for all
uses under the public health and
negative economic impacts eligible use
category, including identifying an
impact or harm and designing a
response that addresses or responds to
the identified impact or harm.
Responses must be reasonably designed
to benefit the individual or class that
experienced the impact or harm and
must be related and reasonably
proportional to the extent and type of
impact or harm. Recipients should
consult further details on this standard
provided in the sections Standards:
Designating a Public Health Impact and
Standards: Designating a Negative
Economic Impact under General
Provisions: Structure and Standards.
In addition to the framework
described above, for projects with total
expected capital expenditures of $1
million or greater, recipients must
complete and meet the substantive
requirements of a Written Justification
for their capital expenditure, except for
Tribal governments as discussed below.
This Written Justification helps clarify
the application of this interpretive
framework to capital expenditures,
while recognizing that the needs of
communities differ. In particular, this
justification reflects the fact that the
time required for a large construction
project may make capital expenditures
less responsive to pandemic-related
needs relative to other types of
responses. In addition, as discussed in
section Timeline for Use of SLFRF
Funds of this Supplemental
Information, SLFRF funds must be
obligated by December 31, 2024 and
expended by December 31, 2026.
Capital expenditures may involve long
lead-times, and the Written Justification
may support recipients in analyzing
proposed capital expenditures to
confirm that they conform to the
obligation and expenditure timing
requirements. Further, such large
projects may be less likely to be
reasonably proportional to the harm
identified. For example, construction of
a new, larger public facility for the
purpose of increasing the ability to
socially distance generally would not be
considered a reasonably proportional
response compared to other less time-
and resource-intensive options that may
be available and would be equally or
more effective. Other solutions, such as
improvements in ventilation, could be
made more quickly and are typically
more cost effective than construction of
a new, larger facility. The needs of
communities differ, and recipients are
responsible for identifying uses of
SLFRF funds that best respond to these
needs. The Written Justification
recognizes this while also establishing
consistent documentation and reporting
to support monitoring and compliance
with the ARPA and final rule. Finally,
the Written Justification also reflects the
fact that infrastructure projects are
generally not within scope of this
eligible use category. See section Uses
Outside the Scope of this Category in
General Provisions: Other.
As noted above, Tribal governments
are not required to complete the Written
Justification for projects with total
capital expenditures of $1 million or
greater. Tribal governments generally
have limited administrative capacity
due to their small size and
corresponding limited ability to
supplement staffing for short-term
programs. In addition, Tribal
governments are already subject to
unique considerations that require
additional administrative processes and
administrative burden for Tribal
government decision making, including
capital expenditures. Tribal
governments generally are subject to a
jurisdictionally complex sets of rules
and regulations in the case of
improvements to land for which the title
is held in trust by the United States for
a Tribe (Tribal Trust Lands).
250 This
includes the requirement in certain
circumstances to seek the input or
approval of one or more federal agencies
such the Department of the Interior,
which holds fee title of Tribal Trust
Lands.
As a result of their limited
administrative capacity and unique and
complex rules and regulations
applicable to Tribal governments
operating on Tribal Trust Lands, Tribal
governments would experience
significant and redundant
administrative burden by also being
required to complete a Written
Justification for applicable capital
expenditures. While Tribal governments
are not required to complete the Written
Justification for applicable capital
expenditures, the associated substantive
requirements continue to apply,
including the requirement that a capital
expenditure must be reasonably
designed to benefit the individual or
class that experienced the identified
impact or harm and must be related and
reasonably proportional to the extent
and type of impact or harm. Note that,
as a general matter, Treasury may also
request further information on SLFRF
expenditures and projects, including
capital expenditures, as part of the
regular SLFRF reporting and
compliance process, including to assess
their eligibility under the final rule.
The Written Justification should (1)
describe the harm or need to be
addressed; (2) explain why a capital
expenditure is appropriate to address
the harm or need; and (3) compare the
proposed capital expenditure against
alternative capital expenditures that
could be made. The information
required for the Written Justification
reflects the framework applicable to all
uses under the public health and
negative economic impacts eligible use
category, providing justification for the
reasonable design, relatedness, and
reasonable proportionality of the capital
expenditure in response to the harm or
impact identified.
1. Description of harm or need to be
addressed: Recipients should provide a
description of the specific harm or need
to be addressed, and why the harm was
exacerbated or caused by the public
health emergency. When appropriate,
recipients may provide quantitative
information on the extent and type of
the harm, such as the number of
individuals or entities affected.
2. Explanation of why a capital
expenditure is appropriate: Recipients
should provide an independent
assessment demonstrating why a capital
expenditure is appropriate to address
the specified harm or need. This should
include an explanation of why existing
capital equipment, property, or facilities
would be inadequate to addressing the
harm or need and why policy changes
or additional funding to pertinent
programs or services would be
insufficient without the corresponding
capital expenditures. Recipients are not
required to demonstrate that the harm or
need would be irremediable but for the
additional capital expenditure; rather,
they may show that other interventions
would be inefficient, costly, or
otherwise not reasonably designed to
remedy the harm without additional
capital expenditure.
3. Comparison of the proposed capital
expenditure against alternative capital
expenditures: Recipients should provide
an objective comparison of the proposed
capital expenditure against at least two
alternative capital expenditures and
demonstrate why their proposed capital
expenditure is superior to alternative
capital expenditures that could be
made. Specifically, recipients should
assess the proposed capital expenditure
against at least two alternative types or
sizes of capital expenditures that are
potentially effective and reasonably
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Incarceration and the Criminal Justice System,’’
Council of Economic Advisers (April 2016), pg. 36–
43. 252 For instance, the CDC has published detailed
recommendations for nursing homes, long-term care
facilities, and correctional and detention facilities,
on infection prevention and control. Many of these
recommendations are relatively low cost, such as
proper use of PPE. In addition, increasing
vaccination rates among nursing home staff is
among the most important ways to decrease the
spread of the disease. Centers for Disease Control
and Prevention, Interim Infection Prevention and
Control Recommendations to Prevent SARS–CoV–
2 Spread in Nursing Homes (September 10, 2021),
https://www.cdc.gov/coronavirus/2019-ncov/hcp/
long-term-care.html#anchor_1631030153017.
253 For instance, researchers have found no
consistent positive relationship between building
sports facilities and local economic development.
As Siegfried and Zimbalist (2000, 103) write in a
review of the literature, ‘‘independent work on the
economic impact of stadiums and arenas has
uniformly found that there is no statistically
significant positive correlation between sports
facility construction and economic development.’’
John Siegfried and Andrew Zimbalist, The
Economics of Sports Facilities and Their
Communities, Journal of Economic Perspectives 14,
no. 3 (Summer 2000): 95–114, https://
www.aeaweb.org/articles?id=10.1257/jep.14.3.95.
feasible. Where relevant, recipients
should compare the proposal against the
alternative of improving existing capital
assets already owned or leasing other
capital assets. Recipients should use
quantitative data when available,
although they are encouraged to
supplement with qualitative
information and narrative description.
Recipients that complete analyses with
minimal or no quantitative data should
provide an explanation for doing so.
In determining whether their
proposed capital expenditure is superior
to alternative capital expenditures,
recipients should consider the following
factors against each selected alternative.
a. A comparison of the effectiveness of
the capital expenditures in addressing
the harm identified. Recipients should
generally consider the effectiveness of
the capital expenditures in addressing
the harm over the useful life of the
capital asset and may consider metrics
such as the number of impacted or
disproportionately impacted individuals
or entities served, when such
individuals or entities are estimated to
be served, the relative time horizons of
the project, and consideration of any
uncertainties or risks involved with the
capital expenditure.
b. A comparison of the expected total
cost of the capital expenditures.
Recipients should consider the expected
total cost of the capital expenditure
required to construct, purchase, install,
or improve the capital assets intended to
address the public health or negative
economic impact of the public health
emergency. Recipients should include
pre-development costs in their
calculation and may choose to include
information on ongoing operational
costs, although this information is not
required.
Recipients should balance the
effectiveness and costs of the proposed
capital expenditure against alternatives
and demonstrate that their proposed
capital expenditure is superior. Further,
recipients should choose the most cost-
effective option unless it substantively
reduces the effectiveness of the capital
investment in addressing the harm
identified.
As an example, a recipient
considering building a new diagnostic
testing laboratory to enhance COVID–19
testing capacity may consider whether
existing laboratories sufficiently meet
demand for COVID–19 testing,
considering the demand for test results
(along with their turnaround time) as
well as the impact of current testing
availability on the spread of COVID–19.
Recipients may also consider other
public health impacts of the level of
diagnostic testing capacity, for example
if insufficient capacity has decreased
testing for other health conditions. The
recipient may consider alternatives such
as expanding existing laboratories or
building a laboratory of a different size.
In comparing the effectiveness of the
capital expenditures, examples of
factors that the recipient may consider
include when the facilities will become
operational and for how long; the daily
throughput of COVID–19 tests; and the
effect on minimizing delays in test
results on the populations that such
tests will serve. In comparing costs, the
recipient may compare the total
expected cost of the new laboratory
(including costs of acquisition of real
property, construction of the laboratory,
and purchase of any necessary
equipment needed to operationalize the
lab), against the expected costs of
expanding existing laboratories
(whether by replacing current
equipment with higher throughout
devices or physically expanding space
to accommodate additional capacity) or
building a new laboratory of a different
size, including by leasing property. As
a reminder, recipients should only
consider alternatives that are potentially
effective and reasonably feasible.
Because, in all cases, uses of SLFRF
funds to respond to public health and
negative economic impacts of the
pandemic must be related and
reasonably proportional to a harm
caused or exacerbated by the pandemic,
some capital expenditures may not
eligible. For example, constructing a
new correctional facility would
generally not be a proportional response
to an increase in the rate of certain
crimes or overall crime as most
correctional facilities have historically
accommodated fluctuations in
occupancy.
251 In addition, construction
of new congregate facilities, which
would generally be expected to involve
expenditures greater than $1 million,
would generally not be a proportional
response to mitigate or prevent COVID–
19, because such construction is
generally expected to be more costly
than alternative approaches or capital
expenditures that may be equally or
more effective in decreasing spread of
the disease.
252 These alternatives
include personal protective equipment,
ventilation improvements, utilizing
excess capacity in other facilities or
wings, or temporary facility capacity
expansions.
Large capital expenditures intended
for general economic development or to
aid the travel, tourism, and hospitality
industries—such as convention centers
and stadiums—are, on balance,
generally not reasonably proportional to
addressing the negative economic
impacts of the pandemic, as the efficacy
of a large capital expenditure intended
for general economic development in
remedying pandemic harms may be very
limited compared to its cost.
253
Presumptions on Capital Expenditures
For administrative convenience, the
final rule provides presumptions on
whether a Written Justification is
required—and required to be submitted
to Treasury through reporting—based on
the type and size of the capital
expenditure, as detailed in the table
below.
As discussed above, Tribal
governments are not required to
complete the Written Justification for
applicable capital expenditures, but the
associated substantive requirements
continue to apply, including the
requirement that a capital expenditure
must be reasonably designed to benefit
the individual or class that experienced
the identified impact or harm and must
be related and reasonably proportional
to the extent and type of impact or
harm.
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required, recipients should still determine that the
response is related and reasonably proportional to
the public health emergency and its negative
economic impacts. Treasury recognizes that
enumerated eligible uses are ‘‘related’’ to the public
health emergency and its negative economic
impacts and presumed to be reasonably
proportional, except recipients pursuing projects
with expected total capital expenditures equal to or
greater than $1 million should still independently
determine that the expenditures are a reasonably
proportional response. Enumerated projects with
total expected capital expenditures under $1
million receive a safe harbor and deemed to meet
the related and reasonably proportional standard.
255 Whether or not a Written Justification is
required, recipients should still determine that the
response is related and reasonably proportional to
the public health emergency and its negative
economic impacts. Treasury presumes that projects
with total expected capital expenditures under $1
million are reasonably proportional in size to
responding to the public health emergency and its
negative economic impacts; however, recipients
should determine that the response otherwise meets
the requirements of the standard, including that the
response is related to the public health emergency
and its negative economic impacts.
If a project has total expected cap-
ital expenditures of
and the use is enumerated by Treasury as eligible,
then
254
and the use is beyond those enumerated by Treas-
ury as eligible, then
255
Less than $1 million ........................ No Written Justification required ............................... No Written Justification required.
Greater than or equal to $1 million,
but less than $10 million.
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.
$10 million or more ......................... Written Justification required and recipients must submit as part of regular reporting to Treasury.
In selecting these thresholds, Treasury
recognized that capital expenditures
vary widely in size and therefore would
benefit from tiered treatment to
implement eligibility standards while
minimizing administrative burden,
especially for smaller projects. For
example, Treasury selected $1 million
as a threshold for whether a recipient
needs to complete a Written
Justification as well as a threshold
under which capital expenditures
would be presumed reasonably
proportional. Treasury estimates that $1
million would encapsulate the costs of
a significant portion of equipment or
small renovations. These types of
smaller projects are often a necessary
and reasonably proportional part of a
response to the public health
emergency; therefore, the $1 million
threshold provides a simplified pathway
to complete smaller projects more likely
to meet the eligibility standard. At the
same time, Treasury selected $10
million as the threshold for more
intensive reporting requirements,
estimating that projects larger than $10
million would likely constitute
significant improvements or
construction of mid- or large-sized
facilities. As discussed above, given
their scale and longer time to
completion, these types of larger
projects may be less likely to be
reasonably proportional responses. The
$10 million threshold also generally
aligns with thresholds in other parts of
the SLFRF program, such as for
enhanced reporting on labor practices.
Expenditures from closely related
activities directed toward a common
purpose are considered part of the scope
of one project. These expenditures can
include capital expenditures, as well as
expenditures on related programs,
services, or other interventions. A
project includes expenditures that are
interdependent (e.g., acquisition of land,
construction of the school on the land,
and purchase of school equipment), or
are of the same or similar type and
would be utilized for a common
purpose (e.g., acquisition of a fleet of
ambulances that would be used for
COVID–19 emergency response).
Recipients must not segment a larger
project into smaller projects in order to
evade review. A recipient undertaking a
set of identical or similar projects (e.g.,
development of a number of new
affordable housing complexes across the
recipient jurisdiction) may complete
one Written Justification
comprehensively addressing the entire
set of projects.
Projects Enumerated as Eligible by
Treasury
Under the public health and negative
economic impacts eligible use category,
the final rule provides a non-exclusive
list of eligible uses of funding for
projects that respond to the public
health emergency or its negative
economic impacts. Treasury has
determined that these enumerated
projects are related to the public health
emergency and its negative economic
impacts; however, recipients (other than
Tribal governments) undertaking these
projects with total expected capital
expenditures of $1 million or greater
must still complete and meet the
substantive requirements of a Written
Justification as part of their
demonstration that the project is a
related and reasonably proportional
response to the harm identified.
• Projects with total expected capital
expenditures of under $1 million:
Treasury provides a safe harbor for
projects with total expected capital
expenditures of less than $1 million and
will not require recipients to complete,
submit, or meet the substantive
requirements of a Written Justification
for the capital expenditure. In essence,
recipients may pursue an enumerated
project with total expected capital
expenditures of under $1 million
without having to undergo additional
assessments to meet SLFRF
requirements.
• Projects with total expected capital
expenditures of at least $1 million but
under $10 million: Recipients should
complete a Written Justification for the
capital expenditure and make an
independent assessment of whether
their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Recipients will
not be required to submit the Written
Justification as part of regular reporting
to Treasury but should keep
documentation for their records.
• Projects with total expected capital
expenditures of at least $10 million:
Similar to the above, recipients should
complete a Written Justification of the
capital expenditure and make an
independent assessment of whether
their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Further,
recipients will be asked to submit the
Written Justification as part of regular
reporting to Treasury. Similar to other
parts of the SLFRF program, such as on
reporting on labor practices, Treasury
recognizes that projects with expected
total capital expenditures of at least $10
million may be less likely to meet
eligibility requirements and therefore
requires recipients to provide an
enhanced level of information to
Treasury.
Projects Beyond Those Enumerated as
Eligible by Treasury
As with all uses, recipients that
undertake capital expenditures beyond
those enumerated as eligible by
Treasury must meet the two-part
framework under Standards:
Designating a Public Health Impact and
Standards: Designating a Negative
Economic Impact under General
Provisions: Structure and Standards,
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responses are related and reasonably
proportional to the harm or impact
identified. As part of that assessment,
these recipients may also be asked to
complete a Written Justification.
Recipients (other than Tribal
governments) are subject to the
following presumptions for the Written
Justification of the capital expenditure,
based on the total expected capital
expenditures of the project:
• Projects with total expected capital
expenditures of under $1 million:
Treasury provides a safe harbor for
unenumerated projects with total
expected capital expenditures of under
$1 million and will not require
recipients to complete, submit, or meet
the substantive requirements of a
Written Justification of the capital
expenditure. Recipients should still
make a determination as to whether the
capital expenditure is part of a response
that is related and reasonably
proportional to the public health
emergency or its negative economic
impacts.
• Projects with total expected capital
expenditures of $1 million or over:
Recipients should complete a Written
Justification of the capital expenditure
and make an independent assessment
that their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Further,
recipients will be asked to submit the
Written Justification as part of regular
reporting to Treasury.
Treasury employs a risk-based
approach to overall program
management and monitoring, which
may result in heightened scrutiny on
larger projects. Accordingly, recipients
pursuing projects with larger capital
expenditures should complete more
detailed analyses for their Written
Justification, commensurate with the
scale of the project.
Additional Provisions, Standards, and
Definitions
Strong Labor Standards in Construction
Treasury encourages recipients to
carry out projects in ways that produce
high-quality work, avert disruptive and
costly delays, and promote efficiency.
Treasury encourages recipients to use
strong labor standards, including project
labor agreements (PLAs) and
community benefits agreements that
offer wages at or above the prevailing
rate and include local hire provisions.
Treasury also recommends that
recipients prioritize in their
procurement decisions employers who
can demonstrate that their workforce
meets high safety and training standards
(e.g., professional certification,
licensure, and/or robust in-house
training), that hire local workers and/or
workers from historically underserved
communities, and who directly employ
their workforce or have policies and
practices in place to ensure contractors
and subcontractors meet high labor
standards. Treasury further encourages
recipients to prioritize employers
(including contractors and
subcontractors) without recent
violations of federal and state labor and
employment laws.
Treasury believes that such practices
will promote effective and efficient
delivery of high-quality projects and
support the economic recovery through
strong employment opportunities for
workers. Such practices will reduce
likelihood of potential project
challenges like work stoppages or safety
accidents, while ensuring a reliable
supply of skilled labor and minimizing
disruptions, such as those associated
with labor disputes or workplace
injuries. That will, in turn, promote on-
time and on-budget delivery.
Furthermore, among other
requirements contained in 2 CFR 200,
Appendix II, all contracts made by a
recipient or subrecipient in excess of
$100,000 with respect to a capital
expenditure that involve employment of
mechanics or laborers must include a
provision for compliance with certain
provisions of the Contract Work Hours
and Safety Standards Act, 40 U.S.C.
3702 and 3704, as supplemented by
Department of Labor regulations (29
CFR part 5).
Treasury will seek information from
recipients on their workforce plans and
practices related to capital expenditures
undertaken under the public health and
negative economic impacts eligible use
category with SLFRF funds. This
reporting will support transparency and
competition by enhancing available
information on the services being
provided.
Environmental, Uniform Guidance, and
Other Generally Applicable
Requirements
Treasury cautions that, as is the case
with all projects using SLFRF funds, all
projects must comply with applicable
federal, state, and local law. In the case
of capital expenditures in particular,
this includes environmental and
permitting laws and regulations.
Likewise, as with all capital expenditure
projects using the SLFRF funds, projects
must be completed in a manner that is
technically sound, meaning that it must
meet design and construction methods
and use materials that are approved,
codified, recognized, fall under standard
or acceptable levels of practice, or
otherwise are determined to be
generally acceptable by the design and
construction industry.
Further, as with all other uses of
funds under the SLFRF program, the
Uniform Guidance at 2 CFR part 200
applies to capital expenditures unless
stated otherwise. Importantly, this
includes 2 CFR part 200 Subpart D on
post-federal award requirements,
including property standards pertaining
to insurance coverage, real property,
and equipment; procurement standards;
sub-recipient monitoring and
management; and record retention and
access.
Definitions
Treasury adopts several definitions
from the Uniform Guidance at 2 CFR
200.1 under this section, including for
capital expenditures, capital assets,
equipment, and supplies.
Per the Uniform Guidance, the term
‘‘capital expenditures’’ means
‘‘expenditures to acquire capital assets
or expenditures to make additions,
improvements, modifications,
replacements, rearrangements,
reinstallations, renovations, or
alterations to capital assets that
materially increase their value or useful
life.’’ The term ‘‘capital assets’’ means
‘‘tangible or intangible assets used in
operations having a useful life of more
than one year which are capitalized in
accordance with [Generally Accepted
Accounting Principles].’’
Capital assets include lands, facilities,
equipment, and intellectual property.
Equipment means ‘‘tangible personal
property (including information
technology systems) having a useful life
of more than one year and a per-unit
acquisition cost which equals or
exceeds the lesser of the capitalization
level established by the non-Federal
entity for financial statement purposes,
or $5,000.’’ Supplies, which means all
tangible personal property other than
those included as ‘‘equipment,’’ are not
considered capital expenditures.
Recipients may also use SLFRF funds
for pre-project development costs that
are tied to or reasonably expected to
lead to an eligible capital expenditure.
For example, pre-project costs
associated with planning and
engineering for an eligible project are
considered an eligible use of funds.
c. Distinguishing Subrecipients Versus
Beneficiaries
Under the interim final rule, state,
local, and Tribal governments that
receive a federal award directly from a
federal awarding agency, such as
Treasury, are designated as ‘‘recipients,’’
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recipient of SLFRF funds.
and state, local, and Tribal governments
are authorized to transfer funds to other
entities, including private entities like
nonprofits. The interim final rule stated
that, ‘‘[a] transferee receiving a transfer
from a recipient under sections 602(c)(3)
and 603(c)(3) will be a subrecipient.
Subrecipients are entities that receive a
subaward from a recipient to carry out
a program or project on behalf of the
recipient with the recipient’s Federal
award funding.’’
For funds transferred to a
subrecipient, the interim final rule
noted that ‘‘[r]ecipients continue to be
responsible for monitoring and
overseeing the subrecipient’s use of
SLFRF funds and other activities related
to the award to ensure that the
subrecipient complies with the statutory
and regulatory requirements and the
terms and conditions of the award.
Recipients also remain responsible for
reporting to Treasury on their
subrecipients’ use of payments from the
SLFRF funds for the duration of the
award.’’
Public Comment: Treasury received
many comments requesting clarification
about which entities qualify as
subrecipients and are, in turn, subject to
subrecipient monitoring and reporting
requirements. For example, commenters
sought clarification about whether a
nonprofit that received a grant to
provide services under a program to
carry out an enumerated eligible use
would qualify as a subrecipient and be
subject to subrecipient monitoring and
reporting requirements. Similarly,
commenters also wondered if a
nonprofit that received a grant in
recognition of experiencing a negative
economic impact of the public health
emergency would also be a subrecipient
and subject to subrecipient reporting
requirements.
Treasury Response: Treasury is
clarifying the distinction between a
subrecipient and beneficiary in the final
rule. The Uniform Guidance definitions
for subaward and subrecipient inform
Treasury’s distinction between
subrecipients and beneficiaries.
First, per 2 CFR 200.1 of Uniform
Guidance ‘‘[s]ubaward means an award
provided by a pass-through entity
256 to
a subrecipient for the subrecipient to
carry out part of a Federal award
received by the pass-through entity. It
does not include payments to a
contractor or payments to an individual
that is a beneficiary of a Federal
program. A subaward may be provided
through any form of legal agreement,
including an agreement that the pass-
through entity considers a contract.’’
Further, 2 CFR 200.1 of the Uniform
Guidance defines a subrecipient, in that
‘‘[s]ubrecipient means an entity, usually
but not limited to non-Federal entities,
that receives a subaward from a pass-
through entity to carry out part of a
Federal award; but does not include an
individual that is a beneficiary of such
award. A subrecipient may also be a
recipient of other Federal awards
directly from a Federal awarding
agency.’’ Treasury is aligning the
definition of subrecipient in the final
rule with the definition of subrecipient
in the Uniform Guidance.
Treasury is maintaining the
monitoring and subrecipient reporting
requirements outlined in the final rule.
Per 2 CFR 200.101 (b)(2) of the Uniform
Guidance, the terms and conditions of
federal awards flow down to subawards
to subrecipients. Therefore, non-federal
entities, as defined in the Uniform
Guidance, must comply with the
applicable requirements in the Uniform
Guidance regardless of whether the non-
federal entity is a recipient or
subrecipient of a federal award. This
includes requirements such as the
treatment of eligible uses of funds,
procurement, and reporting
requirements.
The Uniform Guidance definitions for
both subaward and subrecipient specify
that payments to individuals or entities
that are direct beneficiaries of a federal
award are not considered subrecipients.
The final rule adopts this definition of
a beneficiary and outlines that
households, communities, small
businesses, nonprofits, and impacted
industries are all potential beneficiaries
of projects carried out with SLFRF
funds. Beneficiaries are not subject to
the requirements placed on
subrecipients in the Uniform Guidance,
including audit pursuant to the Single
Audit Act and 2 CFR part 200, subpart
F or subrecipient reporting
requirements.
The distinction between a
subrecipient and a beneficiary,
therefore, is contingent upon the
rationale for why a recipient is
providing funds to the individual or
entity. If the recipient is providing
funds to the individual or entity for the
purpose of carrying out a SLFRF
program or project on behalf of the
recipient, the individual or entity is
acting as a subrecipient. Acting as a
subrecipient, the individual or entity is
subject to subrecipient monitoring and
reporting requirements. Conversely, if
the recipient is providing funds to the
individual or entity for the purpose of
directly benefitting the individual or
entity as a result of experiencing a
public health impact or negative
economic impact of the pandemic, the
individual or entity is acting as a
beneficiary. Acting as a beneficiary, the
individual or entity is not subject to
subrecipient monitoring and reporting
requirements.
d. Uses Outside the Scope of This
Category
Summary of the Interim Final Rule and
Final Rule Structure
In the interim final rule, Treasury
noted that certain uses of funds are not
permissible under the eligible use
category of responding to the public
health and negative economic impacts
of the pandemic. In the final rule, these
uses remain impermissible, but
Treasury has re-categorized where they
are addressed to increase clarity.
Specifically, the interim final rule
provided that the following uses of
funds are not eligible under this eligible
use category: Contributions to rainy day
funds, financial reserves, or similar
funds; payment of interest or principal
on outstanding debt instruments; fees or
issuance costs associated with the
issuance of new debt; and satisfaction of
any obligation arising under or pursuant
to a settlement agreement, judgment,
consent decree, or judicially confirmed
debt restructuring plan in a judicial,
administrative, or regulatory
proceeding, except to the extent the
judgment or settlement requires the
provision of services that would
respond to the COVID–19 public health
emergency. These uses of funds remain
ineligible under the final rule; Treasury
has re-categorized these issues to the
section Restrictions on Use, which
describes restrictions that apply to all
eligible use categories, to clarify that
these uses are not eligible under any
eligible use category of SLFRF. Treasury
responds to public comments on this
issue in the section Restrictions on Use.
As noted above, the interim final rule
also posed several questions on what
other types of services or costs Treasury
should consider as eligible uses to
respond to the public health and
negative economic impacts of COVID–
19, including in disproportionately
impacted communities. In this section,
Treasury addresses proposed uses of
funds suggested by commenters that
Treasury has not included as
enumerated eligible uses of funds in this
eligible use category.
General Eligible Uses
Public Comment: Commenters
proposed a wide variety of additional
recommended enumerated eligible uses
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negative economic impacts eligible use
category, including in impacted and
disproportionately impacted
communities. The proposed additional
uses included general categories of
services (e.g., legal and social services,
long-term investments to remediate
long-term disparities, response to
natural disasters). Other suggested uses
of funds respond to needs widely
experienced across the country (e.g.,
access to and affordability of health
insurance). Finally, other suggested uses
of funds were highly specific (e.g.,
healthcare equipment for a specific
health condition, fire hydrants, weather
alert systems) or most applicable to the
particularized needs to certain
populations or geographic areas of the
United States (e.g., senior citizens,
immigrants, formerly incarcerated
individuals, responding to
environmental issues in certain
geographic regions). Other commenters
generally requested a high degree of
flexibility to respond to the particular
needs of their communities.
Treasury Response: Given the large
number and diversity of SLFRF
recipients, Treasury has aimed to
include as enumerated eligible uses
programs, services, and capital
expenditures that respond to public
health and negative economic impacts
of the pandemic experienced widely in
many jurisdictions across the country,
making it clear and simple for recipients
to pursue these enumerated eligible uses
under the final rule. This provides
enumerated eligible uses that many
recipients may want to pursue, while
including uses that are responsive to the
pandemic’s impacts across the diverse
range of SLFRF recipients. In the final
rule, Treasury has clarified several
additional uses that generally respond
to pandemic impacts experienced
broadly across jurisdictions and
populations.
Treasury has not chosen to include as
enumerated uses all uses proposed by
commenters; given the significant range,
and in some cases highly specific
nature, of the proposed uses Treasury
was not able to assess that the proposed
uses would respond to negative
economic impacts experienced
generally across the country, supporting
an enumerated eligible use available to
all recipients presumptively.
However, Treasury emphasizes that
the enumerated eligible uses are non-
exhaustive and that other uses, beyond
those enumerated, are eligible. Treasury
recognizes that the impacts of the
pandemic vary over time, by
jurisdiction, and by population; as such,
the final rule provides flexibility for
recipients to identify other public health
or negative economic impacts to
additional households, small
businesses, or nonprofits, including
classes of these entities, and pursue
programs and services that respond to
those impacts. Treasury also notes that
some populations are presumed to be
impacted or disproportionately
impacted by the pandemic, and thus
eligible for responsive services; these
presumed eligible populations may
encompass many individuals in the
specific populations for whom
commenters recommended services. For
details on these issues, see section
General Provisions: Structure and
Standards.
Infrastructure, Community
Development, and General Economic
Development
Some potential additions to
enumerated eligible uses were also
recommended by several commenters
each but are not included as enumerated
eligible uses in the final rule.
Public Comment: Infrastructure: In
the interim final rule, Treasury noted
that a ‘‘general infrastructure project, for
example, typically would not be
included [in this eligible use category]
unless the project responded to a
specific pandemic public health need.’’
Numerous commenters requested that
Treasury permit investments in
infrastructure as a response to the
public health and negative economic
impacts of the pandemic. While these
comments most commonly
recommended that constructing and
maintaining roads and surface
transportation infrastructure be eligible,
the proposed uses for infrastructure
ranged widely and included parking
lots, bridges, traffic management
infrastructure, solid waste disposal
facilities, and utility infrastructure
(outside of water, sewer, and
broadband).
Many commenters argued that
infrastructure development and
maintenance is a pressing need in their
communities and that their
communities had less need for water,
sewer, and broadband infrastructure or
other eligible uses to respond to the
public health and negative economic
impacts of the pandemic. Other
commenters argued that these uses
would stimulate the economy, attract
businesses, or allow for tourist
movement; these commenters argued
that, by generally supporting a stronger
economy or facilitating conditions that
are more conducive to business activity
and tourism, these uses respond to the
negative economic impacts of the
pandemic.
Treasury Response: In the final rule,
Treasury is maintaining the approach
under the interim final rule that general
infrastructure projects, including roads,
streets, and surface transportation
infrastructure, would generally not be
eligible, unless the project responded to
a specific pandemic public health need
or a specific negative economic impact.
The ARPA expressly includes
infrastructure if it is ‘‘necessary’’ and in
water, sewer, or broadband, suggesting
that the statute contemplates only those
types of infrastructure. Further,
responding to the public health and
negative economic impacts of the
pandemic requires identifying whether,
and the extent to which, there has been
a harm that resulted from the COVID–
19 public health emergency and
whether, and the extent to which, the
use would respond or address this
harm. Uses of funds intended to
generally grow the economy and
therefore enhance opportunities for
workers and businesses would not be an
eligible use, because such assistance is
not reasonably designed to impact
individuals or classes that have been
identified as having experienced a
negative economic impact. In other
words, there is not a reasonable
connection between the assistance
provided and an impact on the
beneficiaries. Such an activity would be
attenuated from and thus not reasonably
designed to benefit the households that
experienced the negative economic
impact.
Note, however, that Treasury has
clarified that capital expenditures that
are related and reasonably proportional
to responding to the public health and
economic impacts of the pandemic are
eligible uses of funds, in addition to
programs and services; for details on
eligibility criteria for capital
expenditures, see section Capital
Expenditures in General Provisions:
Other.
Public Comment: Community
Development Block Grant: Several
commenters recommended that
Treasury enumerate as eligible uses
those eligible under the Department of
Housing and Urban Development’s
Community Development Block Grant
(CDBG) or the Housing and Community
Development Act of 1974, which
established the CDBG program.
Commenters requested that these uses
be eligible either to respond to the
negative economic impacts of the
pandemic, or in the alternate the
disproportionate negative economic
impacts of the pandemic in certain
communities. Under the CDBG program,
recipient governments may undertake a
wide range of community and economic
VerDate Sep<11>2014 19:24 Jan 26, 2022 Jkt 256001 PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 E:\FR\FM\27JAR2.SGM 27JAR2lotter on DSK11XQN23PROD with RULES2 4396 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 257 See, e.g., Matthew D. Mitchell et al., The
Economics of a Targeted Economic Development
Subsidy (Arlington, VA: Mercatus Center at George
Mason University, 2019), 5, available at https://
www.mercatus.org/publications/government-
spending/economics-targeted-economic-
development-subsidy; Timothy J. Bartik, Who
Benefits from Economic Development Incentives?
How Incentive Effects on Local Incomes and the
Income Distribution Vary with Different
Assumptions about Incentive Policy and the Local
Economy (Upjohn Institute Technical Report No.
13–034, W.E. Upjohn Institute for Employment
Research, March 1, 2018), available at: https://
research.upjohn.org/up_technicalreports/34/; Cailin
Slattery and Owen Zidar, Evaluating State and
Local Business Tax Incentives, Journal of Economic
Perspectives 34, no. 2 (2020): 90–118, available at:
https://www.aeaweb.org/articles?id=10.1257/
jep.34.2.90; Kenneth Thomas, The State of State and
Local Subsidies to Business (Mercatus Policy Brief,
Mercatus Center at George Mason University,
Arlington, VA, October 2019), available at: https://
www.mercatus.org/system/files/thomas_-_policy_
brief_-_the_state_of_state_and_local_subsidies_to_
business_-_v1.pdf; Dennis Coates, Growth Effects of
Sports Franchises, Stadiums, and Arenas: 15 Years
Later (Mercatus Working Paper, Mercatus Center at
George Mason University, Arlington, VA,
September 2015), available at: https://
www.mercatus.org/system/files/Coates-Sports-
Franchises.pdf; Dennis Coates and Brad R.
Humphreys, Do Economists Reach a Conclusion on
Subsidies for Sports Franchises, Stadiums, and
Mega-Events?, Econ Journal Watch 5, no. 3 (2008):
294–315, available at: https://econjwatch.org/
articles/do-economists-reach-a-conclusion-on-
subsidies-for-sports-franchises-stadiums-and-mega-
events; Matthew D. Mitchell, Daniel Sutter, and
Scott Eastman, The Political Economy of Targeted
Economic Development Incentives, Review of
Regional Studies 48, no. 1 (2018): 1–9, available at:
https://www.mercatus.org/publications/corporate-
welfare/political-economy-targeted-economic-
development-incentives.
development services and projects.
Commenters reasoned that many state
and local governments are familiar with
this program, and that aligning to its
eligible uses may help recipients easily
understand and pursue eligible projects.
Commenters also noted that Treasury
had chosen to align with existing federal
programs in other eligible use
categories, namely water infrastructure,
in the interim final rule.
Treasury Response: In the final rule,
Treasury is not including all categories
of projects permissible under CDBG as
enumerated eligible uses to respond to
the public health and negative economic
impacts of the pandemic. Because CDBG
permits such a broad range of activities,
including services to individual
households, communities, small
businesses, general economic
development activities, and capital
expenditures, Treasury determined that
it was more appropriate to assess the
underlying types of projects eligible
within CDBG and whether each type of
project responds to the negative
economic impacts of the pandemic. In
other words, Treasury considered
whether various types of community
and economic development projects
respond to the impacts of the pandemic
in different communities and
circumstances. In the final rule,
Treasury addresses the eligibility of
these various types of projects in each
relevant eligible use category within
public health and negative economic
impacts under SLFRF, including
assistance for impacted households,
disproportionately impacted
households, disproportionately
impacted small businesses, and capital
expenditures.
Public Comment: General Economic
Development: Treasury provided
guidance following the interim final
rule that general economic development
or workforce development would
generally not be eligible as it does not
respond to a negative economic impact
of the COVID–19 public health
emergency.
Some commenters recommended that
Treasury expand enumerated eligible
uses to include general economic
development activities, beyond those
that respond to negative economic
impacts of the pandemic, such as
creating an economic development
strategy for the jurisdiction’s overall
economic growth, creating a general
workforce development strategy, or
providing funds to businesses that did
not experience negative economic
impacts to carry out economic
development activities or to incentivize
the addition or retention of jobs.
Commenters supportive of assistance to
businesses for general economic
development activities argued that
subsidies to businesses increase job
growth and that, in some cases,
assistance to companies that excelled
during the public health emergency
would help create more job
opportunities for workers or expand the
jurisdiction’s tax base and produce
funds to support government services.
In contrast, other commenters argued
that academic research consistently
finds that economic development
subsidies have a negligible, or even
negative, economic effect, citing
research findings to this effect.
257
Treasury Response: In the final rule,
Treasury maintains the interim final
rule’s approach that general economic
development or workforce development,
meaning activities that do not respond
to negative economic impacts of the
pandemic and rather seek to more
generally enhance the jurisdiction’s
business climate, would generally not
be eligible under this eligible use
category. As noted above, to identify an
eligible use of funds under this category,
a recipient must identify a beneficiary
or class of beneficiaries that experienced
a harm or impact due to the pandemic,
and eligible uses of funds must be
reasonably designed to respond to the
harm, benefit the beneficiaries that
experienced it, and be related and
reasonably proportional to that harm or
impact.
As noted above, recipients should
analyze eligible uses based on the
beneficiary of the assistance, and
recipients may not provide assistance to
small businesses or impacted industries
that did not experience a negative
economic impact. Provision of
assistance to a business that did not
experience a negative economic impact,
under the theory that such assistance
would generally grow the economy and
therefore enhance opportunities for
workers, would not be an eligible use,
because such assistance is not
reasonably designed to impact
individuals or classes that have been
identified as having experienced a
negative economic impact. In other
words, there is not a reasonable
connection between the assistance
provided and an impact on the
beneficiaries. Such an activity would be
attenuated from and thus not reasonably
designed to benefit the households that
experienced the negative economic
impact. Research cited by some
commenters finding that business
subsidies have limited or negative
economic impact also suggests that such
a response may not be reasonably
designed to benefit households and
other entities impacted by the
pandemic. Similarly, planning activities
for an economic development or
workforce strategy regarding general
future economic growth do not provide
a program, service, or capital
expenditure that responds to negative
economic impacts of the pandemic.
However, Treasury notes that the final
rule includes as enumerated eligible
uses many types of assistance that
respond to negative economic impacts
of the pandemic and may produce
economic development benefits. For
example, see sections Assistance to
Unemployed Workers, Assistance to
Small Businesses, and Capital
Expenditures.
B. Premium Pay
Background and Summary of the
Interim Final Rule
Sections 602(c)(1)(B) and 603(c)(1)(B)
of the Social Security Act, as added by
the ARPA, provide that SLFRF funds
may be used ‘‘to respond to workers
performing essential work during the
COVID–19 public health emergency by
providing premium pay to eligible
workers of the . . . government that are
performing such essential work, or by
providing grants to eligible employers
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https://www.dol.gov/general/topic/wages/
hazardpay (last visited October 18, 2021).
259 Economic Policy Institute, Only 30% of those
working outside their home are receiving hazard
pay (June 16, 2020), https://www.epi.org/press/only-
30-of-those-working-outside-their-home-are-
receiving-hazard-pay-black-and-hispanic-workers-
are-most-concerned-about-bringing-the-
coronavirus-home/.
260 McCormack, supra note 65.
261 Id.
262 See H.R. 6800, 116th Cong. (2020).
263 Note that the sectors defined in the interim
final rule already include all state, local, and Tribal government employees.
that have eligible workers who perform
essential work.’’
Premium pay is designed to
compensate workers that, by virtue of
their employment, were forced to take
on additional burdens and make great
personal sacrifices as a result of the
COVID–19 pandemic. Premium pay can
be thought of as hazard pay by another
name.
258
During the public health emergency,
employers’ policies on COVID–19-
related premium pay or hazard pay have
varied widely, with many essential
workers not yet compensated for the
heightened risks they have faced and
continue to face.
259 Many of these
workers earn lower wages on average
and live in socioeconomically
underserved communities as compared
to the general population.
260 A recent
study found that 25 percent of essential
workers were estimated to have low
household income, with 13 percent in
high-risk households.
261 The low pay of
many essential workers makes them less
able to cope with the financial
consequences of the pandemic or their
work-related health risks. As Americans
return to work and governments relax
certain rules, essential workers will
continue to bear the brunt of the risk of
maintaining the ongoing operation of
vital facilities and services. The added
health risk to essential workers is one
prominent way in which the pandemic
has amplified pre-existing
socioeconomic inequities. Premium pay
is designed to address the disparity
between the critical services provided
by and the risks taken by essential
workers and the relatively low
compensation they tend to receive.
The interim final rule established a
three-part framework for recipients
seeking to use SLFRF funds for
premium pay. First, to receive premium
pay one must be an eligible worker.
Second, an eligible worker must also
perform essential work. Finally,
premium pay must respond to workers
performing essential work during the
COVID–19 public health emergency.
Most of the comments received by
Treasury pertaining to premium pay
related to these three requirements.
Comments also addressed the definition
of premium pay generally and posed
questions regarding premium pay
program structuring. This section
responds to the comments by addressing
the three requirements in turn, then the
overall definition of premium pay and,
finally, program structure.
Eligible Workers
The ARPA defines ‘‘eligible workers’’
as ‘‘those workers needed to maintain
continuity of operations of essential
critical infrastructure sectors and
additional sectors as each . . .
[government] may designate as critical
to protect the health and wellbeing of
[its] residents.’’ The interim final rule
supplemented this definition by
identifying a list of ‘‘essential critical
infrastructure sectors’’ whose workers
are eligible workers, based on the list of
sectors in the HEROES Act, a bill
introduced in the House of
Representatives in 2020 that would have
provided premium pay to essential
workers.
262 In addition to the critical
infrastructure sectors defined in the
interim final rule, the chief executive (or
equivalent) of a recipient government
may designate additional non-public
263
sectors as critical so long as doing so is
necessary to protecting the health and
wellbeing of the residents of such
jurisdiction.
Public Comment: Treasury received
multiple comments on the definition of
‘‘eligible worker’’ included in the
interim final rule. Many commenters
agreed with the definition of eligible
worker adopted by Treasury. Other
commenters sought clarification about
or changes to the definition of eligible
worker, including the definition of
eligible sectors, the inclusion of
government workers in the definition of
eligible workers, and the process for
designating additional non-public
sectors as eligible.
Some commenters asked Treasury to
change how it identifies eligible sectors,
including suggestions to add to or
subtract from the list of eligible sectors.
For example, some commenters asked
Treasury to consider using Bureau of
Labor Statistics (BLS)-Standard
Occupational Classifications to identify
specific sectors or occupations, in
contrast to the approach taken in the
interim final rule, which included a
mixture of economic sectors, industries,
and occupations. Many commenters
asked Treasury to explicitly clarify that
a particular industry or occupation is
covered by the definition of ‘‘essential
critical infrastructure sector.’’ Some of
these commenters represented public
employees, e.g., employees of facilities
and public works; public utilities;
courthouse employees; police, fire, and
emergency medical services; and waste
and wastewater services. Others were a
mixture of public and private sector
employees, e.g., coroners and medical
examiners; transportation infrastructure
(specifically electric vehicle
infrastructure and supply equipment);
electric utilities, natural gas, and steam
supply; and grocery employees. Other
commenters requested that Treasury
prohibit certain occupations currently
included in the eligible workers
definition (e.g., police and corrections
officers) from receiving premium pay for
performance of regular duties.
Commenters also asked Treasury to
clarify which government workers are
included in the definition of eligible
workers. The interim final rule included
as an essential critical infrastructure
sector, ‘‘any work performed by an
employee of a State, local, or Tribal
government.’’ Some commenters
requested that Treasury adopt a
definition of eligible worker that
includes all employees of the recipient
government; however, all public
employees of state, local, and Tribal
governments are already included in the
interim final rule definition of ‘‘eligible
worker.’’ Commenters asked whether
this includes governments that did not
receive SLFRF funds (i.e., ‘‘non
recipient governments’’). Many
commenters from Tribal governments
requested that the definition of eligible
worker, which includes ‘‘any work
performed by an employee of a . . .
Tribal government,’’ also include an
employee of a ‘‘Tribal enterprise’’ to
remove uncertainty regarding which
employees are included.
Finally, commenters made
suggestions for the process by which the
chief executive (or equivalent) of a
recipient government may designate
additional non-public sectors as critical.
Commenters asked that Treasury adopt
a requirement that Treasury must
approve or deny any additional non-
public sector identified by the chief
executive of a recipient government
prior to implementation of the
recipient’s program.
Some commenters asked Treasury to
clarify whether their chief executive (or
equivalent) could designate particular,
and in some cases all, employees of the
recipient government as eligible for
premium pay.
Treasury Response: In the final rule,
Treasury will preserve the definition of
‘‘eligible worker’’ as it was defined in
the interim final rule with minor
modifications to clarify that all public
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Statistics, Occupational Outlook Handbook,
which provide information on which
professions or occupations are typically
included in interpretations of a sector, https://
www.bls.gov/ooh/.
265 Public sector workers are ‘‘eligible workers’’
under the interim final rule and final rule.
employees of recipient governments are
already included in the interim final
rule definition of ‘‘eligible worker.’’ A
more specific eligibility system (e.g.,
linking eligibility to specific
occupational or industry codes) would
have provided more certainty but would
have been much more rigid. In contrast,
the current definition is flexible enough
to give recipients the ability to tailor
their premium pay programs to meet
their needs while ensuring that
programs focus on sectors where
workers were forced to shoulder
substantial risk as a result of the
COVID–19 pandemic. Furthermore, the
critical infrastructure sectors defined in
the interim final rule already include
many of the occupations that
commenters requested be added. For
example, Treasury received many
comments from public workers asking
to be included in the definition of
‘‘eligible worker’’ even though these
workers already fall within the scope of
‘‘any work performed by an employee of
a State, local, or Tribal government.’’
Treasury has clarified in the final rule
that the chief executive’s discretion to
designate additional sectors as critical
relates only to ‘‘non-public’’ sectors,
since all public employees of recipient
governments are already included in the
definition of ‘‘eligible worker.’’ While
all such public employees are ‘‘eligible
workers’’ and the chief executive (or
equivalent) of a recipient government
may designate additional non-public
sectors as critical, in order to receive
premium pay, these workers must still
meet the other premium pay
requirements (e.g., performing essential
work).
Treasury recognizes that the list of
‘‘essential critical infrastructure sectors’’
includes both occupations and sectors.
Recipients, if uncertain which
occupations are included in a critical
infrastructure sector, may consult
government occupational classifications
if helpful but are not required to do
so.
264 Furthermore, a recipient
government does not need to submit to
Treasury for approval its designation of
a sector as essential critical
infrastructure; rather, Treasury will
defer to the reasonable interpretation of
the recipient government and the
discretion of the recipient’s chief
executive in making such designations.
If a recipient is unsure if a non-public
sector is covered by the definition in the
final rule,
265 the chief executive (or
equivalent) of a recipient government
may also identify the non-public sector
as critical so long as the chief executive
deems the non-public sector necessary
to protecting the health and wellbeing of
residents. Treasury has, where possible,
clarified the definition of ‘‘essential
critical infrastructure sectors.’’ For
instance, Treasury has clarified in the
final rule that work performed by an
employee of a Tribal government
includes an employee of a Tribal
enterprise and discussed in this
Supplementary Information how a
recipient may qualify other non-public
sectors as essential critical
infrastructure.
Essential Work
The interim final rule defined
‘‘essential work’’ as work that (1) is not
performed while teleworking from a
residence and (2) involves either (i)
regular, in-person interactions with
patients, the public, or coworkers of the
individual that is performing the work
or (ii) regular physical handling of items
that were handled by, or are to be
handled by, patients, the public, or
coworkers of the individual that is
performing the work. Treasury adopted
this definition of essential work to
ensure that premium pay is targeted to
workers that faced or face heightened
risks due to the character of their work
during a pandemic.
Public Comment: Some commenters
found the definition unclear and asked
Treasury to clarify what constitutes
‘‘essential work.’’ Others disagreed with
the essential work test altogether,
arguing that it forces recipients to
distinguish between essential and non-
essential employees, which may be
difficult to do. Accordingly, these
commenters asked Treasury to allow
recipients to determine which workers
qualify as essential. Treasury also
received several requests that specific
occupations be explicitly deemed
essential, including all public
employees, veterinarians, election
administrators, detention staff and
sheriff’s deputies, and employees of
utilities, such as electric power, natural
gas, steam supply, water supply, and
sewage removal.
Several commenters requested that
Treasury not distinguish between
remote and in-person work or amend
the standard so that employees
providing essential services would still
be eligible even if they worked
remotely. Finally, a few commenters
requested clarification as to the
definition of ‘‘regular’’ in-person
interactions and whether Treasury
could clarify which job functions merit
more (or less) premium pay.
Treasury Response: Treasury is
maintaining the definition of ‘‘essential
work’’ in the final rule without
modification. The test adopted in the
interim final rule was designed to
compensate workers facing
disproportionate risk due to the
pandemic. COVID–19 is transmitted
through person-to-person interactions,
and therefore, workers with regular in-
person interactions are the primary
group facing increased health risks.
Although COVID–19 is not transmitted
primarily by people handling items,
such work may present increased risk in
certain cases, and the final rule
maintains the interim final rule’s
inclusion of such work in order to give
recipient governments the flexibility to
include workers performing such work
as they determine appropriate. Changing
the test as some commenters suggested,
e.g., by eliminating the in-person work
requirement or allowing recipients to
designate which employees are
essential, even if not working in person,
would no longer focus the program on
workers taking on additional health
risks and instead allow premium pay to
be awarded to individuals who
experienced relatively little risk of
exposure to COVID–19. To maintain
flexibility, Treasury is not defining the
term ‘‘regular’’ with regard to in-person
interactions, allowing recipients to
develop programs based on the specific
workforce to be served and local
circumstances. Generally speaking,
however, recipients are encouraged to
consider an eligible worker’s risk of
exposure in designing premium pay
programs.
Respond To
As required by the ARPA, the interim
final rule required that premium pay
programs ‘‘respond to’’ eligible workers
performing essential work during the
COVID–19 public health emergency.
Premium pay responds to eligible
workers performing essential work if it
prioritizes low- and moderate-income
persons, given the significant share of
essential workers that are low- and
moderate-income and may be least able
to bear added costs associated with
illness. The level of the award limit—up
to $13 per hour not to exceed $25,000
in aggregate—in the ARPA supports this
reasoning.
Accordingly, the interim final rule
required written justification for how
premium pay to certain higher-income
workers responds to eligible workers
performing essential work: If a recipient
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Department of Labor, Overtime Pay Requirements of
the FLSA (Fact Sheet No. 23), https://www.dol.gov/
agencies/whd/fact-sheets/23-flsa-overtime-pay.
267 Department of Labor, Overtime Pay, https://
www.dol.gov/agencies/whd/overtime; see also 29
U.S.C. 207.
268 Among workers that report working overtime,
roughly 41–44 percent of workers earn above
$50,000 per year, which is slightly less than the
national average annual wage for all employees
according to the Bureau of Labor Statistics’
Occupational Employment and Wage Statistics,
available at https://www.bls.gov/oes/. See also U.S.
Census Bureau, Basic Monthly CPS, January 2019
through December 2019, available at https://
www.census.gov/data/datasets/time-series/demo/
cps/cps-basic.html. Notes: Annual earnings reflect
weekly wages multiplied by 52. Usual weekly
earnings are computed by BLS to include earnings
from work such as tips, overtime, regular wages,
etc., but not non-labor sources of income such as
government transfers and capital gains. Pre-
overtime earnings are computed by taking the
difference of usual weekly earnings and earnings
from overtime last week and multiplying by 52.
Note, some sources multiply weekly earnings by 50
instead of 52 to account for unpaid time off and
holidays, so these figures may be slightly larger
than those reported elsewhere. Either assumption
may overestimate earnings if workers do not work
year-round.
(or grantee) uses SLFRF funds to
provide premium pay to an employee
and the pay or grant would increase a
worker’s total pay above 150 percent of
their residing state or county’s average
annual wage for all occupations, as
defined by the BLS Occupational
Employment and Wage Statistics,
whichever is higher, on an annual basis,
then the recipient must provide,
whether for themselves or on behalf of
a grantee, written justification to
Treasury detailing how the award
responds to eligible workers performing
essential work.
Public Comment: Treasury received
numerous comments on the wage
threshold and the written justification
requirement. Several commenters
supported the threshold as a way to
encourage recipients to target premium
pay to lower-income, eligible workers.
Some commenters even asked Treasury
to make the wage threshold a firm
restriction, above which an eligible
worker could not receive premium pay.
Others agreed with the threshold but
also requested flexibility to use existing
worker classifications as an
administratively simple way to identify
workers for whom premium pay would
be responsive. For instance, a few
commenters asked Treasury to allow
recipients or grantees to presume that
premium pay ‘‘responds to’’ eligible
workers performing essential work
when it is provided to employees who
are not exempt from the Fair Labor
Standards Act (FLSA) overtime
provisions—a test that employers are
routinely required to apply.
266
In contrast, several commenters
disagreed with the threshold and the
requirement for written justification. A
few commenters thought the threshold
was too low to capture employees in
certain critical infrastructure sectors
(e.g., public safety, waste collection) and
that it did not sufficiently account for
the variance in economic need across
different geographic areas and family
structures. Some smaller communities
argued that the threshold was difficult
to calculate and apply.
Other commenters proposed revisions
for how the threshold is calculated. For
instance, a few commenters asked
Treasury to consider using alternative
earnings measures such as median
income. Similarly, another commenter
asked Treasury to consider the incomes
of workers with different levels of
seniority in developing any income
thresholds for permitting or reporting on
premium pay.
Finally, there was also some
uncertainty as to the threshold and the
requirement for written justification.
Some commenters interpreted the
threshold as a hard cap on who was
eligible for premium pay, which is not
the case. Relatedly, some commenters
also requested further guidance on what
recipients should include in the written
justification submitted to the Secretary.
Treasury Response: The final rule
makes some modifications to the
determination of when premium pay
‘‘responds to’’ eligible workers
performing essential work during the
public health emergency. Under the
interim final rule, premium pay was
responsive if either the workers’ pay
was below a wage threshold or, if the
pay was above a wage threshold, the
recipient submitted written justification
to Treasury explaining how the
premium pay was responsive. The final
rule retains these two means of
establishing premium pay in response to
workers performing essential work and
adds an additional means of
demonstrating that premium pay is
responsive. Under the final rule, a
recipient may also show that premium
pay is responsive by demonstrating that
the eligible worker receiving premium
pay is not exempt from the FLSA
overtime provisions.
267 This change will
expand the number of workers eligible
to receive premium pay
268 and does not
require recipients to provide written
justification to Treasury regarding the
workers who are not exempt from the
FLSA overtime provisions, making the
program easier to administer for
recipients. Incorporating this change
further simplifies application of the
final rule for recipients because
Treasury understands that most
employers, public and private, are
familiar with and are routinely required
to apply the FLSA.
With this addition, the final rule
provides that premium pay is
responsive to eligible workers
performing essential work during the
public health emergency if each eligible
worker who receives premium pay falls
into one of three categories: (1) The
worker’s pay is below the wage
threshold, (2) the worker is not exempt
from the FLSA overtime provisions, or
(3) the recipient has submitted a written
justification to Treasury.
The final rule makes it clear that
written justification to Treasury is not
necessary with respect to eligible
workers whose pay is less than the wage
threshold. Nor is written justification
necessary with respect to eligible
workers who are not exempt from the
FLSA overtime provisions. The written
justification is only necessary if the
worker’s pay (with or without the
premium) exceeds the threshold, and
the worker is exempt from the FLSA
overtime provisions. The final rule also
clarifies that a worker’s pay exceeds the
threshold if either the premium pay
increases the worker’s total pay above
the wage threshold or the worker’s total
pay was already above the threshold,
before receiving premium pay.
Treasury has also updated the final
rule to clarify that written justification
means a brief, written narrative
justification of how the premium pay or
grant is responsive to workers
performing essential work during the
public health emergency. This could
include a description of the essential
workers’ duties, health or financial risks
faced due to COVID–19, and why the
recipient determined that the premium
pay was responsive despite the workers’
higher income.
Recipients should refer to SLFRF
program reporting guidance, user
guides, and other documentation for
further guidance on the form and
content of the written justification.
Treasury anticipates that recipients will
easily be able to satisfy the justification
requirement for front-line workers, like
nurses and hospital staff.
Definition of Premium Pay
The statute defines premium pay as
‘‘an amount of up to $13 per hour ...,
in addition to wages or remuneration
the eligible worker otherwise receives,
for all work performed by the eligible
worker during the COVID–19 public
health emergency. Such amount may
not exceed $25,000 with respect to any
single eligible worker.’’ The interim
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one and one-half times the regular rate at which he
is employed.’’).
270 All recipients are required to comply with
otherwise applicable laws, including any wage and
hour requirements in the Fair Labor Standards Act.
See generally, Department of Labor, Wages and the
Fair Labor Standards Act, https://www.dol.gov/
agencies/whd/flsa.
271 In the second quarter of 2020, quarterly state
and local tax revenues as reported by the U.S.
Census Bureau fell 19 percent compared to the
second quarter of 2019; U.S. Census Bureau,
Quarterly Summary of State and Local Tax
Revenue, https://www.census.gov/programs-
surveys/qtax.html.
272 National Association of State Budget Officers,
Fiscal Survey of the States (Fall 2020), available at
https://higherlogicdownload.s3.amazonaws.com/
NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/
UploadedImages/Fiscal%20Survey/NASBO_Fall_
2020_Fiscal_Survey_of_States_S.pdf.
273 National League of Cities, City Fiscal
Conditions (2020), available at https://www.nlc.org/
wp-content/uploads/2020/08/City_Fiscal_
Conditions_2020_FINAL.pdf.
274 Surveys conducted by the Center for Indian
Country Development at the Federal Reserve Bank
of Minneapolis in March, April, and September
2020. Elijah Moreno & Heather Sobrepena, Tribal
entities remain resilient as COVID–19 batters their
finances, Federal Reserve Bank of Minneapolis
(Nov. 10, 2020), https://www.minneapolisfed.org/
article/2020/tribal-entities-remain-resilient-as-
covid-19-batters-their-finances.
final rule incorporated this definition
and emphasized that premium pay
should be in addition to compensation
typically received.
Public Comment: Several submitted
comments related to the definition of
‘‘premium pay.’’ Several commenters
asked Treasury to clarify certain aspects
of the interim final rule and statutory
definition of premium pay. For instance,
a few commenters asked whether the
$25,000 limit applies to the annual
amount of premium pay received or the
aggregate amount of premium pay
received over the period of performance.
A few commenters requested flexibility
as to how premium pay may be
awarded, including flexibility to make
monthly or quarterly payments or lump
sum payments. Finally, commenters
requested additional clarification as to
how premium pay should be calculated.
For instance, a commenter asked how to
calculate the amount of and account for
overtime pay and other incentive
pay.
269
Treasury Response: Treasury has
clarified some of these issues in the
final rule. For example, Treasury has
clarified in the final rule that the
$25,000 per employee limit is for the
entire period of performance, not an
annual cap. Further, recipients have
discretion with respect to the way in
which premium pay is awarded to
eligible workers (e.g., monthly,
quarterly, lump sum), provided that the
total premium pay awarded to any
eligible worker does not exceed $13 per
hour or $25,000 over the period of
performance. Finally, a recipient may
award premium pay to an eligible
worker in addition to the overtime pay
already earned by the eligible worker
but in no instance may the portion of
the compensation funded with SLFRF
funds exceed $13 per hour, even if strict
time-and-a-half calculation requires
more.
270 To the extent that an employer
is required under the FLSA to make
payments to an eligible worker in excess
of $13 per hour or $25,000 in the
aggregate over the period of
performance, the employer must use a
source of funding other than the SLFRF
funds to satisfy those obligations.
Program Structure
Public Comment: Several commenters
also requested elaboration on eligible
types of employees and permissible
structures for awarding premium pay. A
few commenters asked if premium pay
could be awarded to volunteers or those
in irregular and non-hourly or salaried
employment positions. Similarly,
various commenters asked if part-time
workers were eligible for premium pay.
Some commenters asked Treasury to
provide more detail on when premium
pay may be paid retroactively or if a
government could reimburse its general
fund for hazard pay already paid before
the start of the period of performance.
Treasury Response: Treasury has also
made clear in the final rule that a
recipient may award premium pay to
non-hourly or salaried workers as well
as part-time workers. Premium pay may
not, however, be awarded to volunteers.
If a recipient is interested in
compensating volunteers with SLFRF
funds, then it must do so consistent
with the requirements set forth in other
eligible use categories; for example, see
section Public Sector Capacity and
Workforce in Public Health and
Negative Economic Impacts.
Under the final rule, recipients may
award premium pay retroactively;
however, SLFRF funds may not be used
to reimburse a recipient or eligible
employer grantee for premium pay or
hazard pay already received by the
employee. To make retroactive premium
payments funded with SLFRF funds, a
recipient or eligible employer grantee
must make a new cash outlay for the
premium payments and the payments
must be in addition to any wages or
remuneration the eligible worker
already received, subject to the other
requirements and limitations set forth in
the ARPA and this final rule.
Finally, as part of accepting the
Award Terms and Conditions for
SLFRF, each recipient agreed to
maintain a conflict-of-interest policy
consistent with 2 CFR 200.318(c) that is
applicable to all activities funded with
the SLFRF award. This award term
requires recipients and subrecipients to
report to Treasury or the pass-through
agency, as appropriate, any potential
conflict of interest related to the award
funds per 2 CFR 200.112. Pursuant to
this policy, decisions concerning SLFRF
funds must be free of undisclosed
personal or organizational conflicts of
interest, both in fact and in appearance.
Consistent with this policy, elected
officials are prohibited from using their
official position and control over SLFRF
funds for their own private gain. This
policy also prohibits, among other
things, elected officials from steering
funds to projects in which they have a
financial interest or using funds to pay
themselves premium pay.
C. Revenue Loss
Background
Sections 602(c)(1)(C) and 603(c)(1)(C)
of the Social Security Act provide that
SLFRF funds may be used ‘‘for the
provision of government services to the
extent of the reduction in revenue of
such . . . government due to the
COVID–19 public health emergency
relative to revenues collected in the
most recent full fiscal year of the . . .
government prior to the emergency.’’
This provision allows recipients
experiencing budget shortfalls to use
payments from the SLFRF funds to
avoid cuts to government services and,
thus, enables state, local, and Tribal
governments to continue to provide
valuable services and ensures that fiscal
austerity measures do not hamper the
broader economic recovery.
State and local government budgets
experienced stress in fiscal year 2020 as
delayed tax filings and pandemic-
related business closures caused
revenues to decline sharply.
271 Twenty-
two state governments took actions to
close budget gaps in fiscal year 2020
272
and nearly 80 percent of cities reported
being less able to meet the fiscal needs
of their communities relative to fiscal
year 2019.
273 Surveys of Tribal
governments and Tribal enterprises
conducted in 2020 found majorities of
respondents reporting substantial cost
increases and revenue decreases, with
Tribal governments reporting reductions
in health care, housing, social services,
and economic development activities as
a result of reduced revenues.
274
The economic recovery, aided by the
broad distribution of COVID–19
vaccines and the deployment of federal
stimulus, has led to a strong rebound in
total state and local government revenue
and is contributing to a brighter fiscal
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Local Tax Revenue, U.S. Census Bureau, supra note
271.
276 National League of Cities, City Fiscal
Conditions (2021), available at https://www.nlc.org/
wp-content/uploads/2021/10/2021-City-Fiscal-
Conditions-Report-2021.pdf.
277 Center for Indian Country Development and
Federal Reserve Bank of Minneapolis, One Year
Into COVID–19, Pandemic’s Negative Effects Persist
in Indian Country (May 2021), available at https://
www.minneapolisfed.org/article/2021/one-year-
into-covid-19-pandemics-negative-effects-persist-in-
indian-country.
278 See, e.g., Nora Fitzpatrick et al., Fiscal Drag
from the State and Local Sector?, Liberty Street
Economics Blog, Federal Reserve Bank of New York
(June 27, 2012), https://libertystreeteconomics.
newyorkfed.org/2012/06/fiscal-drag-from-the-state-
and-local-sector.html; Jiri Jonas, Great Recession
and Fiscal Squeeze at U.S. Subnational Government
Level, IMF Working Paper 12/184, (July 2012),
available at https://www.imf.org/external/pubs/ft/
wp/2012/wp12184.pdf; Gordon, supra note 16.
279 State and local government general revenue
from own sources, adjusted for inflation using the
Bureau of Economic Analysis’ implicit price
deflator for GDP. U.S. Census Bureau, Annual
Survey of State Government Finances and U.S.
Bureau of Economic Analysis, National Income and
Product Accounts, https://www.census.gov/
programs-surveys/gov-finances.html.
280 U.S. Bureau of Labor Statistics, All Employees,
State Government [CES9092000001] and All
Employees, Local Government [CES9093000001],
retrieved from FRED, Federal Reserve Bank of St.
Louis, https://fred.stlouisfed.org/series/
CES9092000001 and https://fred.stlouisfed.org/
series/CES9093000001.
281 Pew Research, State and Local Government
Job Growth Lags as Economy Recovers (September
2021), available at https://www.pewtrusts.org/en/
research-and-analysis/articles/2021/09/14/state-
and-local-government-job-growth-lags-as-economy-
recovers.
282 At the time the interim final rule was
published, the average annual growth across all
state and local government ‘‘General Revenue from
Own Sources’’ in the most recent three years of
available data (2015–2018) was 4.1%, which was
presented as one option for the growth adjustment.
Since the interim final rule was published, 2019
data has been made available, which increases this
rate to 5.2%. The final rule updates the percentage
to 5.2%, as shown in Step 2.
283 As explained below, in the final rule,
recipients must adjust actual revenue amounts
based on certain tax policy changes.
outlook for most jurisdictions as
compared to the earlier months of the
public health emergency. For the fiscal
year ending June 30, 2021, total state
and local government tax revenues
increased 21 percent relative to the
same period in 2020, reflecting the
combined impact of the modified tax
filing deadline in 2020 and an
improving economy.
275 However,
despite a stable budget situation overall,
many governments face uncertainty as
the COVID–19 pandemic continues to
impact commuting patterns, hospitality
and tourism, and other drivers of
jurisdictions’ economies. Thirty-five
percent of cities still report being less
able to meet financial needs than in
fiscal year 2020,
276 and over half of
surveyed Tribal governments and Tribal
enterprises reported losing at least 40
percent of their revenue since the start
of the pandemic.
277 Budget challenges
persist as governments work to mitigate
and contain COVID–19 and help
citizens weather the economic
downturn.
State, local, and Tribal government
budgets affect the broader economic
recovery. During the period following
the 2007–2009 recession, state and local
government budget pressures led to
fiscal austerity that was a significant
drag on the overall economic
recovery.
278 Inflation-adjusted state and
local government revenue did not return
to the previous peak until 2013,
279
while employment in the sector
returned to the previous peak in August
2019, nearly a decade later.
280 Just
months after recouping losses from the
previous downturn, the COVID–19
pandemic caused state and local
government employment to contract
again, but this time more sharply: By
May 2020, state and local government
payrolls fell 7.7 percent compared to
February 2020. Despite improvement,
non-federal public sector job growth
continues to lag behind the rest of the
U.S. labor market recovery.
281
Summary of Interim Final Rule
As stated above, the Social Security
Act provides that SLFRF funds may be
used ‘‘for the provision of government
services to the extent of the reduction in
revenue of such . . . government due to
the COVID–19 public health emergency
relative to revenues collected in the
most recent full fiscal year of the . . .
government prior to the emergency.’’
The interim final rule provided a
formula for calculating revenue loss
through a four-step process:
• Step 1: Identify revenues collected
in the most recent full fiscal year prior
to the public health emergency (i.e., last
full fiscal year before January 27, 2020),
called the base year revenue.
• Step 2: Estimate counterfactual
revenue, which is the amount of
revenue the recipient would have
expected in the absence of the downturn
caused by the pandemic. The
counterfactual revenue is equal to base
year revenue * [(1 + growth adjustment)
∧ (n/12)], where n is the number of
months elapsed since the end of the
base year to the calculation date, and
growth adjustment is the greater of the
average annual growth rate across all
State and Local Government ‘‘General
Revenue from Own Sources’’ in the
most recent three years prior to the
emergency, 5.2 percent, or the
recipient’s average annual revenue
growth in the three full fiscal years prior
to the COVID–19 public health
emergency.
282 This approach to the
growth rate provides recipients with the
option to use a standardized growth
adjustment when calculating the
counterfactual revenue trend and thus
minimizes administrative burden, while
not disadvantaging recipients with
revenue growth that exceeded the
national average prior to the COVID–19
public health emergency by permitting
these recipients to use their own
revenue growth rate over the preceding
three years.
• Step 3: Identify actual revenue,
283
which equals revenues collected over
the twelve months immediately
preceding the calculation date.
• Step 4: The extent of the reduction
in revenue is equal to counterfactual
revenue less actual revenue. If actual
revenue exceeds counterfactual revenue,
the extent of the reduction in revenue is
set to zero for that calculation date.
For illustration, consider a
hypothetical recipient with base year
revenue equal to 100 (Step 1) that ends
on June 30, 2019. In Step 2, the
hypothetical recipient finds that the
average annual growth across all state
and local government ‘‘General Revenue
from Own Sources’’ in the most recent
three years of available data, 5.2
percent, is greater than the recipient’s
average annual revenue growth in the
three full fiscal years prior to the public
health emergency. In this illustration, n
(months elapsed) and counterfactual
revenue would be equal to:
As of: 12/31/2020 12/31/2021 12/31/2022 12/31/2023
n (months elapsed) .......................................................................................... 18 30 42 54 Counterfactual revenue: .................................................................................. 107.9 113.5 119.4 125.6 VerDate Sep<11>2014 19:24 Jan 26, 2022 Jkt 256001 PO 00000 Frm 00065 Fmt 4701 Sfmt 4700 E:\FR\FM\27JAR2.SGM 27JAR2lotter on DSK11XQN23PROD with RULES2 4402 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations The figure below illustrates the
reduction in revenue for the
hypothetical recipient calculated in
accordance with the methodology.
Finally, as explained in greater detail
below, the clear meaning of the
statutory phrase ‘‘due to the COVID–19
public health emergency’’ is that it is
referring to revenue reductions caused
by the public health emergency. As
such, it does not include revenue
reduced for reasons other than the
public health emergency. Treasury in
the interim final rule presumed that any
reduction in revenue relative to the
counterfactual estimate would be
considered revenue lost due to the
pandemic and thereby relieved
recipients of the administrative burden
of determining the extent to which
reduction in revenue was due to the
public health emergency. The
calculation methodology in the interim
final rule implicitly assumed that
recipients did not suffer a loss in
revenue due to the public health
emergency if they did not experience a
reduction in aggregate revenue
compared to the counterfactual
estimate. The interim final rule invited
comments on whether Treasury should
revise its presumption to ‘‘take into
account other factors, including actions
taken by the recipient as well as the
expiration of the COVID–19 public
health emergency, in determining
whether to presume that revenue losses
are ‘due to’ the COVID–19 public health
emergency.’’
Treasury received a substantial
number of comments on the revenue
loss provisions set forth in the interim
final rule. These comments largely
pertained to the following topics: The
overall methodology for calculating
revenue loss; the definition of
‘‘revenue’’; whether revenue should be
aggregated or calculated on some
alternative basis (e.g., source-by-source
or fund-by-fund); the appropriate
calculation dates (i.e., fiscal year or
calendar year); the presumption that all
revenue loss is due to the pandemic; the
base year; and the definition of
‘‘government services.’’
Overall Methodology for Calculating
Revenue Loss
As noted above, the interim final rule
provided a formula for recipients to
calculate revenue loss by comparing
actual revenues received during a given
time-period with a counterfactual
amount of revenue based on revenues in
the base year and an adjustment for
expected growth in revenue each year.
Public Comment: Treasury received
many public comments on the overall
methodology for calculating revenue
loss. Some recipients, including smaller
governments, have expressed concern
regarding the burden associated with
the calculation of revenue loss,
particularly the burden involved in
calculating the amount of general
revenue, given that the definition of
general revenue in the interim final rule
does not always align with the
definition of revenue already calculated
by recipients for other purposes, and
requested clarifications regarding a
number of components, including the
definition of revenue. Commenters also
asked for clarification on the
relationship between revenue loss
calculations across different calculation
dates. Other commenters argued that the
revenue loss formula does not precisely
capture the nuances of local revenues or
their particular situation. For example,
some commenters stated that requiring
that revenues be aggregated fails to
capture decreases in revenue sources
that cannot easily be made up for with
other revenue sources.
Treasury Response: In the final rule,
Treasury is largely maintaining the
revenue loss formula as set forth in the
interim final rule. To address comments
that the formula for calculating revenue
loss was difficult to apply, Treasury is
including an option for recipients to use
a standard allowance for revenue loss.
Specifically, in the final rule, recipients
will be permitted to elect a fixed
amount of loss that can then be used to
fund government services. This fixed
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•Actual Revenue
•Extent of reduction in revenue
130
•Base year revenue
120 ..... counterfactual revenue
110
100
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4403 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 284 Because the Census Bureau’s state and local
government tax revenue data is reported on a
quarterly frequency, fiscal base year end dates of
March 31, June 30, September 30, and December 31
were used in this assessment.
285 Annual Survey of State and Local Government
Finances (2019).
286 This is the range of averages that Treasury
calculated by varying the aforementioned
assumptions.
287 See, e.g., Government Accountability Office,
State and Local Governments: Fiscal Conditions
During the COVID–19 Pandemic in Selected States
(July 2021) (noting that ‘‘[s]tate and local
government revenues partly depend on the overall
economy, and actions to stem the spread of the
virus drastically reduced economic activity.’’);
Board of Governors of the Federal Reserve System,
Monetary Policy Report (July 9, 2021) (noting that
the pandemic ‘‘pushed down state and local
government tax collections’’ and that while some of
the drag is ‘‘abating’’ state and local ‘‘government
payrolls . . . have only edged up from their lows
at the onset of the pandemic’’).
288 Local government tax revenue data in the
Census Bureau’s Quarterly Summary of State and
Local Tax Revenue, supra note 271, is provided on
an aggregated basis.
289 The Department also released guidance
clarifying how a recipient may determine whether
a particular entity is ‘‘part of the recipient’s
government.’’ See FAQ 3.14. Coronavirus State and
Local Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://home.
treasury.gov/system/files/136/SLFRPFAQ.pdf.
amount, referred to as the ‘‘standard
allowance,’’ is set at up to $10 million
total for the entire period of
performance not to exceed the
recipient’s SLFRF award amount.
Although Treasury anticipates that this
standard allowance will be most helpful
to smaller local governments and Tribal
governments, any recipient can use this
standard allowance instead of
calculating revenue loss pursuant to the
formula above, so long as recipients
employ a consistent methodology across
the period of performance (i.e., choose
either the standard allowance or the
regular formula). Treasury intends to
amend its reporting forms to provide a
mechanism for recipients to make a one-
time, irrevocable election to utilize
either the revenue loss formula or the
standard allowance.
The $10 million level is based on
average revenue loss across state and
local governments, taking into
consideration potential variation in
revenue types and losses and continued
uncertainty faced by many recipients
regarding revenue shortfalls. To
calculate this estimate, Treasury applied
a variation of the final rule’s revenue
loss calculation on available aggregate
state and local government tax revenue
data as reported by the Census Bureau
for the first calculation date of
December 31, 2020. This estimate
accounts for expected variation across
recipient experiences and reflects the
fact that the final rule revenue loss
calculation provides recipients several
options for specific aspects (e.g.,
calendar year or fiscal year basis; use of
average state and local revenue growth
rate or specific local rate). Treasury
compared actual calendar year 2020 tax
revenues, in aggregate for all state and
local governments, to several
counterfactual trends that vary based on
the end date of the fiscal base year.
284
Treasury also assessed counterfactual
trends using different revenue growth
rates (e.g., the three-year average growth
rates of total state and local government
general revenue for both fiscal years
ending in 2016–2018 and fiscal years
ending in 2017–2019; the three-year
average growth rates of total state and
local government tax revenues for fiscal
years ending in 2017–2019; and the one-
year growth rate for total state and local
government tax revenue in the last full
fiscal year before the public health
emergency). To account for the fact that
the initial estimate, based on tax
revenue, only includes a subset of
recipient aggregate general revenue,
Treasury applied a scaling factor to
recognize that tax revenues generally
make up just over half of general
revenue collected by state and local
governments (i.e., Treasury scaled up its
estimate based on tax revenue to
produce an estimate for total general
revenue).
285 The resulting calculation
was then extrapolated over the four-year
period of performance and divided by a
population of interest to arrive at an
average loss estimate.
As noted above, Treasury estimated a
range of scenarios to account for
different values of the variables that
would impact average losses. For
example, the end date of the fiscal base
year and growth rate of counterfactual
revenue impact the overall estimate of
revenue loss. In addition, this estimate
takes into consideration the limitations
in the available data. The governments
covered by the Census Bureau’s survey
do not entirely align with SLFRF
recipients. The Census Bureau’s figures
are based on 50 state governments, all
local government property tax collectors
and local government non-property tax
imposers, representing at a minimum
the more than 38,000 ‘‘General Purpose
Governments’’ defined by Census.
However, there are only roughly 32,000
recipients of SLFRF funds. Thus,
Treasury considered the difference
between the number and type of entities
in the Census Bureau data and the
SLFRF recipients.
Based on this methodology, Treasury
estimates that average revenue loss
(determined by comparing the
counterfactual revenue to actual
revenue) may range from $0 to $11.7
million per recipient over the period of
performance.
286 Treasury settled on a
point estimate toward the upper end of
the range of potential averages, in part,
to account for significant variation in
the experiences of recipient
governments: Some recipients likely
experienced losses at the upper end of
this range of potential averages. A point
estimate toward the upper end of the
range errs toward ensuring more
recipients’ experiences are covered and
increases the utility of the standard
allowance for SLFRF recipients.
Specifically, the program includes a
very large number of recipients with
relatively smaller awards; these
recipients have tended to describe
having greater difficulty completing the
regular revenue loss calculation. Thus,
selecting a point estimate toward the
higher end of the expected range not
only increases the likelihood that the
standard allowance will reflect the
experience of a larger number of SLFRF
recipients but is more responsive to the
comments of those with smaller awards.
In addition, using a point estimate
toward the upper end of the range
accounts for the difficulty and
uncertainty in predicting revenue losses
years into the future, throughout the
period of performance.
287
Finally, Treasury selected a single
allowance level, as opposed to varying
levels, to further the goals of simplicity,
flexibility, and administrability.
Furthermore, data limitations make it
difficult to distinguish between types of
local governments.
288
General Revenue
The interim final rule adopted a
definition of ‘‘general revenue’’ based
largely on the components reported
under ‘‘General Revenue from Own
Sources’’ in the Census Bureau’s Annual
Survey of State and Local Government
Finances. Under the interim final rule,
general revenue included revenue
collected by a recipient and generated
from its underlying economy, and it
would capture a range of different types
of tax revenues, as well as other types
of revenue that are available to support
government services.
289 Specifically,
revenue under the interim final rule
included money that is received from
tax revenue, current charges, and
miscellaneous general revenues and
excluded refunds and other correcting
transactions, proceeds from issuance of
debt or the sale of investments, agency
or private trust transactions, revenue
from utilities, social insurance trust
revenues, and intergovernmental
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revenue’’ and ‘‘tax revenue’’ excludes refunds and
other correcting transactions. Instead of
‘‘excluding’’ refunds and other correcting
transactions, the Census Bureau methodology upon
which those definitions are based provides that
general revenue and tax revenue are determined
‘‘net of’’ refunds and other correcting transactions.
The use of ‘‘excluding’’ in the interim final rule is
substantively the same as the Census Bureau
methodology. However, to be consistent with the
terminology used by the Census Bureau, the final
rule uses ‘‘net of’’ instead of ‘‘excluding.’’ Current
charges are defined as ‘‘charges imposed for
providing current services or for the sale of
products in connection with general government
activities.’’ It includes revenues such as public
education institution, public hospital, and toll
revenues. Miscellaneous general revenue comprises
of all other general revenue of governments from
their own sources (i.e., other than utility and
insurance trust revenue), including rents, royalties,
lottery proceeds, and fines.
291 The interim final rule excluded governmental
transfers from the Federal Government, but it did
not exclude intergovernmental transfers from other
governmental units for purposes of the revenue loss
provisions.
292 U.S. Energy Information Administration,
Annual Electric Utility Data (October 2021),
available at https://www.eia.gov/electricity/sales_
revenue_price/.
293 FAQ 3.14 provides further guidance on how
to determine what entities constitute a government
for purposes of calculating revenue loss. See
Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, as of July 19, 2021;
https://home.treasury.gov/system/files/136/
SLFRPFAQ.pdf.
transfers from the federal government,
including transfers made pursuant to
section 9901 of the ARPA.
290 In the case
of Tribal governments, it also included
revenue from Tribal business
enterprises.
Public Comment: Many commenters
asked Treasury to include certain items
in the definition of ‘‘general revenue.’’
For instance, several commenters that
operate their own utilities asked that
revenue from utilities be included,
arguing that declines in utility revenue
directly affect contributions to their
general funds. Many of these
commenters noted that moratoriums on
utility shutoffs and a decline in
collections have resulted in significant
budgetary pressures.
Some commenters also asked for the
exclusion of certain intergovernmental
transfers in the definition of general
revenue, including transfers of shared
revenue from the state.
291 Other
commenters asked for the inclusion of
certain transfers from the federal
government, including fees paid for
services and grants that are, in effect,
paid for the provision of services.
Treasury also received multiple
requests to include revenue from Tribal
enterprises in the definition of ‘‘general
revenue’’ and that ‘‘Tribal enterprise’’ be
defined broadly. Others asked for the
ability to choose whether to include
revenue from Tribal enterprises.
Finally, some commenters requested
that the definition of general revenue
exclude certain sources of revenue, such
as revenue sources that do not support
a general fund (i.e., revenue sources that
are restricted in use). Commenters also
asked that general revenue exclude
revenue from special assessments,
settlements that make the recipient
whole for past expenditures, and one-
time revenues such as revenue from the
sale of property.
Treasury Response: In the final rule,
Treasury has maintained the definition
of ‘‘general revenue’’ from the interim
final rule with two exceptions.
Treasury has adjusted the definition
to allow recipients that operate utilities
that are part of their own government to
choose whether to include revenue from
these utilities in their revenue loss
calculation. This change responds to
comments from recipients indicating
that revenue from utilities is used to
fund other government services and that
utility revenues have declined on
aggregate.
292 This approach is consistent
with other eligible uses, which
recognize decreased ability of many
households to make utility payments;
see section Assistance to Households,
which identifies utility assistance as an
enumerated eligible use of funds,
including through direct or bulk
payments to utilities for consumer
assistance. Furthermore, for utilities or
other entities (e.g., certain service
districts) that are not part of the
recipient government, a transfer from
the utility to the recipient constitutes an
intergovernmental transfer and therefore
is included in the definition of ‘‘general
revenue.’’
293
Treasury has also added liquor store
revenue to the definition of general
revenue. The Supplemental Information
to the interim final rule stated that the
definition of tax revenue would include
liquor store revenue, but the text of the
rule did not include it. Accordingly, in
the final rule, Treasury is clarifying that
revenue includes liquor store revenue.
However, Treasury believes revenue
from government-owned liquor stores is
better classified as general revenue than
it is as tax revenue, so the final rule
includes it as part of general revenue.
In response to requests that the
definition of general revenue exclude
revenue from special assessments,
settlements that make the recipient
whole for past expenditures, and one-
time revenues such as revenue from the
sale of property, Treasury is maintaining
its position in the final rule that such
revenue is included in general revenue.
While such revenues may be less
predictable than other sources of
revenue (e.g., property taxes), these are
not uncommon sources of revenue for
recipients, and their inclusion provides
a more complete view of the financial
health of a recipient government and is
consistent with the Census Bureau
methodology. Treasury is also
maintaining the exclusion of all
payments from the federal government
(including payments for services) from
general revenue in order to avoid
substantial dilution of the definition of
revenue, particularly in light of
extraordinary fiscal support provided
during the pandemic. Treasury is
maintaining the inclusion of
intergovernmental transfers other than
from the federal government for the
reasons provided in the Supplemental
Information to the interim final rule; to
do otherwise would be to significantly
distort the revenue calculations for local
governments that regularly receive
revenue sharing payments, for example,
from their state governments. Treasury
is also maintaining the approach that
‘‘general revenue’’ includes revenue
from Tribal enterprises. This approach
recognizes that these enterprises often
form the revenue base for Tribal
governments’ budgets.
To ease the burden on recipients and
account for anomalous variations in
revenue, as mentioned above, Treasury
has incorporated a ‘‘standard
allowance’’ option into the final rule. A
recipient may choose to use the
standard allowance, which under the
final rule is set at up to $10 million, not
to exceed the recipient’s SLFRF award
amount, as an alternative to calculating
revenue loss according to the formula
described above. This addition will
promote administrative efficiency and
simplify the revenue loss calculation for
the vast majority of recipients. Treasury
intends to amend its reporting forms to
provide a mechanism for recipients to
elect to utilize either the revenue loss
formula or the standard allowance, in
addition to other changes made as part
of the final rule.
Aggregate Revenue Loss Calculation
Under the interim final rule, revenue
loss was calculated based on aggregate
revenues and therefore loss in one type
of revenue could be offset by gains in
another. The amount of SLFRF funds
available to provide government
services was based on overall net
revenue loss. In the Supplementary
Information to the interim final rule,
Treasury asked commenters to discuss
the advantages and disadvantages of,
and any potential concerns with, this
approach, including circumstances in
which it could be necessary or
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revenue by source.
Public Comment: Treasury received
many comments stating that revenue
loss should be calculated on a source-
by-source basis. Some commenters
argued that a source-by-source approach
would be administratively simpler.
Other commenters argued that
calculating revenue loss source-by-
source would better reflect the impact of
the COVID–19 pandemic on their ability
to fund government services because
revenue gains in one source cannot
always be used to make up for losses in
another. For similar reasons, other
commenters asked that revenue loss be
calculated on a fund basis.
Treasury Response: Treasury
considered alternative methods (e.g.,
source-by-source, fund-by-fund) but
ultimately determined to maintain the
calculation of revenue loss in the
aggregate. The pandemic has had
different effects on recipients (and their
revenues), and Treasury recognized that
one particular type of revenue or one
particular source may have experienced
a greater amount of loss for some
recipients. However, the statute refers
only to ‘‘the reduction in revenue of
such State, local government, or Tribal
government.’’ The statute is thus clear
that Treasury is to refer to the aggregate
revenue reduction of the recipient due
to the public health emergency. Further,
this provision is designed to address
declines in the recipients’ overall ability
to pay for governmental services, and
calculating revenue loss on an aggregate
basis provides a more accurate
representation of the effect of the
pandemic on overall revenues and the
fiscal health of the recipient. In many
circumstances, recipient governments
have flexibility to use revenues from an
array of sources and offset declines in
some sources with gains in others.
While the details and configuration of
this flexibility vary widely across
recipient governments, calculating
revenue loss on a source-by-source or
fund-by-fund basis would not capture
how recipient governments balance
their budgets in the regular course of
business. Accordingly, the final rule
maintains the requirement that revenue
loss is to be calculated on an aggregate
basis.
Calculation Dates
Public Comment: Under the interim
final rule, recipients calculate revenue
loss as of the end of the calendar year.
Treasury received many comments
requesting that recipients be permitted
to calculate revenue loss as of the end
of their fiscal year. Commenters argued
that doing so would be simpler and less
burdensome on recipients and that
financial data as of the end of the fiscal
year is audited and therefore more
reliable. Commenters also argued that
recipients’ fiscal years are structured
around the timing of major revenue
sources, and that the Census Bureau
uses fiscal years in its Annual Survey.
Treasury also received comments
about the use of multiple calculation
dates. Several Tribal governments stated
that they would not see ongoing revenue
losses due to the COVID–19 public
health emergency and asked to be able
to determine revenue loss as of the first
calculation date. Several commenters
asked whether revenue loss is
determined independently for each
year, so that a gain in one year does not
offset a loss in another, or whether
revenue loss is cumulative from the
beginning of the pandemic.
Treasury Response: In the final rule,
Treasury has made adjustments to give
recipients more flexibility with respect
to calculation dates and to clarify
certain elements. Specifically, the final
rule provides recipients the option to
choose whether to calculate revenue
loss on a fiscal year or calendar year
basis, though they must choose a
consistent basis for loss calculations
throughout the period of performance.
Treasury has also clarified in the final
rule that revenue loss is calculated
separately for each year such that the
calculation of revenue lost in one year
does not affect the calculation of
revenue lost in prior or future years.
Presumption That Revenue Loss Is Due
to the Pandemic
As stated above, sections 602(c)(1)(C)
and 603(c)(1)(C) of the Social Security
Act provide that SLFRF funds may be
used ‘‘for the provision of government
services to the extent of the reduction in
revenue of such . . . government due to
the COVID–19 public health emergency
relative to revenues collected in the
most recent full fiscal year of the . . .
government prior to the emergency.’’ As
discussed in the interim final rule,
although revenue may decline for
reasons unrelated to COVID–19, in order
to minimize the administrative burden
on recipients in calculating revenue loss
and take into consideration the
devastating effects of the COVID–19
public health emergency, any reduction
in revenue relative to the counterfactual
estimate was presumed in the interim
final rule to be considered revenue lost
due to the pandemic.
Treasury stated in the Supplementary
Information to the interim final rule that
it was considering when, if ever, during
the period of performance it would be
appropriate to reevaluate the
presumption that all losses are
attributable to the public health
emergency. Treasury also sought
comment on whether to take into
account other factors, including actions
taken by the recipient as well as the
expiration of the COVID–19 public
health emergency, in determining
whether to presume that revenue losses
are ‘‘due to’’ the COVID–19 public
health emergency.
Public Comment: Treasury received
many comments in support of the
presumption, as well as some opposed.
Some commenters argued that the
presumption eases the administrative
burden on recipients because, without
it, it would be difficult to identify which
losses are attributable to the COVID–19
public health emergency. Many
commenters also argued that Treasury
should maintain the presumption
because recipients are likely to
experience losses due to the public
health emergency even after the end of
the public health emergency. Treasury
also received comments asking that it
adjust any revenue loss calculation to
account for tax changes enacted by the
recipient. In particular, some
commenters noted that some recipients
had increased taxes in order to meet
additional demands for government
services or to address declines in
revenue due to the pandemic. These tax
increases have in some cases offset some
or all of the actual revenue loss
attributable to the public health
emergency. Because the interim final
rule calculates revenue loss by reference
to actual revenue collected, commenters
argued that the calculation of revenue
loss ‘‘due to’’ the public health
emergency needs to take into
consideration the effects of tax increases
by deducting the effect of these tax
increases from actual revenue collected.
Treasury Response: In the final rule,
Treasury has maintained the
presumption that a reduction in a
recipient’s revenue is due to the public
health emergency with certain
adjustments to respond to comments
and to better account for revenue loss
‘‘due to the COVID–19 public health
emergency.’’ The final rule makes
adjustments to the presumption to take
into account certain government actions
to change tax policy. In particular,
Treasury is adjusting the presumption to
account for changes to tax policy by
providing that changes in revenue that
are caused by tax increases or decreases
adopted after the issuance of the final
rule will not be treated as due to the
public health emergency.
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Social Security Act (appropriating the funds for
payment to recipients in order to ‘‘mitigate the
fiscal effects stemming from the public health
emergency’’).
295 U.S. Postal Service v. Postal Regulatory
Comm’n, 640 F.3d 1263 (D.C. Cir. 2011); see Kimber
v. Thiokol Corp., 196 F.3d 1092, 1100 (10th Cir.
1999); Adams v. Director, OWCP, 886 F.2d 818, 821
(6th Cir. 1989).
296 Treasury considered whether to also eliminate
the presumption with respect to losses resulting
from other changes in policy, such as decreases in
user fees or fines. However, the effects of these
changes are more minor overall and would be more
challenging to accurately identify and quantify, so
the administrability benefit of the presumption for
recipients outweighs whatever distortion there
might be as a result of not reflecting such changes.
297 See generally, National Association of State
Budget Officers, Budget Processes in the States,
(2021), available at https://higherlogicdownload.
s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-
b750-0fca152d64c2/UploadedImages/Budget%20
Processess/NASBO_2021_Budget_Processes_in_the_
States_S.pdf.
Presumption of Revenue Loss ‘‘Due To’’
the Pandemic
In enacting sections 602(c)(1)(C) and
603(c)(1)(C) of the Social Security Act,
Congress provided that a state, local
government, or Tribal government could
use funds to ‘‘cover costs . . . for the
provision of government services,’’ but
only ‘‘to the extent of the reduction in
revenue . . . due to the COVID–19
public health emergency relative to
revenues collected in the most recent
full fiscal year . . . prior to the
emergency.’’ In doing so, Congress
recognized that the pandemic was
causing significant disruption to
economic activity and sought to
minimize the impact of associated
revenue losses on the ability of the
recipient to provide government
services when such services were
needed most.
294 The text of the statute
itself reinforces this important context:
The law specifically limits funds to
cover revenue losses that both are ‘‘due
to the COVID–19 public health
emergency’’ and could impact ‘‘the
provision of government services.’’
Courts have recognized that the
phrase ‘‘due to’’ can refer to various
causal standards.
295 Here, in the context
of Congress’s addressing economic
disruptions caused by the COVID–19
pandemic that could impact both
revenues and government services, the
key consideration is whether a revenue
loss experienced by the recipient
resulted from the exogenous impacts of
the public health emergency (and were
thus ‘‘due to’’ the pandemic) or instead
from the recipient’s own discretionary
actions (and, in this context, were not
‘‘due to’’ the pandemic). Reductions in
revenue due to the public health
emergency does not cover revenue
reductions that resulted from a
recipient’s own discretionary actions.
In the interim final rule, Treasury
included a presumption that all revenue
loss is due to the pandemic in order to
minimize the administrative burden on
recipients discussed above and take into
consideration the devastating effects of
the COVID–19 public health emergency.
Based on comments, Treasury believes
that the reasons for the presumption
continue to be valid and has determined
to maintain the presumption in the final
rule with certain modifications. In
particular, at this point in the course of
the pandemic, with the fiscal pressure
on state and local governments having
been significantly reduced, it is
appropriate for Treasury to reassess
aspects of this presumption. As
discussed below, the final rule requires
recipients to exclude the value of tax
policy changes adopted after January 6,
2022.
Recipients of the SLFRF range from
states to the smallest local governments.
At the time that the interim final rule
was adopted, it was important for
recipients to be able to calculate with
ease and certainty their amount of
revenue loss so that they could begin
deploying these funds to continue to
maintain essential government services.
To this end, the presumption in the
interim final rule provided a relatively
simple formula for all recipients to use,
but the exigent need for recipients to
immediately deploy funds for the
provision of government services has
decreased and the benefit of the
presumption in reducing administrative
burden is less relevant for those
governments that are not likely to avail
themselves of the standard allowance
described above.
Consistent with these considerations,
the final rule requires recipients to
exclude revenue loss due to tax changes
adopted after January 6, 2022.
Eliminating revenue loss due to tax
changes from the presumption is
appropriate given the significance of tax
revenue as a portion of all revenue for
state and local governments, the direct
impact of tax policy decisions on
revenue collected, and the relative ease
with which recipients can isolate the
estimated effect of a tax change on
revenue.
296 Most state budgeting
processes require a ‘‘budget score,’’
often developed through a consensus
process with executive and legislative
branch experts,
297 and Treasury expects
that larger localities, those most likely to
utilize the revenue loss formula rather
than the standard allowance, also
regularly use revenue or budget
estimates when considering changes to
tax policies. As such, in many cases,
recipients already prepare estimates of
the impact of tax changes on revenue,
and as discussed below, Treasury will
generally permit recipients to rely on
such estimates in adjusting their
revenue loss calculations.
Reductions in revenue that are not
attributable to tax changes would
continue to be subject to the
presumption. A requirement that
recipients evaluate the revenue effect of
changes in discretionary policy actions
other than tax changes would be more
difficult for recipients than evaluating
the changes attributable to tax changes
given that state and local governments
do not generally prepare estimates of the
revenue effects of other actions. Finally,
as noted above, taxes are the single
largest source of revenue for state and
local government recipients in the
aggregate.
Revisions to Presumption To Address
Tax Reductions
For these reasons, Treasury is
providing in the final rule that changes
in general revenue that are caused by
tax cuts adopted after the date of
adoption of the final rule (January 6,
2022) will not be treated as due to the
public health emergency, and the
estimated fiscal impact of such tax cuts
must be added to the calculation of
‘‘actual revenue’’ for purposes of
calculation dates that occur on or after
April 1, 2022. Tax cuts include final
legislative or regulatory action or a new
or changed administrative interpretation
that reduces any tax (by providing for a
reduction in a rate, a rebate, a
deduction, a credit, or otherwise) or
delays the imposition of any tax or tax
increase and that the recipient assesses
has had the effect of reducing tax
revenue relative to current law. This
includes the phase-in or taking effect of
any statute or rule if the phase-in or
taking effect was not prescribed prior to
the issuance of the final rule.
In assessing whether a tax change has
had the effect of reducing tax revenue,
recipients may either calculate the
actual effect on revenue or rely on
estimates prepared at the time the tax
change was adopted. More specifically,
recipients may rely on information
typically prepared in the course of
developing the budget (e.g., expected
revenues) and/or considering tax
changes (e.g., budget scores, revenue
notes) to determine the amount of
revenue that would have been collected
in the absence of the tax cut, as long as
those estimates are based on reasonable
assumptions and do not use dynamic
methodologies that incorporate the
projected effects of macroeconomic
growth, given that macroeconomic
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reflect the effects of other changes in policy, such
as increases in fees adopted after adoption of the
final rule. Treasury understands that the main
beneficiaries of such a change would be those
recipients that will benefit from the standard
allowance provided for in the final rule and that for
other recipients the administrative burden on
recipients needed to calculate these adjustments
would outweigh the benefit of having a somewhat
larger amount of funds available for government
services.
299 The final rule also addresses the possibility
that some recipients may have fiscal years ending
during the period between January 6, 2022 and
April 1, 2022; such recipients’ election to reflect tax changes from prior periods would also apply to
changes during this period with respect to the
calculation date in this period.
growth is accounted for in the
counterfactual growth assumptions.
Recipients that choose to calculate the
actual effect of a tax change on revenue
must similarly base their calculations on
reasonable estimates that do not use
dynamic methodologies. Recipients
should apply this adjustment in
determining their actual revenue totals
at Step 3 in the revenue loss calculation
described above.
Revisions to Presumption To Address
Tax Increases
As noted above, the calculation
methodology in the interim final rule
implicitly assumed that recipients did
not experience a reduction in revenue
due to the public health emergency if
they did not experience a reduction in
aggregate revenue relative to the
counterfactual estimate. Treasury
recognizes that some recipients may
have experienced a reduction in
revenue due to the public health
emergency that was offset by other
revenue, particularly in the case of
increases to tax revenue resulting from
a tax increase. The final rule requires
recipients that increased taxes to deduct
the amount of increases to revenue
attributable to such tax increase. This
change is also consistent with the
incorporation in the interim final rule
and final rule of a counterfactual growth
rate, which effectively permits
recipients to count revenue losses due
to the public health emergency that are
offset by increased tax revenue resulting
from organic growth.
For these reasons, Treasury is
providing in the final rule that
recipients must subtract from their
calculation of actual revenue the effect
of tax increases adopted after the date of
adoption of this final rule (January 6,
2022) for purposes of calculation dates
that occur on or after April 1, 2022. This
change and the change to the final rule
described above treat tax changes in a
consistent manner: In the case of
reduction in revenue resulting from a
tax cut, a recipient must add the amount
of that reduction to its calculation of
actual revenue, and in the case of an
increase in revenue resulting from a tax
increase, a recipient must subtract the
amount of additional revenue collected
as a result of the tax increase from its
calculation of actual revenue.
298
As is the case with tax cuts, discussed
above, tax increases that must be
reflected in the calculation of revenue
include final legislative or regulatory
action or a new or changed
administrative interpretation that
increases any tax and that the recipient
assesses has had the effect of increasing
tax revenue relative to current law. In
assessing whether a tax change has had
the effect of increasing tax revenue,
recipients may either calculate the
actual effect on revenue or rely on
estimates prepared at the time the tax
change was adopted. Recipients may
rely on information typically prepared
in the course of developing the budget
(e.g., expected revenues) and/or
considering tax changes (e.g., budget
scores, revenue notes) to determine the
amount of revenue that was collected as
a result of the tax increase as long as
those estimates are based on reasonable
assumptions and do not use dynamic
methodologies that incorporate the
projected effects of macroeconomic
growth, given that macroeconomic
growth is accounted for in the
counterfactual growth assumptions.
Recipients that choose to calculate the
actual effect of a tax change on revenue
must similarly base their calculations on
reasonable estimates that do not use
dynamic methodologies. Recipients
should apply this adjustment in
determining their actual revenue totals
at Step 3 in the revenue loss calculation
described above.
Previously Adopted Tax Changes
As discussed above, the final rule will
not require recipients to reflect the
revenue effects of tax increases or
decreases adopted prior to the adoption
of the final rule. Recipients that adopted
a tax change in a previous period will
not be required to recalculate the
amount of revenue loss as of prior
calculation dates or to reflect the fiscal
impacts of such tax changes in
calculation dates after the effective date
of the final rule. However, the final rule
will permit recipients to elect to reflect
the revenue effects of their tax changes
adopted between the beginning of the
public health emergency and the
adoption of the final rule.
299 If a
recipient elects to do so, it must do so
with respect to all of its tax changes
adopted between the beginning of the
public health emergency and the
adoption of the final rule. Treasury
intends to revise its reporting
requirements to permit recipients to
amend their previously reported
calculation periods to reflect such
changes.
Determination of the Base Year
Under the ARPA and interim final
rule, SLFRF funds may be used ‘‘for the
provision of government services to the
extent of the reduction in revenue . . .
relative to revenues collected in the
most recent full fiscal year’’ of the
recipient. Therefore, the base year for
the revenue loss calculation is the most
recent full fiscal year prior to the
COVID–19 public health emergency.
Public Comment: Treasury received
multiple comments asking for flexibility
in determining base year revenues. For
instance, some commenters asked to use
a different base year than the ‘‘most
recent full fiscal year’’ prior to the
pandemic for calculating revenue loss;
others asked to be able to average prior
years. Commenters stated that, for
various reasons, revenue was artificially
low in the last full fiscal year prior to
the public health emergency, and,
therefore, using revenue in that year as
the base year did not accurately reflect
expected revenue in a normal year. For
example, several Tribes stated that
unforeseeable weather events resulted
in forced closure of casinos which, in
turn, artificially deflated revenues in the
base year. Other commenters indicated
that one-time anomalies in the timing of
tax collection in that year artificially
pushed revenue into the following fiscal
year. Similarly, a few commenters noted
that tax changes that took effect in the
middle of the base year may artificially
skew the size of the revenue loss
experienced by the recipient
government.
Treasury Response: Treasury
understands that recipients may have
experienced events in the base year that
led to lower or higher revenues than
what they otherwise would have
collected. The ARPA provides that
revenue loss is to be determined with
respect to revenue in the most recent
full fiscal year prior to the pandemic,
and therefore the final rule maintains its
incorporation of the statutory definition.
In calculating revenue loss, recipients
may use data on a cash, accrual, or
modified accrual basis, provided that
recipients are consistent in their choice
of methodology throughout the covered
period, which might help recipients
adjust to certain delays in revenue
receipt. Both the standard allowance
and elements of the formula (e.g.,
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practice of funding capital projects with cash-on-
hand from taxes, fees, grants, and other sources,
rather than with borrowed sums.
counterfactual growth rate) incorporate
generous assumptions to give recipients
flexibility and to account for variation
among recipients’ experiences during
the pandemic.
Government Services
The
SUPPLEMENTAL INFORMATION to the
interim final rule provided a non-
exhaustive list of examples of services
that are government services. The
interim final rule also discussed why
neither payment of debt service nor
replenishing financial reserves
constitutes government services, as
these expenditures do not provide
services but relate to the financing of
such services. Similarly, government
services under the interim final rule did
not include satisfaction of any
obligation arising under or pursuant to
a settlement agreement, judgment,
consent decree, or judicially confirmed
debt restructuring in a judicial,
administrative, or regulatory
proceeding, unless the judgment or
settlement required the provision of
government services.
Public Comment: Treasury received
several comments requesting further
clarification regarding the scope of
government services, including asking
for either a specific definition of
government services or that a specific
use be expressly deemed to be a
government service. Some commenters
disagreed with the exclusions from
government services in the interim final
rule. For instance, many of the
comments Treasury received suggested
that replenishing reserve funds and at
least certain types of debt service should
be treated as providing governmental
services. Some commenters also
suggested that a recipient should be able
to use funds for costs incurred before
March 3, 2021. Other commenters asked
Treasury to maintain the prohibition on
using the funds to pay debt service.
Treasury Response: Treasury
continues to believe that the lists of
activities that either are or are not
providing government services are
accurate but is clarifying here that,
generally speaking, services provided by
the recipient governments are
‘‘government services’’ under the
interim final rule and final rule, unless
Treasury has stated otherwise.
Government services include, but are
not limited to, maintenance or pay-go
funded building
300 of infrastructure,
including roads; modernization of
cybersecurity, including hardware,
software, and protection of critical
infrastructure; health services;
environmental remediation; school or
educational services; and the provision
of police, fire, and other public safety
services.
The aforementioned list of
government services is not exclusive.
However, recipients should be mindful
that other restrictions may apply,
including those articulated in the
section Restrictions on Use. In the final
rule, Treasury is maintaining the
limitations on government services
included in the interim final rule and
has addressed and responded to public
commenters on these issues in the
section Restrictions on Use.
D. Investments in Water, Sewer, and
Broadband Infrastructure
Summary of Interim Final Rule
Under the ARPA, recipients may use
funds to make necessary investments in
water, sewer, and broadband
infrastructure. The interim final rule
provided recipients with the ability to
use funds for a broad array of uses
within these categories.
The interim final rule discussed two
general provisions that apply across all
water, sewer, and broadband
infrastructure investments. First, the
interim final rule addressed the
meaning of ‘‘necessary’’ investments as
meaning those designed to provide an
adequate minimum level of service and
unlikely to be made using private
sources of funds. Second, the interim
final rule encouraged recipients to use
strong labor standards in water, sewer,
and broadband projects, as discussed
below.
Necessary Investments
The statute limits investments to
those that are necessary. As discussed in
more detail below, Treasury determined
that the types of water and sewer
projects that were authorized under the
interim final rule by reference to
existing Environmental Protection
Agency (EPA) programs would in all
cases be necessary investments given
the conditions applicable to such EPA
programs. Similarly, the interim final
rule’s definition of eligible broadband
projects as those designed to provide a
certain standard of service to those
households and businesses with limited
existing service was based on the
statutory requirement that investments
in water, sewer, and broadband must be
‘‘necessary.’’
As discussed further below, Treasury
has expanded the scope of what is an
eligible water and sewer infrastructure
project to include additional uses. In
particular, the final rule permits use of
SLFRF funds for certain dam and
reservoir restoration projects and certain
drinking water projects to support
population growth. The nature of these
additional uses is such that additional
factors must be considered in
determining whether one of these
additional uses is a necessary project. In
addition, Treasury recognizes that there
may be a need for improvements to
broadband beyond those households
and businesses with limited existing
service as defined in the interim final
rule. Treasury has replaced this specific
requirement based on an understanding
that broadband investments may be
necessary for a broader set of reasons.
Given this expansion of what is
considered in scope as a water, sewer,
or broadband infrastructure project, the
final rule provides a further elaboration
of Treasury’s understanding of the
conditions under which an
infrastructure project will be considered
to be a necessary investment. Treasury
considers a necessary investment in
infrastructure to be one that is (1)
responsive to an identified need to
achieve or maintain an adequate
minimum level of service, which may
include a reasonable projection of
increased need, whether due to
population growth or otherwise and (2)
a cost-effective means for meeting that
need, taking into account available
alternatives. In addition, given that
drinking water is a resource that is
subject to depletion, in the case of
investments in infrastructure that
supply drinking water in order to meet
projected population growth, the project
must be projected to be sustainable over
its estimated useful life.
Not included in the list of criteria
above is the requirement in the interim
final rule that the project be unlikely to
be made using private sources of funds.
Given that it may be difficult to assess
in a particular case what the probability
of private investment in a project would
be, Treasury has eliminated this
standard from the meaning of necessary
but still encourages recipients to
prioritize projects that would provide
the greatest public benefit in their
respective jurisdictions.
Strong Labor Standards in Water, Sewer,
and Broadband Construction
As stated in the Supplementary
Information to the interim final rule,
Treasury encourages recipients to carry
out investments in water, sewer, or
broadband infrastructure in ways that
produce high-quality infrastructure,
avert disruptive and costly delays, and
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its encouragement of certain wage and labor
standards in the Supplementary Information to the
interim final rule. Some commenters opposed this
encouragement, arguing that even encouragement
and reference to PLAs and prevailing wage laws
could lead to confusion or make it more likely that
recipients would apply labor standards in ways that
would discourage competition and raise project
costs. Conversely, some commenters supported the
encouragement of the use of certain standards,
including giving preference to employers that meet
certain employment standards (e.g., those that
maintain high safety and training standards)
because it would support the goal of completing
water, sewer, and broadband projects efficiently
and safely. As in the interim final rule, this
encouragement does not impose a legally binding
restriction on recipients.
302 See U.S. Department of the Treasury,
Compliance and Reporting Guidance, 21 (June 24,
2021), https://home.treasury.gov/system/files/136/
SLFRF-Compliance-and-Reporting-Guidance.pdf.
promote efficiency.301 Treasury
encourages recipients to use strong labor
standards, including project labor
agreements (PLAs) and community
benefits agreements that offer wages at
or above the prevailing rate and include
local hire provisions. Treasury also
recommends that recipients prioritize in
their procurement decisions employers
who can demonstrate that their
workforce meets high safety and
training standards (e.g., professional
certification, licensure, and/or robust in-
house training), that hire local workers
and/or workers from historically
underserved communities, and who
directly employ their workforce or have
policies and practices in place to ensure
contractors and subcontractors meet
high labor standards. Treasury further
encourages recipients to prioritize
employers (including contractors and
subcontractors) without recent
violations of federal and state labor and
employment laws.
Treasury believes that such practices
will promote effective and efficient
delivery of high-quality infrastructure
projects and support the economic
recovery through strong employment
opportunities for workers. Such
practices will also reduce the likelihood
of potential project challenges like work
stoppages or safety accidents, while
ensuring a reliable supply of skilled
labor and minimizing disruptions, such
as those associated with labor disputes
or workplace injuries. That will, in turn,
promote on-time and on-budget
delivery.
Furthermore, among other
requirements contained in 2 CFR 200,
Appendix II, all contracts made by a
recipient or subrecipient in excess of
$100,000 with respect to water, sewer,
or broadband infrastructure project that
involve employment of mechanics or
laborers must include a provision for
compliance with certain provisions of
the Contract Work Hours and Safety
Standards Act, 40 U.S.C. 3702 and 3704,
as supplemented by Department of
Labor regulations (29 CFR part 5).
Treasury will continue to seek
information from recipients on their
workforce plans and water, sewer, and
broadband projects undertaken with
SLFRF funds. This reporting will
support transparency and competition
by enhancing available information on
the services being provided. Since
publication of the interim final rule,
Treasury has provided recipients with
additional guidance and instructions on
the reporting requirements.
302
Environmental and Other Generally
Applicable Requirements
Treasury cautions that, as is the case
with all projects engaged in using the
SLFRF funds, all projects must comply
with applicable federal, state, and local
law. In the case of infrastructure
projects in particular, this includes
environmental and permitting laws and
regulations. Likewise, as with all capital
expenditure projects using SLFRF
funds, projects must be undertaken and
completed in a manner that is
technically sound, meaning that they
must meet design and construction
methods and use materials that are
approved, codified, recognized, fall
under standard or acceptable levels of
practice, or otherwise are determined to
be generally acceptable by the design
and construction industry.
1. Water and Sewer Infrastructure
Sections 602(c)(1)(D) and Section
603(c)(1)(D) of the Social Security Act
provide that recipients may use the
SLFRF funds ‘‘to make necessary
investments in water [and] sewer . . .
infrastructure.’’ The interim final rule
permitted a broad range of necessary
investments in projects that improve
access to clean drinking water and
improve wastewater and stormwater
infrastructure systems. As discussed
below, after review of comments
received on the interim final rule,
Treasury has made changes in the final
rule to expand the scope of eligible
water and sewer projects.
Summary of Interim Final Rule and
Final Rule Structure
Background: In the interim final rule,
Treasury aligned eligible uses of the
SLFRF with the wide range of types or
categories of projects that would be
eligible to receive financial assistance
through the Clean Water State Revolving
Fund (CWSRF) or Drinking Water State
Revolving Fund (DWSRF) administered
by the Environmental Protection Agency
(EPA). By referring to these existing
programs, with which many recipients
are already familiar, Treasury intended
to provide flexibility to recipients to
respond to the needs of their
communities while facilitating
recipients’ identification of eligible
projects. Furthermore, by aligning
SLFRF eligible uses with these existing
programs, Treasury could ensure that
projects using the SLFRF are limited to
‘‘necessary investments.’’
Public Comment: Treasury received
many comments responding to the
water and sewer infrastructure
provisions of the interim final rule from
state, local, and Tribal governments,
industry trade associations, public
interest groups, private individuals, and
other interested parties. Commenters
requested that Treasury provide a wider
set of eligible uses for water and sewer
infrastructure beyond those uses
articulated by the DWSRF and CWSRF,
suggesting that Treasury expand the
definition of necessary water and sewer
infrastructure.
Treasury Response: In response to
commenters, Treasury is expanding the
eligible use categories for water and
sewer infrastructure, discussed in
further detail below. Because the
interim final rule aligned the definition
of necessary water and sewer
infrastructure with the eligible uses
included in the DWSRF and CWSRF,
Treasury is reflecting in the final rule a
revised standard for determining a
necessary water and sewer
infrastructure investment for eligible
water and sewer uses beyond those uses
that are eligible under the DWSRF and
CWSRF.
Interpretation of Necessary Investments
and Water and Sewer Infrastructure
Necessary Investments: As discussed
above, Treasury considers an
investment in infrastructure to be
necessary if it is (1) responsive to an
identified need to achieve or maintain
an adequate minimum level of service,
which for some eligible project
categories may include a reasonable
projection of increased need, whether
due to population growth or otherwise
and (2) a cost-effective means for
meeting that need, taking into account
available alternatives. In addition, in the
case of investments in drinking water
service infrastructure to supply drinking
water to satisfy a projected increase in
population, the project must also be
projected to be sustainable over its
estimated useful life. As detailed further
below, DWSRF and CWSRF eligible
projects continue to be presumed to be
necessary investments under the final
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304 In such cases, either the projects are
presumptively cost-effective (e.g., lead projects
would always be considered cost-effective given the
costs imposed by lead poisoning) or a cost-
effectiveness test is less relevant given the lack of
available alternatives or the relatively low cost of
the project.
305 In many jurisdictions, stormwater flows into
the sewer system rather than into a separate
stormwater system. The separate inclusion of
‘‘water’’ and ‘‘sewer’’ infrastructure also makes
clear that ‘‘water’’ in this context cannot refer to all uses relevant to water. Given that sewer systems
carry wastewater (and often stormwater), if water
infrastructure were to refer to all water-related
infrastructure in this context, it would make the
inclusion of sewer infrastructure redundant.
rule, with the exception of projects for
the rehabilitation of dams and
reservoirs, which the EPA has permitted
in certain circumstances under the
DWSRF and, as discussed below, are
addressed separately in the final rule.
In evaluating whether a project would
respond to a need to achieve or
maintain an adequate minimum level of
service, a recipient should consider
whether it would meet the needs of the
population to be served and would
satisfy applicable standards. For
example, a drinking water project must
be sized such that it provides an
adequate volume of water to households
and other customers and must meet
applicable standards for drinking water
quality under the Safe Drinking Water
Act (SDWA). Similarly, a centralized
wastewater treatment project should be
designed to manage updated estimated
flow rates and comply with Clean Water
Act requirements. These requirements
are already reflected in the eligibility
criteria of the DWSRF and CWSRF,
respectively.
In evaluating whether a project is a
cost-effective means of providing the
water or sewer service, the recipient
should consider the need for the project,
the costs and benefits of the project
compared to alternatives, and the
effectiveness of the project in meeting
the identified need. Recipients are not
required to conduct a full cost-benefit
analysis; however, they should consider
and analyze relevant factors. For
example, a recipient may not use funds
to pursue a costly dam rehabilitation to
provide drinking water to a community
if it could provide the same service with
a significantly smaller investment by
drawing water from another available
reservoir, assuming that doing so would
meet the other requirements of the final
rule. As detailed further below,
recipients are only required to assess
cost-effectiveness of projects for the
creation of new drinking water systems,
dam and reservoir rehabilitation
projects, or projects for the extension of
drinking water service to meet
population growth needs.
Certain DWSRF eligibilities are
already subject to a cost-effectiveness
test. Specifically, projects that create
new drinking water systems must be a
cost-effective solution to addressing the
identified problem.
303 The EPA also
imposes a cost-effectiveness condition
on dam and reservoir rehabilitation
projects undertaken pursuant to its class
deviation from the DWSRF rule. These
projects are particularly expensive and,
unlike in the case of other types of
eligible projects, there are often
available alternatives to conducting
these projects. Projects for the extension
of drinking water service to meet
population growth needs are also often
particularly expensive, and there are
often different ways to meet the needs
of expanding populations. Treasury will
accordingly require that recipients
engage in a cost-effectiveness analysis
when engaging in projects for the
creation of new drinking water systems,
dam and reservoir rehabilitation
projects, or projects for the extension of
drinking water service to meet
population growth needs. Other types of
eligible water or sewer projects will not
be subject to this cost-effectiveness test,
including lead line replacement and
lead remediation.
304
In the case of projects that expand
drinking water service infrastructure to
satisfy a projected increase in
population, the project must also be
sustainable, meaning that the project
can continue providing the adequate
minimum level of service for its
estimated useful life, taking into
account projected impacts of changes to
the climate and other expected demands
on the source of water. For example, a
reservoir rehabilitation project may not
be pursued if the reservoir will no
longer be able to provide an adequate
source of drinking water before the end
of the estimated useful life of the
improvements to the reservoir. In areas
currently impacted by drought or where
drought conditions are expected to be
more frequent or more severe in the
future, sources of drinking water may be
diminished more quickly than in prior
periods. In considering how much of a
source of water will be available in the
future for the drinking water project, a
recipient must consider that a source of
water may be drawn upon or otherwise
used for other current and expected
uses, including use by fish and other
wildlife.
The final rule applies this
sustainability condition to projects that
expand drinking water service
infrastructure to satisfy a projected
increase in population but not to other
drinking water projects. When a new
source of water is required to remedy an
existing threat to public health, as in the
case of source projects eligible under the
DWSRF, sustainability should be a
consideration, but in some cases, the
need to replace a contaminated source
may mean that a less sustainable choice
may be made. When faced with such an
issue, such as in the case of a
contaminated well system, a project to
replace the contaminated source can be
said to be ‘‘necessary’’ even if the
replaced source is not sustainable over
the long term. Expediency may dictate
that a shorter-term solution is pursued
if it is cost-effective and will prevent
health issues while a longer-term
solution can be found. In contrast, an
expansion to accommodate population
growth cannot be said to be necessary if
it is not sustainable over its estimated
useful life.
Not included in the list of criteria
above is the requirement in the interim
final rule that the project be unlikely to
be made using private sources of funds.
Given that it may be difficult to assess
in a particular case what the probability
of private investment in a project would
be, Treasury has eliminated this
standard from the meaning of necessary
but nevertheless encourages recipients
to apply funds to projects that would
provide the greatest public benefit.
Water and Sewer Infrastructure: As
stated above, Congress provided that
SLFRF funds are available for
‘‘necessary water, sewer, and broadband
infrastructure.’’ Treasury interprets the
reference to water and sewer uses
consistent with the inclusion of
broadband uses. Water, sewer, and
broadband infrastructure all involve the
provision of essential services to
residents, businesses, and other
consumers. As the pandemic has made
clear, access to broadband has itself
become essential for individuals and
businesses to participate in education,
commerce, work, and civic matters and
to receive health care and social
services.
Water and sewer services provided
broadly to the public as essential
services include the provision of
drinking water and the removal,
management, and treatment of
wastewater and stormwater.
305
Although governments are engaged in
other infrastructure related to water,
including irrigation projects,
transportation projects, and recreation
projects, such projects go beyond the
scope of what is provided to all
residents as an essential service.
Provision of drinking water and
removal, management, and treatment of
VerDate Sep<11>2014 19:24 Jan 26, 2022 Jkt 256001 PO 00000 Frm 00074 Fmt 4701 Sfmt 4700 E:\FR\FM\27JAR2.SGM 27JAR2lotter on DSK11XQN23PROD with RULES2 4411 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 306 In addition, Treasury interprets the eligible
uses of SLFRF funds against the background of the
Coronavirus Relief Fund (CRF), for which the
SLFRF funds are, in part, a successor. CRF
recipients expressed great interest in using the CRF
to pursue water infrastructure projects, including
provision of drinking water and internal plumbing
on Tribal lands and in Alaskan villages, and
broadband projects throughout the country;
Treasury permitted these projects given the
connection to the public health emergency (see
Coronavirus Relief Fund for States, Tribal
Governments, and Certain Eligible Local
Governments, 86 FR 4182, 4190, 4192 (Jan. 15,
2021), but the short deadline for use of funds made
it difficult to use CRF funds in this way. Congress’
inclusion of the water, sewer, and broadband clause
in the ARPA, along with the SLFRF funds’ longer
eligible use date, is responsive to this unmet need.
As discussed below, Congress in the Infrastructure
Investment and Jobs Act amended sections 602(c)
and 603(c) of the Social Security Act to add a new
paragraph as sections 602(c)(4) and 603(c)(5),
respectively, providing that SLFRF funds may be
used to meet non-federal matching requirements of
any authorized Bureau of Reclamation project. This
authority was added as a separately enumerated
eligible use regardless of whether the underlying
project would be an eligible use of SLFRF funds
under the water and sewer infrastructure eligible
use category.
307 See, e.g., section 502 of the Federal Water
Pollution Control Act (33 U.S.C. 1362), defining
‘‘green infrastructure’’ as ‘‘the range of measures
that use plant or soil systems, permeable pavement
or other permeable surfaces or substrates,
stormwater harvest and reuse, or landscaping to
store, infiltrate, or evapotranspirate stormwater and
reduce flows to sewer systems or to surface waters.’’
308 Specifically, this would include desalination
projects that decrease the burden on aquifers where
there is causal relationship between aquifer
withdrawals and saltwater intrusion if the projects
implement a nonpoint source pollution
Continued
wastewater and stormwater are the
typical responsibilities of ‘‘water and
sewer’’ authorities throughout the
country, and there is a tremendous need
for improvements to the ability of state,
local, and Tribal governments to
provide such services, including to
address the consequences of deferred
maintenance and additional resiliency
needed to adapt to changes to the
climate.
306
Although the meaning of water and
sewer infrastructure for purposes of
sections 602(c)(1)(D) and 603(c)(1)(D) of
the Social Security Act does not include
all water-related uses, Treasury has
made clear in this final rule that
investments to infrastructure include a
wide variety of projects. Treasury
interprets the word ‘‘infrastructure’’ in
this context broadly to mean the
underlying framework or system for
achieving the given public purpose,
whether it be provision of drinking
water or management of wastewater or
stormwater.
307 As discussed below, this
can include not just storm drains and
culverts for the management of
stormwater, for example, but also
bioretention basins and rain barrels
implemented across a watershed,
including on both public and private
property, that together reduce the
amount of runoff that needs to be
managed by traditional infrastructure.
Further, Treasury understands that
investments in infrastructure include
improvements that increase the capacity
of existing infrastructure and extend the
useful life of existing infrastructure.
Accordingly, water and sewer
infrastructure investment projects
include those that conserve water,
thereby reducing pressure on
infrastructure for the provision of
drinking water, and that recycle
wastewater and stormwater, thereby
reducing pressure on the infrastructure
for treating and managing wastewater
and stormwater.
As with other infrastructure projects
and capital expenditure projects that are
permitted as responses to the public
health emergency and its negative
economic impacts, costs for planning
and design and associated pre-project
costs are eligible uses of SLFRF funds.
Costs for the acquisition of land are also
eligible, but only if needed for the
purposes of locating eligible project
components. Recipients should ensure
that they have the technical, financial,
and managerial capability to ensure
compliance with the requirements of the
SDWA, or that the assistance will
ensure compliance and the owners or
operators of the systems will undertake
feasible and appropriate changes in
operations to ensure compliance over
the long-term.
Drinking Water State Revolving Fund
and Clean Water State Revolving Fund
Background: As stated above, in the
interim final rule, Treasury included
eligible uses of the DWSRF and the
CWSRF as eligible uses of the SLFRF in
the water and sewer infrastructure
category. By providing that projects
eligible under the DWSRF and the
CWSRF are also eligible uses of SLFRF
funds, the interim final rule permitted a
broad range of projects that improve
drinking water infrastructure, such as
building or upgrading facilities and
transmission, distribution, and storage
systems, including replacement of lead
service lines. With respect to clean
water and wastewater infrastructure, the
interim final rule provided that
recipients may use SLFRF funds to
construct publicly owned treatment
infrastructure, manage and treat
stormwater or subsurface drainage
water, and facilitate water reuse, among
other uses. Consistent with the DWSRF
and the CWSRF, the interim final rule
provided that SLFRF funds may be used
for cybersecurity needs to protect water
or sewer infrastructure, such as
developing effective cybersecurity
practices and measures at drinking
water systems and publicly owned
treatment works.
Use of DWSRF and CWSRF to Support
Climate Change Adaptations. Many of
the types of projects eligible under
either the DWSRF or CWSRF also
support efforts to address climate
change. For example, by taking steps to
manage potential sources of pollution
and preventing these sources from
reaching sources of drinking water,
projects eligible under the DWSRF and
CWSRF may reduce energy required to
treat drinking water. Similarly, projects
eligible under the DWSRF and CWSRF
include measures to conserve and reuse
water, for example through projects to
reuse or recycle wastewater, stormwater,
or subsurface drainage water. Treasury
encourages recipients to consider green
infrastructure investments and projects
to improve resilience to the effects of
climate change. For example, more
frequent and extreme precipitation
events combined with construction and
development trends have led to
increased instances of stormwater
runoff, water pollution, and flooding.
Green infrastructure projects that
support stormwater system resiliency
could include bioretention basins that
provide water storage and filtration
benefits, and green streets, where
vegetation, soil, and engineered systems
are combined to direct and filter
rainwater from impervious surfaces. In
cases of a natural disaster, recipients
may also use SLFRF funds for water
infrastructure to provide relief, such as
interconnecting water systems or
rehabilitating existing wells during an
extended drought.
Public Comment: Many commenters
expressed support for the interim final
rule’s alignment of the use of funds for
water and sewer infrastructure under
the SLFRF with the project categories
provided through the EPA’s DWSRF and
CWSRF programs.
Many commenters also provided
recommendations about the specific
types of water infrastructure projects
that should be eligible under the final
rule. In many of these cases,
commenters recommended that
Treasury include project types that are
already eligible under the DWSRF and
CWSRF and thus eligible under the
interim final rule and final rule. For
example, several commenters requested
that aquifer recharge projects, or other
groundwater protection and restoration
projects, be included as eligible uses of
SLFRF when certain aquifer recharge
projects that (1) implement a nonpoint
source pollution management
program
308 or (2) constitute reuse of
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Clean Water Act. This could include projects in
which desalinated seawater is injected into the
aquifer to mitigate or prevent salt water intrusion,
as well as projects in which brackish water is
removed from an aquifer, desalinated, and returned
to the aquifer.
309 See 42 U.S.C. 300j–12(a)(2)(B) (limiting
financial assistance used by a public water system
to expenditures (including expenditures for
planning, design, siting, and associated
preconstruction activities, or for replacing or
rehabilitating aging treatment, storage, or
distribution facilities of public water systems, but
not including monitoring, operation, and
maintenance expenditures of a type or category
which the Administrator of the EPA has
determined, through guidance, will facilitate
compliance with national primary drinking water
regulations applicable to the system under 42
U.S.C. 300g–1 or otherwise significantly further the
health protection objectives of the SWDA); See also
40 CFR 35.3520(b).
310 See 40 CFR 35.3520(d)(1).
311 See id at § 35.3520(e)(2)–(4).
312 33 U.S.C. 1383(c).
313 33 U.S.C. 1292.
314 33 U.S.C. 1329.
315 33 U.S.C. 1330.
wastewater, stormwater, or subsurface
drainage water are in fact eligible uses
under the CWSRF. Furthermore, under
the DWSRF, eligible projects include
certain aquifer storage and recovery
systems for water storage.
Treasury Response: Eligible projects
articulated in the DWSRF and CWSRF
continue to be eligible uses of SLFRF
funds under the final rule. Recognizing
that recipients have faced challenges
interpreting eligible use categories
under the interim final rule or cross-
referencing EPA program materials to
interpret eligible project types, Treasury
is including in this Supplementary
Information additional information on
the types of projects eligible under the
DWSRF and CWSRF. Treasury
emphasizes that this further clarification
does not represent a change in
eligibility. Treasury encourages
recipients to reference EPA handbooks
for the DWSRF and CWSRF, which
provide further information and detail
about the types of projects eligible
under those programs and thus under
the final rule.
Eligible projects under the DWSRF.
Eligibilities under the DWSRF, the
interim final rule, and the final rule
include projects that address present or
prevent future violations of health-based
drinking water standards. These include
projects needed to maintain compliance
with existing national primary drinking
water regulations for contaminants with
acute and chronic health effects.
Projects to replace aging infrastructure
are also eligible uses if they are needed
to maintain compliance or further the
public health protection objectives of
section 1452 of the SDWA.
309 The
following project categories are eligible
under the DWSRF, were eligible under
the interim final rule, and continue to
be eligible under the final rule:
(i) Treatment projects, including
installation or upgrade of facilities to
improve the quality of drinking water to
comply with primary or secondary
standards and point of entry or central
treatment under section 1401(4)(B)(i)(III)
of the SDWA.
(ii) Transmission and distribution
projects, including installation or
replacement of transmission and
distribution pipes to improve water
pressure to safe levels or to prevent
contamination caused by leaks or breaks
in the pipes.
(iii) Source projects, including
rehabilitation of wells or development
of eligible sources to replace
contaminated sources.
(iv) Storage projects, including
installation or upgrade of eligible
storage facilities, including finished
water reservoirs, to prevent
microbiological contaminants from
entering a public water system.
(v) Consolidation projects, including
projects needed to consolidate water
supplies where, for example, a supply
has become contaminated or a system is
unable to maintain compliance for
technical, financial, or managerial
reasons.
(vi) Creation of new systems,
including those that, upon completion,
will create a community water system to
address existing public health problems
with serious risks caused by unsafe
drinking water provided by individual
wells or surface water sources. Eligible
projects are also those that create a new
regional community water system by
consolidating existing systems that have
technical, financial, or managerial
difficulties. Projects to address existing
public health problems associated with
individual wells or surface water
sources must be limited in scope to the
specific geographic area affected by
contamination. Projects that create new
regional community water systems by
consolidating existing systems must be
limited in scope to the service area of
the systems being consolidated.
Ineligible projects under the DWSRF.
Federally-owned public water systems
and for-profit noncommunity water
systems are not eligible to receive
DWSRF funds and therefore SLFRF
funds.
310 The acquisition of water
rights, laboratory fees for routine
compliance monitoring, and operation
and maintenance expenses are not costs
associated with investments in
infrastructure and thus would not be
eligible under the final rule.
311 Projects
needed primarily to serve future
population growth are also ineligible
under the DWSRF; the treatment of such
projects under the final rule is discussed
separately below under ‘‘Expansion of
Drinking Water Service.’’ Projects
eligible under the DWSRF must be sized
only to accommodate a reasonable
amount of population growth expected
to occur over the useful life of the
project.
Eligible projects under the CWSRF.
The final rule continues to allow the use
of SLFRF funds for projects eligible
under the CWSRF, consistent with the
interim final rule. Under the CWSRF, a
project must meet the criteria of one of
the following CWSRF eligibilities to be
eligible for assistance. Section 603(c) of
the Clean Water Act (CWA)
312 provides
that the CWSRF can provide assistance:
(i) to any municipality, intermunicipal,
interstate, or state agency for construction of
publicly owned treatment works (as defined
in section 212 of the CWA);
313
(ii) for the implementation of a
management program established under
section 319 of the CWA;
314
(iii) for the development and
implementation of a conservation and
management plan under section 320 of the
CWA;
315
(iv) for the construction, repair, or
replacement of decentralized wastewater
treatment systems that treat municipal
wastewater or domestic sewage. Eligible
projects include, but are not limited to, the
construction of new decentralized systems
(e.g., individual onsite systems and cluster
systems), as well as the upgrade, repair, or
replacement of existing systems.
(v) for measures to manage, reduce,
treat, or recapture stormwater or
subsurface drainage water. Publicly and
privately owned, permitted and
unpermitted projects that manage,
reduce, treat, or recapture stormwater or
subsurface drainage water are eligible.
For example, projects that are
specifically required by a Municipal
Separate Storm Sewer System (MS4)
permit are eligible, regardless of
ownership. Projects may include, but
are not limited to green roofs,
bioretention basins, roadside plantings,
porous pavement, and rainwater
harvesting.
(vi) to any municipality,
intermunicipal, interstate, or state
agency for measures to reduce the
demand for publicly owned treatment
works capacity through water
conservation, efficiency, or reuse.
Eligible projects include, but are not
limited to, the installation, replacement,
or upgrade of water meters; plumbing
fixture retrofits or replacement; and gray
water recycling. Water audits and water
conservation plans are also eligible.
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Equipment to reuse effluent (e.g., gray
water, condensate, and wastewater
effluent reuse systems) is eligible.
(vii) for the development and
implementation of watershed projects
meeting the criteria set forth in section
122 of the CWA.
316 Projects that
develop or implement a watershed pilot
project related to at least one of the six
areas identified in section 122 of the
CWA are eligible: Watershed
management of wet weather discharges,
stormwater best management practices,
watershed partnerships, integrated
water resource planning, municipality-
wide stormwater management planning,
or increased resilience of treatment
works.
(viii) to any municipality,
intermunicipal, interstate, or state
agency for measures to reduce the
energy consumption needs for publicly
owned treatment works. Projects may
include, but are not limited to, the
installation of energy efficient lighting,
HVAC, process equipment, and
electronic equipment and systems at
publicly owned treatment works.
Planning activities, such as energy
audits and optimization studies are also
eligible.
(ix) for reusing or recycling
wastewater, stormwater, or subsurface
drainage water. Projects involving the
reuse or recycling of wastewater,
stormwater, or subsurface drainage
water are eligible. This includes, as part
of a reuse project, the purchase and
installation of treatment equipment
sufficient to meet reuse standards. Other
eligible projects include, but are not
limited to, distribution systems to
support effluent reuse, including piping
the effluent on the property of a private
consumer, recharge transmission lines,
injection wells, and equipment to reuse
effluent (e.g., gray water, condensate,
and wastewater effluent reuse systems).
(x) for measures to increase the
security of publicly owned treatment
works. Security measures for publicly
owned treatment works might include,
but are not limited to, vulnerability
assessments, contingency/emergency
response plans, fencing, security
cameras/lighting, motion detectors,
redundancy (systems and power),
secure chemical and fuel storage,
laboratory equipment, securing large
sanitary sewers, and tamper-proof
manholes. The CWSRF cannot fund
operations and maintenance activities.
Therefore, maintaining a human
presence (i.e., security guards) and
monitoring activities are not eligible.
Other Clarifications of DSWRF and
CWSRF Eligible Project Categories
Public Comment: Several commenters
requested that Treasury provide
clarification of the requirements
associated with use of SLFRF funds for
necessary investments in water and
sewer infrastructure.
Treasury Response: After release of
the interim final rule, Treasury clarified
in further guidance that, while
recipients must ensure that water and
sewer infrastructure projects pursued
are eligible under the final rule,
recipients are not required to obtain
project pre-approval from Treasury or
any other federal agency when using
SLFRF funds for necessary water and
sewer infrastructure projects unless
otherwise required by federal law. For
projects that are being pursued under
the eligibility categories provided
through the DWSRF or CWSRF
programs, project eligibilities are based
on federal project categories and
definitions for the programs and not on
each state’s eligibility or definitions.
While reference in the final rule to the
DWSRF, CWSRF, or other federal water
programs is provided to assist recipients
in understanding the types of water and
sewer infrastructure projects eligible to
be funded with SLFRF, recipients do
not need to apply for funding from the
applicable state programs or through
any federal water program. Similarly,
besides eligible project categories, the
final rule does not incorporate other
program requirements or guidance that
attach to the DWSRF, CWSRF, or other
federal water programs. However, as
noted above, recipients should be aware
of other federal or state laws or
regulations that may apply to
construction projects or water and sewer
projects, independent of SLFRF funding
conditions, and that may require pre-
approval from another federal or state
agency.
Expanded Eligible Uses for Water and
Sewer Infrastructure
Summary
Public Comment: Many commenters
requested broader flexibility in the use
of SLFRF funds for water and sewer
infrastructure projects that are not
eligible under the DWSRF and CWSRF.
These commenters argued that localities
are best situated to identify the highest-
need water and sewer projects in their
communities. Several Tribal
government commenters noted that
Tribes have different water and sewer
infrastructure needs than states and
localities and that additional flexibility
in the use of funds would lift current
barriers to improving infrastructure on
Tribal lands.
To achieve additional flexibility,
commenters suggested a range of
options for broadening the eligible use
of SLFRF funds for necessary water and
sewer infrastructure. For example,
several commenters suggested Treasury
broaden the eligibilities provided under
the interim final rule to include project
types eligible under other federal water
and sewer programs.
Treasury Response: Treasury agrees
that additional flexibility for use of
SLFRF funds is warranted and is
providing expanded eligibilities as
described below, several of which
address specific areas of need outlined
by Tribal and rural communities.
As discussed below, Treasury has
incorporated into the final rule projects
that are eligible under certain programs
established by the EPA under the Water
Infrastructure Improvements for the
Nation Act (WIIN Act). Other water-
related grant programs cited by
commenters include projects that are
otherwise already covered by the final
rule, for example because they are
covered as eligible under the DWSRF or
the CWSRF, or projects that are
ineligible under the final rule because
they are beyond the scope of the
meaning of water and sewer projects for
purposes of ARPA. To minimize the
need for recipients of SLFRF funds to
cross reference eligibilities across
multiple federal programs, which may
exacerbate current challenges to
understanding eligibility under SLFRF,
Treasury is providing detailed
information related to expanded
eligibilities within the text of this
SUPPLEMENTARY INFORMATION for the
final rule.
Stormwater Infrastructure
Public Comment: Several commenters
requested that additional stormwater
infrastructure projects be included as
eligible uses of SLFRF funds under the
final rule. Commenters suggested that
culvert repair and resizing and
replacement of storm sewers is
necessary to address increased rainfall
brought about by a changing climate.
Other commenters noted that rural
communities that do not manage their
own sewer systems may rely on this
type of water infrastructure.
Treasury Response: The CWSRF
includes a broad range of stormwater
infrastructure projects, and as such
these projects were eligible under the
interim final rule and continue to be
eligible under the final rule. These
projects include gray infrastructure
projects, such as traditional pipe,
storage, and treatment systems. Projects
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Bipartisan Infrastructure Investment and Jobs Act
(August 2, 2021), https://www.whitehouse.gov/
briefing-room/statements-releases/2021/08/02/
updated-fact-sheet-bipartisan-infrastructure-
investment-and-jobs-act/.
318 See EPA Science Advisory Board, Evaluation
of the Effectiveness of Partial Lead Service Line
Replacements, (September 2011), https://
www.epa.gov/sdwa/science-advisory-board-
evaluation-effectiveness-partial-lead-service-line-
replacements (advising against partial lead service
line replacement).
319 Environmental Protection Agency, supra note
188.
320 Environmental Protection Agency, National
Primary Drinking Water Regulations: Lead and
Copper Rule Revisions, 86 FR 4198. 40 CFR 141.84,
and preamble at 4215, January 15, 2021, https://
www.federalregister.gov/d/2020-28691; scheduled
to become effective December 16, 2021,
Environmental Protection Agency, 86 FR 31939,
https://www.federalregister.gov/d/2021-12600.
321 Eligible uses of funds include those eligible
under the Small, Underserved, and Disadvantaged
Communities Grant (Section 2104), Reduction in
Lead Exposure via Drinking Water Grant Program
(Section 2105) and Lead Testing in School and
Child Care Program Drinking Water Grant Program
(Section 2107).
322 Such testing and remediation programs would
be an eligible use of SLFRF funds given that they
that manage, reduce, treat, or recapture
stormwater or subsurface drainage water
are also eligible, including real-time
control systems for combined sewer
overflow management, and sediment
control. Culvert infrastructure projects
are eligible under the CWSRF if they (1)
implement a nonpoint source
management plan, (2) implement
National Estuary Program
Comprehensive Conservation and
Management Plan, or (3) implement a
stormwater management plan with the
goal of providing a water quality benefit.
Stormwater projects under the CWSRF
also encompass a number of eligible
green infrastructure categories, such as
green roofs, green streets, and green
walls, rainwater harvesting collection,
storage, management, and distribution
systems, real-time control systems for
harvested rainwater, infiltration basins,
constructed wetlands, including surface
flow and subsurface flow (e.g., gravel)
wetlands, bioretention/bioswales (e.g.,
bioretention basins, tree boxes),
permeable pavement, wetland, riparian,
or shoreline creation, protection, and
restoration, establishment or restoration
of urban tree canopy, and replacement
of gray infrastructure with green
infrastructure including purchase and
demolition costs.
In addition to the eligible uses under
the CWSRF, Treasury is expanding the
eligible uses under the final rule to
include stormwater system
infrastructure projects regardless of
whether there is an expected water
quality benefit from the project.
Treasury anticipates that this eligible
use will allow recipients to manage
increased volumes of stormwater as a
result of changes to the climate. For
example, the final rule now permits the
use of SLFRF funds for the repair,
replacement, or removal of culverts or
other road-stream crossing
infrastructure to the extent the purpose
of the project is to manage stormwater.
In addition, Treasury understands that
the repair, replacement, or removal of
culverts may necessitate the repair or
upgrade of roads. As noted in guidance
issued after the interim final rule,
recipients may use SLFRF funds for
road repairs and upgrades that interact
directly with an eligible stormwater
infrastructure project. All stormwater
infrastructure projects undertaken
should incorporate updated design
features and current best practices.
Private Wells and Septic Systems
Public Comment: Several commenters
requested that the scope of eligible
projects be expanded to allow for the
expenditure of SLFRF funds on private
wells or septic systems. Commenters
noted that wells may be contaminated
with dangerous substances, including
arsenic, lead, radon, and PFAS (per- and
polyfluoroalkyl). Commenters also
suggested that, because rural and
underserved communities are often
reliant on these infrastructure types for
their drinking water or wastewater
needs, lack of appropriate funding to
maintain these systems could present
health and safety issues that
disproportionately affect certain
communities.
Treasury Response: Consistent with
the CWSRF, the installation, repair, or
replacement of private septic units
continues to be an eligible use of SLFRF
funds under the final rule. For example,
eligible projects include those that
address groundwater contamination
resulting from faulty septic units and
those that would connect failing septic
systems to centralized wastewater
treatment. Consistent with the DWSRF,
connecting homes served by a private
well to a public water system is an
eligible use of SLFRF funds.
In addition, Treasury has provided in
the final rule that recipients may use
SLFRF funds for an expanded set of
infrastructure projects that improve
access to and provision of safe drinking
water for individuals served by
residential wells. Eligible projects under
this category include rehabilitation of
private wells, testing initiatives to
identify contaminants in wells, and
treatment activities and remediation
strategies that address contamination.
Remediating Lead in Water
Public Comment: Several commenters
emphasized the need to fully remediate
lead contamination, especially in
structures that serve the public or
populations like children that are
particularly vulnerable to the effects of
lead exposure, such as schools and
daycares. Many American households
and an estimated 400,000 schools and
childcare centers currently lack safe
drinking water.
317
Treasury Response: The replacement
of lead service lines, up to premise
plumbing, is an eligible use under the
DWSRF and continues to be an eligible
use of SLFRF funds. Such projects are
eligible regardless of the pipe material
of the replacement lines and ownership
of the property on which the service
line is located. Lead service line
replacement projects can serve
households, schools, or any other
entities. Given the lifelong impacts of
lead exposure for children and the
widespread prevalence of lead service
lines, Treasury encourages recipients to
consider projects to replace lead service
lines.
In addition, Treasury is providing in
the final rule that for lead service line
replacement projects, recipients must
replace the full length of the service
line, and not just a partial portion of the
service line. Some water utilities, when
replacing service lines, will only replace
the ‘‘public portion’’ of the service line
and physically slice through the lead
service line at the public/private line.
This action can result in elevated
drinking water lead levels for some
period of time after replacement,
suggesting the potential for harm, rather
than benefit during that time period.
318
Requiring replacement of the full length
of the service line is also consistent with
the requirements of the EPA’s Lead and
Copper Rule Revisions for water
systems that have an action level
exceedance for lead
319 and certain other
water systems.320
Treasury is expanding eligible uses of
SLFRF funds to include infrastructure
projects eligible under EPA grant
programs authorized by the WIIN
Act.
321 Eligible projects under these
programs include the installation or re-
optimization of corrosion control
treatment, replacing lead service lines,
replacing galvanized pipes downstream
of a lead service line (other than lead
pipes within a home as discussed
below), and maintaining an inventory of
the drinking water system’s service
lines. Water quality testing, compliance
monitoring, and remediation activities
in schools and other childcare facilities,
as well as activities necessary to
respond to a contaminant, are eligible
uses of SLFRF funds.
322 Remediation
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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.
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_
0.pdf.
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.
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
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
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.
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326 See Public Law 117–58, 40909(a)–(b) (Nov. 15,
2021).
327 See Public Law 117–58 § 40909(c).
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
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
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Local Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
329 See FAQ 6.10. Id.
330 See FAQ 6.12. Id.
331 See FAQ 6.16. Id.
332 See FAQ 6.4, 6.17. Id.
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,330
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
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Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
334 See FAQ 6.12. Id.
335 See FAQ 6.16. Id.
336 See FAQ 6.4, 6.17. Id.
337 In 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
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,335 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
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refers to broadband infrastructure that is designed
to reliably meet or exceed at least 100 Mbps
download speeds and 100 Mbps upload speeds.
338 See FAQ 6.11. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
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_upgrades_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
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
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
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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-superior-medium-21st-century-broadband
(providing a technical background comparing fiber
technology to other legacy technologies).
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-21st-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.pdf.
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
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,
340 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
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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.
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
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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).
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.
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
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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.
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
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:
• 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:
Æ 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
Æ 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
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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).
350 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).
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
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
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
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
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credits work?, https://www.taxpolicycenter.org/
briefing-book/how-do-state-earned-income-tax-
credits-work/ (last visited May 9, 2021).
354 Assistance must be consistent with eligible
uses of SLFRF funds. See section Eligible Uses of
this SUPPLEMENTARY INFORMATION.
355 See Statement on State Fiscal Recovery Funds
and Tax Conformity, April 7, 2021, available at
https://home.treasury.gov/news/press-releases/
jy0113.
356 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).
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,
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
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.
356 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
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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/prices-inflation/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.treasury.gov/news/press-releases/
jy0453.
360 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.
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-
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
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
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Policy Center for state-level EITC changes for 2004–
2017.
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
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
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final rule, calculating the amount of funds used in
violation of the tax offset provision.
364 See Reporting Guidance, Section C.11,
available at https://home.treasury.gov/system/files/
136/SLFRF-Compliance-and-Reporting-
Guidance.pdf.
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
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
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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).
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
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(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.’’
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.
government services to the extent of
revenue loss.366
As explained in greater detail below,
Treasury, in the final rule, has retained
these restrictions and is clarifying that
these restrictions on the use of SLFRF
funds apply to all eligible use
categories.
Public Comments
Several commenters suggested that
debt service and reserve replenishment
should qualify as the provision of a
government service and be an eligible
use of funds, up to the amount of
revenue loss due to the pandemic. Many
commenters indicated that they had
been forced to borrow money or dip into
reserve funds to continue providing
government services during the public
health emergency and that using SLFRF
funds for resulting debt service or
reserve replenishment costs should
therefore be considered a government
service.
Many comments from Tribal
governments noted that their
governments depend on revenue from
Tribal enterprises to pay government
debts and provide services. The
comments suggest that it should be an
eligible use of SLFRF to replace lost
revenue from these enterprises that
would typically be used to pay debt
service costs. Other commenters argued
that paying the interest or principal on
debt should in some cases be considered
provision of government services and an
eligible use of funds as such
expenditures facilitate the provision of
government services.
Some commenters argued that debt
costs or reserve drawdowns during the
public health emergency constitute a
negative economic impact to recipient
governments, and thus debt service or
reserve replenishment should be an
eligible use to respond to that negative
economic impact. For example, several
commenters suggested that there should
be a specific carve-out allowing the use
of SLFRF funds for debt service on debt
incurred for government services after
January 27, 2020, the start of the public
health emergency, or short-term debt
incurred for this purpose. Others
suggested that recipient governments
should be able to service debt, up to the
amount of debt incurred in direct
response to the pandemic. These
commenters generally reasoned that the
cost of responding to the public health
emergency and its negative economic
impacts prior to APRA’s passage
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.
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603(c)(1).
369 See 35.6(b); Coronavirus State and Local Fiscal
Recovery Funds, 86 FR at 26786.
370 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.
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
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.
370
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
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
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Percent Budget Cap Calculation can be found at:
https://home.treasury.gov/system/files/136/NEU-
Update-75-Percent-Budget-Cap.pdf.
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.
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.
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
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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,
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Funds, Frequently Asked Questions, as of July 19,
2021; https://home.treasury.gov/system/files/136/
SLFRPFAQ.pdf. 376 See FAQ 4.10. Id.
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
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:
Æ 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.
Æ 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.
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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
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
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responsibilities.
378 Id.
379 Coronavirus Relief Fund for States, Tribal
Governments, and Certain Eligible Local
Governments, 86 FR at 4192.
380 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.
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.
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
Fund.
379 Recipients may use SLFRF
funds to fund the principal of the loan
and in that case must track repayment
of principal and interest (i.e., ‘‘program
income,’’ as defined under 2 CFR 200).
When the loan is made, recipients must
report the principal of the loan as an
expense.
Repayment of principal may be re-
used only for eligible uses and is subject
to restrictions on the timing of the use
of funds. Interest payments received
prior to the end of the period of
performance will be considered an
addition to the total award and may be
used for any purpose that is an eligible
use of funds under the statute and final
rule. Recipients are not subject to
restrictions under 2 CFR 200.307(e)(1)
with respect to such payments.
For loans with maturities longer than
December 31, 2026, the recipient must
estimate the cost to the recipient of
extending the loan over the life of the
loan. In other words, at origination, the
recipient must measure the projected
cost of the loan and may use SLFRF
funds for the projected cost of the loan.
Recipients have two options for
estimating this amount: They may
estimate the subsidy cost (i.e., net
present value of estimated cash flows)
or the discounted cash flow under
current expected credit losses (i.e.,
CECL method). See further guidance
issued by Treasury for further
explanation.
380
Public Comment: Many commenters
asked for further clarification on the
treatment of loans and the calculation of
‘‘costs incurred.’’ Some commenters
requested that grants made for eligible
activities prior to December 31, 2024 to
a revolving loan fund, an economic
development corporation, a land bank,
or a similar facility should be
considered obligated and expended at
the time of the grant. This would allow
funds to be expended by the grantee
beyond the covered period and for
funds returned to the grantee to be re-
invested in further uses outside of the
covered period.
Treasury Response: The final rule
maintains the treatment of loans from
the interim final rule and subsequent
guidance, as discussed above. This
approach is consistent with the
statutory requirement that funds be used
for costs incurred for eligible purposes
by December 31, 2024 and is consistent
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
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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-
recovery-funds/recipient-compliance-and-reporting-
responsibilities.
383 Id.
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
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
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385 Treasury will also consider the tax offset
provision on an annual basis.
386 Funds subject to recoupment cannot later be
returned.
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
I. Remediation and Recoupment
Sections 602(e) and 603(e) of the
Social Security Act provide the
Secretary with the power to recoup
‘‘funds used in violation’’ of the Social
Security Act. The interim final rule
implemented these provisions by
establishing a process for recoupment.
Treasury may identify funds used in
violation of the Social Security Act
based on information submitted by
recipients, including as part of reporting
requirements, as well as information
from other sources.
385 If a potential
violation is identified, Treasury will
provide the recipient an initial written
notice of the amount subject to
recoupment along with an explanation
of such amounts. A recipient then has
60 calendar days following receipt of a
recoupment notice to submit a request
for reconsideration containing any
information it believes supports its use
of funds. Within 60 calendar days of
receipt of the request for
reconsideration, the interim final rule
provided that a recipient will receive a
final notice of the Secretary’s decision
to affirm, withdraw, or modify the
recoupment notice. If the recipient did
not submit a request for reconsideration,
the initial notice of recoupment would
be deemed a final notice. A recipient
would then be required to repay any
amounts subject to recoupment within
120 calendar days of either the initial
recoupment notice, if the recipient does
not request reconsideration, or the final
recoupment notice, if the recipient does
request reconsideration.
Public Comments
Treasury received several comments
on the process for recoupment. For
instance, some commenters, including
many Tribal governments, requested
additional time to file a request for
reconsideration and submit repayment
to ensure that small entities have the
time necessary to carry out any
logistical steps and consult with
counsel. Treasury was also asked to
align its recoupment process with that
of the Office of the Inspector General
and other departmental administrative
processes to resolve findings, agency
decisions, and related timelines. One
commenter asked if the 120-calendar-
day time limit for repayment was based
on the initial notice, rather than a final
decision issued by the Secretary.
Several commenters expressed concern
regarding the recoupment process,
arguing that consideration of ‘‘all
relevant facts and circumstances’’
provided Treasury with too much
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
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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.
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
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
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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.
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
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
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Occupational Employment and Wage Estimates,
https://www.bls.gov/oes/current/oes_nat.htm (last
visited November 9, 2021).
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
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
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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
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require, that recipients pursue broadband
infrastructure projects in locations not currently
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).
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
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
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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.
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Recovery Funds, Frequently Asked Questions, 10.2,
as of July 19, 2021; https://home.treasury.gov/
system/files/136/SLFRPFAQ.pdf.
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.