17.A
4368 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 159 U.S. Bureau of Labor Statistics, Employee
Benefits in the United States (March 2019), https://
www.bls.gov/ncs/ebs/benefits/2019/ownership/
civilian/table31a.pdf.
160 Maya Rossin-Slater et al., Local exposure to
school shootings and youth antidepressant use,
Proceedings of the National Academy of Sciences,
vol 117(38), pages 23484–23489 (2020), https://
www.pnas.org/content/117/38/23484; Ariel Marek
Pihl and Gaetano Basso, Did California Paid Family
Leave Impact Infant Health?, Journal of Policy
Analysis and Management, https://onlinelibrary.
wiley.com/doi/abs/10.1002/pam.2210.
161 J.C. Jacobs, A. Laporte, C.H. Van Houtven, P.C.
Coyte, Caregiving intensity and retirement status in
Canada. Social Science & Medicine, 102, 74–82
(2014), https://www.sciencedirect.com/science/
article/abs/pii/S0277953613006631.
162 E. Lightfoot, R.P. Moone, Caregiving in times
of uncertainty: Helping adult children of aging
parents find support during the COVID–19
outbreak, Journal of Gerontological Social Work,
63(6–7), 542–552 (2020), https://www.tandfon
line.com/doi/abs/10.1080/01634372.2020.1769793.
163 Note: ‘‘Caregiving intensity’’ is defined as the
amount and type of care provided by informal
caregivers; ‘‘Caregiving burden’’ is defined as the
impacts on physical and mental health, and health-
related quality of life of informal caregivers.
164 SA Cohen, ZJ Kunicki, MM Drohan, ML
Greaney, Exploring Changes in Caregiver Burden
and Caregiving Intensity due to COVID–19,
Gerontology and Geriatric Medicine (January 2021),
doi:10.1177/2333721421999279.
165 Id.
166 Jennifer Tolbert et al., Key Facts about the
Uninsured Population, Kaiser Family Foundation
(November 6, 2020), https://www.kff.org/uninsured/
issue-brief/key-facts-about-the-uninsured-
population/.
167 Joshua Aarons et. al., As the COVID–19
Recession Extended into the Summer of 2020, More
Than 3 Million Adults Lost Employer-Sponsored
Health Insurance Coverage and 2 Million Became
Uninsured, Urban Institute (September 18, 2020),
https://www.urban.org/research/publication/covid-
19-recession-extended-summer-2020-more-3-
million-adults-lost-employer-sponsored-health-
insurance-coverage-and-2-million-became-
uninsured.
168 Centers for Medicare and Medicaid Services,
Medicaid and CHIP Enrollment Trends Snapshot
through September 2020 (Washington: 2021),
available at https://www.medicaid.gov/sites/
default/files/2021-01/september-medicaid-chip-
enrollment-trend-snapshot.pdf.
169 Centers for Medicare and Medicaid Services,
2021 Federal Health Insurance Exchange Weekly
Enrollment Snapshot: Final Snapshot (January 12,
2021) available at https://www.cms.gov/newsroom/
fact-sheets/2021-federal-health-insurance-
exchange-weekly-enrollment-snapshot-final-
snapshot.
170 Sara R. Collins, Munira Z. Gunja, and
Gabriella N. Aboulafia, U.S. Health Insurance
Coverage in 2020: A Looming Crisis in Affordability
(New York: Commonwealth Fund, 2020), available
at https://www.commonwealthfund.org/
publications/issue-briefs/2020/aug/looming-crisis-
health-coverage-2020-biennial.
171 Id.
172 Federal Deposit Insurance Corporation, FDIC
National Survey of Unbanked and Underbanked
Households (2015), https://www.fdic.gov/household
survey/2015/2015execsumm.pdf.
173 Federal Deposit Insurance Corporation, How
America Banks: Household Use of Banking and
Financial Services 2019 FDIC Survey, https://
www.fdic.gov/analysis/household-survey/
2019report.pdf.
For workers that are also caregivers
for children, seniors, or other family
members, there may be a similar need
for—and benefits of—paid family leave.
For example, some workers may have
struggled during the pandemic to
balance caring for children, as schools
and daycares closed, and working. For
new parents, paid parental leave results
in fewer infant hospitalizations,
lowering parental stress, increasing
parental involvement, and improving
the overall health of parent and child.
160
COVID–19 has also increased the levels
of ‘‘caregiving intensity’’
161 and
‘‘caregiving burden’’162 for those
providing care to seniors or older family
members.
163 164 When surveyed, more
than half of caregivers reported that
COVID–19 increased both the amount of
caregiving responsibilities they had as
well as the negative physical and mental
impacts their caregiving responsibilities
had on themselves.
165
Treasury Response: Treasury agrees
that these constitute impacts of the
pandemic, and accordingly, under the
final rule, creating, expanding, or
financially supporting paid sick,
medical, or family leave programs is an
enumerated eligible use of funds to
respond to the negative economic
impacts of the pandemic.
12. Health insurance.
Public Comment: Several commenters
recommended that uses of funds to
expand access to health insurance be
enumerated eligible uses; commenters
believed that the heightened risk of
illness or hospitalization due to COVID–
19 had increased the negative economic
impacts of lacking health insurance.
Background: In 2019, prior to the
pandemic, it was estimated that 11
percent of nonelderly adults lacked
health insurance.
166 By mid-2020, job
loss had resulted in an estimated 3.3
million people losing their employer
sponsored insurance, resulting in an
additional 2 million uninsured
adults.
167 Participation in Medicaid, the
Children’s Health Insurance Program
(CHIP), and the Affordable Care Act
(ACA) marketplace played an important
role in minimizing the number of
people who completely lost health
insurance during the early phases of the
pandemic; Medicaid and CHIP
enrollment increased by 9 percent from
February to September 2020
168 and 8.3
million people enrolled in insurance
through the ACA marketplace.
169
Although the ACA, CHIP, and
Medicaid have significantly reduced the
number of uninsured Americans
through the pandemic and the economic
downturn, adequate coverage and
affordability still remains an issue for
many. In 2020, 21 percent of working-
age adults were inadequately insured,
meaning even if they had insurance,
they incurred a significant amount of
out-of-pocket costs.
170 Additionally, 37
percent of adults reported struggling
with medical bills or medical debt and
71 percent of adults who did not
purchase insurance cited affordability as
the main factor.
171
Treasury Response: Treasury agrees
that loss of health insurance, increased
financial risk from lacking health
insurance, or excessive out-of-pocket
healthcare costs constitute negative
economic impacts of the pandemic.
Under the final rule, programs or
services to expand access to health
insurance coverage are an enumerated
eligible use as assistance to households,
for example, subsidies for health
insurance premiums or expansion of a
recipient’s health insurance plan to
cover additional employees who
currently lack coverage.
13. Services for the unbanked and
underbanked.
Public Comment: One commenter
expressed support for the inclusion of
services to increase banking access as an
allowable expense under SLFRF. The
commenter recommended that states be
encouraged to offer opportunities for
consumers to open safe and affordable
accounts capable of receiving direct
payments. The commenter emphasized
that allowing unbanked and
underbanked households to receive
funds securely through no-fee, direct
deposit will help connect or reconnect
consumers to the mainstream financial
system.
Background: Banking inequities can
make it difficult for unbanked or
underbanked households to access
housing, jobs, and other important
economic opportunities. Being
unbanked or underbanked can also
make it challenging for households to
apply for and receive financial
assistance, including services like
pandemic emergency housing
assistance.
Safe, affordable, and accessible
financial services play a critical role in
assisting households in the United
States in managing income volatility
and cash flow shortages.
172 Currently,
over 5 percent of families, or 7 million
households are ‘‘unbanked,’’ meaning
they do not have a bank account.
173
Low-income households, non-white
households, and households with
individuals with disabilities were even
more likely to be unbanked. In 2019, 16
percent of Native American households,
14 percent of Black households, and 12
percent of Hispanic households were
unbanked, compared to 2.5 percent of
white households. Additionally,
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4369 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 174 Board of the Governors of the Federal Reserve
System, Report on the Economic Well-Being of U.S.
Households in 2018–May 2019, https://www.federal
reserve.gov/publications/2019-economic-well-being-
of-us-households-in-2018-banking-and-credit.htm.
175 Zaheer Allam, The Forceful Reevaluation of
Cash-Based Transactions by COVID–19 and Its
Opportunities to Transition to Cashless Systems in
Digital Urban Networks. Surveying the Covid-19
Pandemic and its Implications (2020): 107–117.
doi:10.1016/B978–0–12–824313–8.00008–5.
176 Bureau of Labor Statistics, Labor Force
Statistics from the Current Population Survey:
Concepts and Definitions, https://www.bls.gov/cps/
definitions.htm (last visited November 9, 2021).
177 Id.
underbanked households—those that
have a bank account but rely on
alternative financial services, such as
money orders, payday loans, and check
cashing services— account for 16
percent of all households in the United
States.
174 As a result of the COVID–19
pandemic, new social distancing
protocols have, in some instances, made
it more difficult to perform financial
transactions with paper instruments,
like banknotes, coinage, paper checks,
or money orders. Households
constrained to these payment methods
may face challenges receiving
government assistance. Additionally,
businesses have transitioned to cashless
payments systems to promote
contactless payments.
175 As a result,
unbanked individuals may face
additional challenges conducting
financial transactions.
Treasury Response: Recognizing these
challenges, Treasury is clarifying that
recipients may use SLFRF funds to
provide financial services that facilitate
the delivery of federal, state, or local
benefits (e.g., Child Tax Credit, Earned
Income Tax Credit, tax refunds, or
emergency housing or food assistance
funds). The following includes a non-
exhaustive list of uses to provide
financial services to unbanked and
underbanked households:
• Provide low or no cost financial
services, including in conjunction with
administration of benefits, such as pre-
paid debit cards, e.g., via Economic
Impact Payment or General Purpose
Reloadable pre-paid cards or for the
development of public banking
infrastructure that can support benefit
delivery.
• Provide transitional services to
facilitate long-term access to banking
and financial services.
• Provide financial literacy programs
and conduct community outreach and
deploy engagement resources to
increase awareness about low-cost, no-
overdraft fee accounts, pilot new
strategies and approaches that help
overcome barriers to banking access and
support the gathering and sharing of
information in ways that improve
equity, such as community meetings,
partnerships with community-based
organizations, online surveys, focus
groups, human-centered design
activities, and other community
engagement activities.
Assistance to Unemployed and
Underemployed Workers
The interim final rule included
assistance to unemployed workers as an
enumerated eligible use, including
‘‘services like job training to accelerate
rehiring of unemployed workers.’’
Treasury provided further guidance,
based on recipient questions after the
interim final rule, that eligible uses
under this section also include ‘‘other
efforts to accelerate rehiring and thus
reduce unemployment, such as
childcare assistance, assistance with
transportation to and from a jobsite or
interview, and incentives for newly
employed workers[,]’’ as well as
assistance to unemployed workers
seeking to start small businesses.
Finally, further guidance also provided
that ‘‘public jobs programs, subsidized
employment, combined education and
on-the-job training programs, or job
training to accelerate rehiring or address
negative economic or public health
impacts experienced due to a worker’s
occupation or level of training’’ are all
enumerated eligible uses as assistance to
unemployed or underemployed
workers.
The interim final rule defined eligible
beneficiaries of assistance as
‘‘individuals who want and are
available for work, including those who
have looked for work sometime in the
past 12 months or who are employed
part time but who want and are
available for full-time work.’’ This
definition is based on definitions used
by the Bureau of Labor Statistics to
define individuals currently
unemployed, as well as persons
marginally attached to the labor force
and working part-time for economic
reasons.
176 The latter two classifications
are types of labor underutilization, or
‘‘underemployed’’ workers.
177 Finally,
the interim final rule specified that
assistance to unemployed workers
included both workers who lost their
job during the pandemic and resulting
recession and workers unemployed
when the pandemic began who saw
further deterioration of their economic
prospects due to the pandemic.
Public Comment: Commenters
generally supported the inclusion of this
enumerated eligible use. One
commenter recommended including
assistance for underemployed workers
who took jobs due to the pandemic that
did not fully utilize their skillset or did
not provide the hours, wages, or job
quality desired. Treasury has also
received recipient questions on whether
job fairs or grants to businesses to hire
underserved workers are eligible uses
under this category. Another commenter
recommended flexibility in eligible
workforce development programs,
arguing that rural areas may face
particular challenges.
Treasury Response: Treasury is
maintaining this eligible use in the final
rule, including the enumerated eligible
services in the interim final rule and
subsequent guidance. Treasury is also
confirming that job fairs or grants to
businesses to hire underserved workers
are eligible uses under this section.
Treasury is also enumerating that job
and workforce training centers are
eligible capital expenditures, so long as
they adhere to the standards and
presumptions detailed in the section
Capital Expenditures in General
Provisions: Other.
The final rule maintains the definition
of eligible beneficiaries, which is
aligned with the Bureau of Labor
Statistics’ definitions of unemployed
workers and other labor
underutilization, using a common,
widely known definition that
incorporates a broad group of
individuals both unemployed or whose
skills are otherwise underutilized in the
labor market.
In addition, recognizing that the
pandemic has generated broad
workforce disruption, in the final rule,
Treasury is making clear that recipients
may provide job training or other
enumerated types of assistance to
individuals that are currently employed
but are seeking to move to a job that
provides better opportunities for
economic advancement, such as higher
wages or more opportunities for career
advancement.
Recipient Unemployment Insurance
Trust Funds and Related Expenses
Under the interim final rule, a
recipient may use funds to make
deposits into its account of the
Unemployment Trust Fund established
under section 904 of the Social Security
Act (42 U.S.C. 1104) up to the level
needed to restore the pre-pandemic
balance of such account as of January
27, 2020 or to pay back advances
received under Title XII of the Social
Security Act (42 U.S.C. 1321) for the
payment of benefits between January 27,
2020 and May 17, 2021. These costs
support the solvency of the
unemployment insurance system and,
ultimately, unemployment insurance
benefits provided to unemployed
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4370 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 178 Note that, while the economic harm being
addressed accrued before March 3, 2021, the cost
incurred to address the harm occurs after March 3,
2021 and provides assistance to unemployed
workers, an eligible use of SLFRF funds.
179 See, e.g., U.S. Department of the Treasury,
More Information on the Conclusion of the Public
Comment Period and the Interim Final Rule on the
Coronavirus State and Local Fiscal Recovery Funds,
https://home.treasury.gov/system/files/136/IFR-
Explainer.pdf.
workers during the pandemic.178 The
interim final rule also posed the
question of what, if any, conditions
should be considered to ensure that
funds used under this eligible use
category repair economic impacts of the
pandemic and strengthen
unemployment insurance systems.
Public Comment: Inclusion as an
Eligible Use and Conditions:
Commenters expressed mixed
perspectives on this eligible use
category. Some commenters supported
its inclusion, arguing that
unemployment insurance systems have
faced significant costs to support
unemployed workers during the
pandemic and that this constitutes a
negative economic impact that SLFRF
funds should be able to address. Other
commenters opposed this eligible use
category, arguing that funds used under
this category may not ultimately support
unemployed workers. Some
commenters noted that unemployment
insurance taxes on businesses
automatically increase when trust fund
balances are low and suggested that
permitting the deposit of funds into
unemployment insurance trust funds
prevents a tax increase on businesses,
some of which may not have faced
negative economic impacts from the
pandemic, rather than providing
assistance to unemployed workers.
Other comments suggested that deposits
are better thought of as savings for
future needs than assistance to
unemployed workers in the near term.
Responding to the interim final rule’s
question, several commenters suggested
that, if Treasury maintains this eligible
use, the final rule should require
detailed reporting on funds used under
this category or place conditions on this
category to increase the likelihood that
funds ultimately support unemployed
workers. For example, some
commenters suggested that recipients
that deposit SLFRF funds into their trust
fund should be barred from cutting
unemployment insurance benefits for
workers during the period of
performance or from erecting new
barriers to accessing benefits (e.g.,
through the application process and
ongoing requirements to receive
benefits). One commenter, noting that
unemployment insurance benefits often
provide low rates of wage replacement
and do not cover some types of
unemployed workers, argued that
recipients should not be permitted to
deposit funds into the trust fund unless
the recipient concurrently expands
benefits. Finally, one commenter
suggested a cap on the amount of funds
that can be used for this purpose.
Treasury Response: Inclusion as an
Eligible Use and Conditions: In the final
rule, Treasury is maintaining the
inclusion of this eligible use category.
Because unemployment insurance trust
funds directly fund benefits to
unemployed workers, maintaining the
solvency of the trust fund is critical to
the continued provision of assistance to
unemployed workers. Further, funds
deposited into the trust fund must be
used as assistance to unemployed
workers, an eligible use of SLFRF funds.
Finally, while, in the absence of the
SLFRF, trust fund deposits would likely
be funded through increases on
employer payroll taxes, the eligibility of
uses of SLFRF funds does not depend
on how obligations would otherwise be
satisfied if the SLFRF were not available
for this use.
While deposits to unemployment
insurance trust funds generally serve as
assistance to unemployed workers,
recipients that make deposits but also
cut unemployment insurance benefits to
workers substantially decrease the
likelihood that the deposited funds will
assist unemployed workers. In other
words, SLFRF funds deposited into an
unemployment insurance trust fund
generally serve as assistance to
unemployed workers, unless recipients
take policy actions that substantially
decrease the extent to which SLFRF
funds would flow to unemployed
workers. As such, through December 31,
2024, recipients that deposit SLFRF
funds into an unemployment insurance
trust fund or use SLFRF funds to repay
principal on Title XII advances, may not
take action to reduce benefits available
to unemployed workers by changing the
computation method governing regular
unemployment compensation in a way
that results in a reduction of average
weekly benefit amounts or the number
of weeks of benefits payable (i.e., the
maximum benefit entitlement).
Finally, until the final rule becomes
effective on April 1, 2022, the interim
final rule remains binding and
effective.
179 These requirements were
not in effect under the interim final rule
and do not apply to funds used (i.e.,
obligated or expended) under the
interim final rule while it is in effect. In
addition, recognizing that some
recipients have taken significant steps
toward making a trust fund deposit or
repaying principal on Title XII advances
under the interim final rule, such as the
legislative appropriation of funds for
this purpose, even if a formal obligation
has not occurred, Treasury will exercise
enforcement discretion to not pursue
violations of this final rule provision
(i.e., the requirement not to reduce
benefits) for recipients that have
appropriated funds for this purpose
prior to the date of adoption of the final
rule consistent with the laws and
procedures in their jurisdiction.
Recipients should refer to Treasury’s
Statement Regarding Compliance with
the Coronavirus State and Local Fiscal
Recovery Funds Interim Final Rule and
Final Rule, which provides additional
detail on these issues.
Public Comment and Treasury
Response: Technical Corrections and
Amendments: Following the interim
final rule, Treasury received recipient
questions on whether paying interest on
advances received under Title XII of the
Social Security Act (42 U.S.C. 1321) is
an eligible use of SLFRF funds; Treasury
is clarifying that such use is
permissible, consistent with Treasury’s
treatment of the eligibility of interest on
Title XII advances under the
Coronavirus Relief Fund.
Treasury is further clarifying that
recipients may only use SLFRF funds
for contributions to unemployment
insurance trust funds and repayment of
the principal amount due on advances
received under Title XII of the Social
Security Act up to an amount equal to
(i) the difference between the balance in
the recipient’s unemployment insurance
trust fund as of January 27, 2020 and the
balance of such account as of May 17,
2021, plus (ii) the principal amount
outstanding as of May 17, 2021 on any
advances received under Title XII of the
Social Security Act between January 27,
2020 and May 17, 2021. Further,
recipients may use SLFRF funds for the
payment of any interest due on such
Title XII advances. In other words,
excluding interest due on Title XII
advances, the magnitude of the decrease
of the balance in the unemployment
insurance trust fund plus the principal
outstanding on any Title XII borrowings
made from the beginning of the public
health emergency to the date of
publication of the SLFRF interim final
rule sets a cap on the amount of SLFRF
funds a recipient may use for trust fund
contributions and repayment of
principal on Title XII advances. Further,
a recipient that deposits SLFRF funds
into its unemployment insurance trust
fund to fully restore the pre-pandemic
balance may not draw down that
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4371 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 180 U.S. Department of Health and Human
Services, COVID–19 and Economic Opportunity:
Inequities in the Employment Crisis, April 2021.
Retrieved from https://aspe.hhs.gov/sites/default/
files/migrated_legacy_files//199901/covid-
economic-equity-brief.pdf.
181 Adelle Simmons et al., Health disparities by
race and ethnicity during the COVID–19 pandemic:
Current evidence and policy approaches. U.S.
Department of Health and Human Services https://
aspe.hhs.gov/sites/default/files/migrated_legacy_
files//199516/covid-equity-issue-brief.pdf.
182 Perry, Brea L., Brian Aronson, and Bernice A.
Pescosolido, Pandemic precarity: COVID–19 is
exposing and exacerbating inequalities in the
American heartland, National Academy of Sciences
(Febuary 2021), https://www.pnas.org/content/118/
8/e2020685118.
183 Id.
184 Jesse Bennet & Rakesh Kochhar, Two
Recessions, Two Recoveries, Pew Research Center
(December 13, 2019), https://www.pewresearch.org/
social-trends/2019/12/13/two-recessions-two-
recoveries-2/.
185 Darrick Hamilton et al., Building an Equitable
Recovery: The role of Race, Labor Markets, and
Education, The New School’s Institute on Race and
Political Economy (February 2021).
186 Adhikari S, Pantaleo NP, Feldman JM,
Ogedegbe O, Thorpe L, Troxel AB. Assessment of
Community-Level Disparities in Coronavirus
Disease 2019 (COVID–19) Infections and Deaths in
Large US Metropolitan Areas. JAMA Netw Open.
2020;3(7):e2016938. doi:10.1001/
jamanetworkopen.2020.16938.
balance and deposit more SLFRF funds,
back up to the pre-pandemic balance.
Enumerated Eligible Uses for
Disproportionately Impacted
Households
Background
The COVID–19 pandemic has had
disproportionally negative impacts on
many households and communities that
were already experiencing inequality
related to race, gender, age, or income
before the pandemic. People of color,
low-income workers, and women
disproportionately lost their jobs during
the COVID–19 pandemic and
experienced disproportionate rates of
negative health outcomes.
180 181
These disproportionate negative
impacts experienced by systemically
underserved communities are not novel
to the COVID–19 pandemic and the
economic downturn. Research shows
that historically underserved
communities that are experiencing
economic and social disparities
typically experience disproportionate
impacts of economic downturns and
natural disasters.
182 This pattern held
true for the effects of COVID–19 and the
economic downturn: Historically
undeserved groups experienced
amplified negative impacts, further
widening inequality.
183
Many communities facing systemic
barriers had not yet recovered from the
impact of the Great Recession before
experiencing the impacts of COVID–19
and the economic downturn. For
example, in 2009, at the end of the Great
Recession, households without a high
school diploma had an average annual
income of $32,300 (measured in 2018
dollars). By 2018, nine years into the
economic recovery, those same
households saw their average income
increase by $600. During that same time
period, households with a bachelor’s
degree saw an increase in their average
household income of $6,100 (measured
in 2018 dollars).
184
The impact pre-existing inequalities
have on a household or community’s
ability to recover is intersectional.
Research shows that pre-existing racial
and gender disparities exacerbated the
disproportionate economic and health
impact COVID–19 and the economic
downturn had on workers of color, and
specifically, women of color.
185 Another
study found that during the first six
months of the pandemic counties that
were both high-poverty and majority
non-white experienced COVID–19
infection rates eight times higher than
high-poverty, majority white
counties.
186 Many residents in these
communities are still coping with the
negative health and economic impacts.
Summary of the Interim Final Rule and
Final Rule Structure
As described previously, the interim
final rule provided a broader list of
enumerated eligible uses to respond to
the pandemic in disproportionately
impacted communities, in recognition
that pre-existing health, economic, and
social disparities contributed to
disproportionate pandemic impacts in
certain communities and that
addressing the root causes of those
disparities constitutes responding to the
public health and negative economic
impacts of the pandemic. The interim
final rule described eligible uses in
disproportionately impacted
communities in four categories, spread
across public health and negative
economic impacts: (1) Addressing
disparities in public health outcomes,
(2) building stronger communities
through investments in housing and
neighborhoods, (3) addressing
educational disparities, and (4)
promoting healthy childhood
environments. As described above,
Treasury has moved eligible uses related
to community violence intervention,
assistance accessing or applying to
public benefits and services, affordable
housing development, healthy
childhood environments, and
addressing lost instructional time in K–
12 schools into the category ‘‘assistance
to impacted households,’’ recognizing
that these pandemic impacts were
widely shared across the country.
This section discusses enumerated
eligible uses to address health
disparities, to build stronger
communities through investments in
neighborhoods, to address educational
disparities, to provide rental assistance
vouchers or assistance relocating to
areas of greater economic opportunity,
and additional eligible uses to respond
to negative economic impacts in
disproportionately impacted
communities. While many of these
services impact both health and
economic outcomes, Treasury has
consolidated them into a single section
for simplicity and clarity and to reflect
the intertwined nature of these issues.
As a reminder, recipients can
presume these uses are eligible when
provided in a QCT, to families and
individuals living in QCTs, by Tribal or
territorial governments, or to low-
income households or communities. As
provided in section Standards:
Designating Other Disproportionately
Impacted Classes, recipients can also
provide these services to other
populations, households, or geographic
areas disproportionately impacted by
the pandemic. Recipients may also
identify additional disproportionate
impacts of the pandemic and design an
appropriate response to address that
harm. For details on eligibility
standards and presumed eligible
populations, see section General
Provisions: Structure and Standards.
Enumerated Eligible Uses for
Disproportionately Impacted
Households
1. Addressing health disparities.
Public Comment: General: In general,
commenters supported eligible uses to
address health disparities and support
health equity; several commenters
highlighted the disparities faced by
communities of color and low-income
populations, as well as the importance
of community engagement in
developing effective programs to serve
disproportionately impacted
communities. Many commenters
recommended additional enumerated
eligible uses to address health
disparities; these are discussed further
below in this section.
Treasury Response: In line with
commenters’ recommendations, the
final rule maintains several enumerated
eligible uses to address health
disparities, specifically:
a. Community health workers.
Treasury received few comments on
community health workers, though one
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4372 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 187 See, e.g., Centers for Disease Control and
Prevention, Community Health Worker (CHW)
Toolkit, https://www.cdc.gov/dhdsp/pubs/toolkits/
chw-toolkit.htm (last visited November 9, 2021).
188 Environmental Protection Agency, 40 CFR
141.80(c)(1), https://www.ecfr.gov/current/title-40/
chapter-I/subchapter-D/part-141/subpart-I/section-
141.80.
189 See, e.g., Opportunity Insights, Creating Moves
To Opportunity (August 2019), https://
opportunityinsights.org/policy/cmto/.
190 U.S. Department of Health and Human
Services, Neighborhood and Built Environment,
https://health.gov/healthypeople/objectives-and-
data/browse-objectives/neighborhood-and-built-
environment#cit1 (last visited November 9, 2021).
191 Social determinants of health are ‘‘the
conditions in the places where people live, learn,
work, and play that affect a wide range of health
risks and outcomes.’’ Centers for Disease Control
and Prevention, About Social Determinants of
Health (SDOH), https://www.cdc.gov/social
determinants/about.html (last visited November 9,
2021).
192 In public health, this is referred to as ‘‘built
environment,’’ or the man-made physical aspects of
a community (e.g., homes, buildings, streets, open
spaces, and infrastructure).
requested further clarification on their
role.187 Treasury is maintaining this
eligible use in the final rule.
b. Remediation of lead paint or other
lead hazards. The interim final rule
included remediation of lead paint or
other lead hazards as an enumerated
eligible use to address health
disparities.
Public Comment: Treasury received
several comments asking for
clarification on the eligibility of a
particular use that would indirectly
address lead pollution. For example, a
commenter requested the ability to fund
remedial actions, such as filtration and
plumbing procedures to help address
lead pollution. One commenter
requested that private wells be eligible
for funding to address contamination
with substances such as lead. Other
commenters requested that Treasury
allow replacement of lead pipes as an
eligible use of funds.
Treasury Response: Recipients may
make a broad range of water
infrastructure investments under section
602(c)(1)(d) and 603(c)(1)(d), which can
include lead service line replacement
and other activities to identify and
remediate lead in water. These uses are
discussed in greater detail in section
Water and Sewer Infrastructure of this
Supplemental Information.
Treasury has further determined that
several of the services identified by
commenters are appropriate responses
to address health disparities in
disproportionately impacted
households. These services were eligible
under the interim final rule and
continue to be so under the final rule.
These services include remediation to
address lead-based public health risk
factors, outside of lead in water,
including evaluation and remediation of
lead paint, dust, or soil hazards; testing
for blood lead levels; public outreach
and education; and emergency
protection measures, like bottled water
and water filters, in areas with an action
level exceedance for lead in water in
accordance with the Environmental
Protection Agency’s Lead and Copper
Rule.
188
Further, Treasury had determined that
certain capital expenditures, including
improvements to existing facilities to
remediate lead contaminants (e.g.,
removal of lead paint), are eligible
responses, although this does not
include construction of new facilities
for the purpose of lead remediation.
Recipients should make sure that all
capital expenditures adhere to the
standards and presumptions detailed in
section Capital Expenditures in General
Provisions: Other.
c. Medical facilities. Treasury
received a few comments from
recipients seeking to use SLFRF funds
to build new medical facilities, such as
hospitals or public health clinics, to
serve disproportionately impacted
communities. Given the central role of
access to high-quality medical care in
reducing health disparities and
addressing the root causes that led to
disproportionate impact COVID–19
health impacts in certain communities,
the final rule recognizes that medical
equipment and facilities designed to
address disparities in public health
outcomes are eligible capital
expenditures. This includes primary
care clinics, hospitals, or integrations of
health services into other settings.
Recipients should make sure that all
capital expenditures adhere to the
standards and presumptions detailed in
section Capital Expenditures in General
Provisions: Other.
2. Housing vouchers and assistance
relocating. In addition to other housing
services, the interim final rule permitted
a variety of rental assistance approaches
to support low-income households in
securing stable, long-term housing,
including housing vouchers, residential
counseling, or housing navigation
assistance to facilitate household moves
to neighborhoods with high levels of
economic opportunity and mobility for
low-income residents. Examples could
include SLFRF-funded analogues to
Section 8 Housing Choice vouchers;
other kinds of rent subsidies, including
shallow subsidies; and programs to help
residents move to areas with higher
levels of economic mobility.
189 Treasury
did not receive public comments on
these enumerated eligible uses.
Treasury Response: Treasury
maintains the eligibility of vouchers and
relocation assistance in the final rule.
3. Building strong, healthy
communities through investments in
neighborhoods. While the interim final
rule included a category of enumerated
eligible uses for ‘‘building stronger
communities through investments in
housing and neighborhoods,’’ the
examples of services provided generally
focused on housing uses. In response to
questions following release of the
interim final rule, Treasury issued
further guidance clarifying that
‘‘investments in parks, public plazas,
and other public outdoor recreation
spaces may be responsive to the needs
of disproportionately impacted
communities by promoting healthier
living environments.’’
Public Comment: General: A
significant theme across many public
comments was the importance of
neighborhood environment to health
and economic outcomes and the
potential connections between
residence in an underserved
neighborhood and disproportionate
impacts from the pandemic. Many
commenters highlighted the connection
between neighborhoods and health
outcomes, including citing public health
research linking neighborhood traits to
health outcomes. For example, the CDC
states that ‘‘neighborhoods people live
in have a major impact on their health
and well-being.’’
190 As such, CDC
identifies ‘‘neighborhoods and built
environment’’ as one of five key social
determinants of health
191 and includes
‘‘creat[ing] neighborhoods and
environments that promote health and
safety’’ as one of the agency’s goals for
social determinants of health outcomes.
a. Neighborhood features that
promote improved health and safety
outcomes.
Public Comment: Commenters argued
that neighborhoods impact physical
health outcomes in several ways. First,
some commenters reasoned that the
physical environment and amenities in
a community
192 influence a person’s
level of physical activity, with features
like parks, recreation facilities, and safe
sidewalks promoting increased physical
activity that improves health outcomes.
Conversely, commenters argued that a
lack of these features in a neighborhood
could dampen physical activity and
contribute to health conditions like
obesity that are risk factors for more
severe COVID–19 health outcomes.
Second, some commenters also
suggested that access to healthy food in
a neighborhood impacts health
outcomes. These commenters reasoned
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4373 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 193 J Beaulac, E Kristjansson, S Cummins, A
systematic review of food deserts, 1966–2007, Prev
Chronic Dis 2009;6(3):A105, http://www.cdc.gov/
pcd/issues/2009/jul/08_0163.htm.
194 See, e.g., Yijun Zhang et al. The Association
between Green Space and Adolescents’ Mental
Well-Being: A Systematic Review. International
journal of environmental research and public health
vol. 17,18 6640 (Sep. 11 2020), doi:10.3390/
ijerph17186640; EC South, BC Hohl, MC Kondo, JM
MacDonald, CC Branas, Effect of Greening Vacant
Land on Mental Health of Community-Dwelling
Adults: A Cluster Randomized Trial, JAMA Netw
Open. 2018;1(3):e180298 (2018), available at:
doi:10.1001/jamanetworkopen.2018.0298.
195 See, e.g., Yanqing Xu, Cong Fu, Eugene
Kennedy, Shanhe Jiang, Samuel Owusu-Agyemang,
The impact of street lights on spatial-temporal
patterns of crime in Detroit, Michigan, Cities,
Volume 79, Pages 45–52, ISSN 0264–2751 (2018),
https://doi.org/10.1016/j.cities.2018.02.021.
196 A. Chalfin, B. Hansen, J. Lerner et al.,
Reducing Crime Through Environmental Design:
Evidence from a Randomized Experiment of Street
Lighting in New York City, Journal of Quantitative
Criminology (2021), https://doi.org/10.1007/s10940-
020-09490-6.
197 See, e.g., American Public Health Association,
Improving Health and Wellness through Access to
Nature (November 5, 2013), https://www.apha.org/
policies-and-advocacy/public-health-policy-
statements/policy-database/2014/07/08/09/18/
improving-health-and-wellness-through-access-to-
nature.
198 LR Larson et al., Urban Park Use During the
COVID–19 Pandemic: Are Socially Vulnerable
Communities Disproportionately Impacted?, Front.
Sustain. Cities 3:710243 (2021), https://doi.org/
10.3389/frsc.2021.710243.
199 JP Despre´s, Severe COVID–19 outcomes—the
role of physical activity. Nat Rev Endocrinol 17,
451–452 (2021). https://doi.org/10.1038/s41574-
021-00521-1.
200 Caroline George and Adie Tomer, Beyond
‘food deserts’: America needs a new approach to
mapping food, Brookings Institution (August 17,
2021), https://www.brookings.edu/research/beyond-
food-deserts-america-needs-a-new-approach-to-
mapping-food-insecurity/.
201 However, Treasury cautions recipients that
general infrastructure development, including street
or road construction, remains a generally ineligible
use of funds under the final rule. Sidewalks and
pedestrian safety should be the predominant
component of uses of funds in this category. While
projects may include ancillary construction needed
to execute the predominant component, a project
that predominantly involves street construction or
repair to benefit vehicular traffic would be
ineligible.
that lacking adequate access to
affordable, healthy food or living in a
‘‘food desert’’ may contribute to
disparities in diet that influence health
outcomes, including contributing to pre-
existing conditions that increased risk
for severe COVID–19 outcomes. These
commenters cited public health research
finding ‘‘clear evidence for disparities in
food access in the United States by
income and race.’’
193
Some commenters also suggested that
neighborhood environment is connected
to other public health outcomes, like
mental health and public safety. For
example, some research suggests that
living in neighborhoods with green
space and tree cover correlates with
improved mental health outcomes.
194
Finally, some commenters argued that
activities like installing streetlights,
greening or cleanup of public spaces or
land, and other efforts to revitalize
public spaces would support improved
public safety.
195 196
These commenters recommended that
Treasury include as an enumerated
eligible use in disproportionately
impacted communities projects to
develop neighborhood features that
promote improved health and safety
outcomes, such as parks, green spaces,
recreational facilities, sidewalks,
pedestrian safety features like
crosswalks, projects that increase access
to healthy foods, streetlights,
neighborhood cleanup, and other
projects to revitalize public spaces.
Background: Investments in
neighborhood features, including parks,
recreation facilities, sidewalks, and
healthy food access, can work to
improve physical and mental health
outcomes. Allowing people access to
nature, including parks, has been
connected to decreased levels of
mortality and illness and increased
well-being.
197 Urban park use during
the COVID–19 pandemic may have
declined among lower-income
individuals.
198 Encouraging physical
activity can also play a role in health
outcomes, as a sedentary lifestyle is a
risk factor for chronic diseases and more
severe COVID–19 outcomes.
199 Parks,
recreation facilities, and sidewalks can
promote healthier living environments
by allowing for safe and socially
distanced recreation during the COVID–
19 pandemic.
Additionally, food insecurity rates,
which are higher among lower-income
households and households of color,
doubled among all households and
tripled among households with children
during the onset of COVID–19 from
February 2020 to May 2020.
200
Improving healthy food access supports
public health, particularly among lower-
income households and households of
color that face disproportionate
outcomes.
Treasury Response: Treasury
recognizes the connection between
neighborhood built environment and
physical health outcomes as discussed
in the research and analysis provided by
commenters, including risk factors that
may have contributed to
disproportionate COVID–19 health
impacts in low-income communities.
The final rule also recognizes that the
public health impacts of the pandemic
are broader than just the COVID–19
disease itself and include substantial
impacts on mental health and public
safety challenges like rates of violent
crime, which are correlated with a
neighborhood’s built environment and
features. As such, neighborhood features
that promote improved health and
safety outcomes respond to the pre-
existing disparities that contributed to
COVID–19’s disproportionate impacts
on low-income communities.
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
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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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4375 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations handling and disposal of asbestos-
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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17.A
4376 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 205 Board of Governors of the Federal Reserve
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
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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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4378 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 220 In regard to counting employees, businesses
owned and controlled by a Tribal government are
not considered affiliates of the Tribal government
and are not considered affiliates of other businesses
owned by the Tribal government because of their
common ownership by the Tribal government or
common management, as described in 13 CFR
121.103(b)(2). This definition is consistent with the
Small Business Administration (SBA) HUBZone
definition of a ‘‘small business concern’’ relating to
Tribal governments as well as how Tribal
enterprises are defined for the State Small Business
Credit Initiative (SSBCI).
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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4379 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 221 See, e.g., Federal Reserve Bank of San
Francisco, Impacts of COVID–19 on Nonprofits in
the Western United States (May 2020), https://
www.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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4380 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 231 Note, this response is meant to clarify the
difference between nonprofits as beneficiaries and
nonprofits as subrecipients. It is not meant to limit
the types of relationships that a recipient may enter
into with a nonprofit as permitted under the
Uniform Guidance.
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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4381 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 234 § 35.3 Definitions.
235 Treasury considered expanding the definition
of nonprofit to include 501(c)(6) organizations, as
Congress later did in the Coronavirus Response and
Consolidated Appropriations Act of 2021, but
ultimately decided to retain the original CARES Act
definition. To the extent impacted by the pandemic,
501(c)(6) organizations may be eligible to receive
funds to support eligible uses that align with their
overall purpose (e.g., tourism promotion in aid of
an impacted industry).
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.
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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.
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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.
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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
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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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4386 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 244 Recipients may determine that a portion of an
FTE’s time is dedicated to responding to the
COVID–19 public health emergency. Further, for
administrative convenience, the recipient may
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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4387 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 245 As part of accepting the Award Terms and
Conditions for SLFRF, each recipient agreed to
maintain a conflict-of-interest policy consistent
with 2 CFR 200.318(c)112 that is applicable to all
activities funded with the SLFRF award. Pursuant
to this policy, decisions concerning SLFRF must be
free of undisclosed personal or organizational
conflicts of interest, both in fact and in appearance.
A recipient may not use control over SLFRF for
their own private gain. Furthermore, no employee,
officer, or agent may participate in the selection,
award, or administration of a contract supported by
a federal award if he or she has a real or apparent
conflict of interest.
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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4388 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 246 Results for America, Invest in What Works
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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4389 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations resolution, and other expenses to expedite case
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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4390 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 250 See 25 U.S.C. 5108.
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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4391 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 251 See, e.g., ‘‘Economic Perspectives on
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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4392 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 254 Whether or not a Written Justification is
required, recipients should still determine that the
response is related and reasonably proportional to
the public health emergency and its negative
economic impacts. Treasury recognizes that
enumerated eligible uses are ‘‘related’’ to the public
health emergency and its negative economic
impacts and presumed to be reasonably
proportional, except recipients pursuing projects
with expected total capital expenditures equal to or
greater than $1 million should still independently
determine that the expenditures are a reasonably
proportional response. Enumerated projects with
total expected capital expenditures under $1
million receive a safe harbor and deemed to meet
the related and reasonably proportional standard.
255 Whether or not a Written Justification is
required, recipients should still determine that the
response is related and reasonably proportional to
the public health emergency and its negative
economic impacts. Treasury presumes that projects
with total expected capital expenditures under $1
million are reasonably proportional in size to
responding to the public health emergency and its
negative economic impacts; however, recipients
should determine that the response otherwise meets
the requirements of the standard, including that the
response is related to the public health emergency
and its negative economic impacts.
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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17.A
4393 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations including the requirement that
responses are related and reasonably
proportional to the harm or impact
identified. As part of that assessment,
these recipients may also be asked to
complete a Written Justification.
Recipients (other than Tribal
governments) are subject to the
following presumptions for the Written
Justification of the capital expenditure,
based on the total expected capital
expenditures of the project:
• Projects with total expected capital
expenditures of under $1 million:
Treasury provides a safe harbor for
unenumerated projects with total
expected capital expenditures of under
$1 million and will not require
recipients to complete, submit, or meet
the substantive requirements of a
Written Justification of the capital
expenditure. Recipients should still
make a determination as to whether the
capital expenditure is part of a response
that is related and reasonably
proportional to the public health
emergency or its negative economic
impacts.
• Projects with total expected capital
expenditures of $1 million or over:
Recipients should complete a Written
Justification of the capital expenditure
and make an independent assessment
that their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Further,
recipients will be asked to submit the
Written Justification as part of regular
reporting to Treasury.
Treasury employs a risk-based
approach to overall program
management and monitoring, which
may result in heightened scrutiny on
larger projects. Accordingly, recipients
pursuing projects with larger capital
expenditures should complete more
detailed analyses for their Written
Justification, commensurate with the
scale of the project.
Additional Provisions, Standards, and
Definitions
Strong Labor Standards in Construction
Treasury encourages recipients to
carry out projects in ways that produce
high-quality work, avert disruptive and
costly delays, and promote efficiency.
Treasury encourages recipients to use
strong labor standards, including project
labor agreements (PLAs) and
community benefits agreements that
offer wages at or above the prevailing
rate and include local hire provisions.
Treasury also recommends that
recipients prioritize in their
procurement decisions employers who
can demonstrate that their workforce
meets high safety and training standards
(e.g., professional certification,
licensure, and/or robust in-house
training), that hire local workers and/or
workers from historically underserved
communities, and who directly employ
their workforce or have policies and
practices in place to ensure contractors
and subcontractors meet high labor
standards. Treasury further encourages
recipients to prioritize employers
(including contractors and
subcontractors) without recent
violations of federal and state labor and
employment laws.
Treasury believes that such practices
will promote effective and efficient
delivery of high-quality projects and
support the economic recovery through
strong employment opportunities for
workers. Such practices will reduce
likelihood of potential project
challenges like work stoppages or safety
accidents, while ensuring a reliable
supply of skilled labor and minimizing
disruptions, such as those associated
with labor disputes or workplace
injuries. That will, in turn, promote on-
time and on-budget delivery.
Furthermore, among other
requirements contained in 2 CFR 200,
Appendix II, all contracts made by a
recipient or subrecipient in excess of
$100,000 with respect to a capital
expenditure that involve employment of
mechanics or laborers must include a
provision for compliance with certain
provisions of the Contract Work Hours
and Safety Standards Act, 40 U.S.C.
3702 and 3704, as supplemented by
Department of Labor regulations (29
CFR part 5).
Treasury will seek information from
recipients on their workforce plans and
practices related to capital expenditures
undertaken under the public health and
negative economic impacts eligible use
category with SLFRF funds. This
reporting will support transparency and
competition by enhancing available
information on the services being
provided.
Environmental, Uniform Guidance, and
Other Generally Applicable
Requirements
Treasury cautions that, as is the case
with all projects using SLFRF funds, all
projects must comply with applicable
federal, state, and local law. In the case
of capital expenditures in particular,
this includes environmental and
permitting laws and regulations.
Likewise, as with all capital expenditure
projects using the SLFRF funds, projects
must be completed in a manner that is
technically sound, meaning that it must
meet design and construction methods
and use materials that are approved,
codified, recognized, fall under standard
or acceptable levels of practice, or
otherwise are determined to be
generally acceptable by the design and
construction industry.
Further, as with all other uses of
funds under the SLFRF program, the
Uniform Guidance at 2 CFR part 200
applies to capital expenditures unless
stated otherwise. Importantly, this
includes 2 CFR part 200 Subpart D on
post-federal award requirements,
including property standards pertaining
to insurance coverage, real property,
and equipment; procurement standards;
sub-recipient monitoring and
management; and record retention and
access.
Definitions
Treasury adopts several definitions
from the Uniform Guidance at 2 CFR
200.1 under this section, including for
capital expenditures, capital assets,
equipment, and supplies.
Per the Uniform Guidance, the term
‘‘capital expenditures’’ means
‘‘expenditures to acquire capital assets
or expenditures to make additions,
improvements, modifications,
replacements, rearrangements,
reinstallations, renovations, or
alterations to capital assets that
materially increase their value or useful
life.’’ The term ‘‘capital assets’’ means
‘‘tangible or intangible assets used in
operations having a useful life of more
than one year which are capitalized in
accordance with [Generally Accepted
Accounting Principles].’’
Capital assets include lands, facilities,
equipment, and intellectual property.
Equipment means ‘‘tangible personal
property (including information
technology systems) having a useful life
of more than one year and a per-unit
acquisition cost which equals or
exceeds the lesser of the capitalization
level established by the non-Federal
entity for financial statement purposes,
or $5,000.’’ Supplies, which means all
tangible personal property other than
those included as ‘‘equipment,’’ are not
considered capital expenditures.
Recipients may also use SLFRF funds
for pre-project development costs that
are tied to or reasonably expected to
lead to an eligible capital expenditure.
For example, pre-project costs
associated with planning and
engineering for an eligible project are
considered an eligible use of funds.
c. Distinguishing Subrecipients Versus
Beneficiaries
Under the interim final rule, state,
local, and Tribal governments that
receive a federal award directly from a
federal awarding agency, such as
Treasury, are designated as ‘‘recipients,’’
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17.A
4394 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 256 In this context, a pass-through entity means a
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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17.A
4395 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations in all sections of the public health and
negative economic impacts eligible use
category, including in impacted and
disproportionately impacted
communities. The proposed additional
uses included general categories of
services (e.g., legal and social services,
long-term investments to remediate
long-term disparities, response to
natural disasters). Other suggested uses
of funds respond to needs widely
experienced across the country (e.g.,
access to and affordability of health
insurance). Finally, other suggested uses
of funds were highly specific (e.g.,
healthcare equipment for a specific
health condition, fire hydrants, weather
alert systems) or most applicable to the
particularized needs to certain
populations or geographic areas of the
United States (e.g., senior citizens,
immigrants, formerly incarcerated
individuals, responding to
environmental issues in certain
geographic regions). Other commenters
generally requested a high degree of
flexibility to respond to the particular
needs of their communities.
Treasury Response: Given the large
number and diversity of SLFRF
recipients, Treasury has aimed to
include as enumerated eligible uses
programs, services, and capital
expenditures that respond to public
health and negative economic impacts
of the pandemic experienced widely in
many jurisdictions across the country,
making it clear and simple for recipients
to pursue these enumerated eligible uses
under the final rule. This provides
enumerated eligible uses that many
recipients may want to pursue, while
including uses that are responsive to the
pandemic’s impacts across the diverse
range of SLFRF recipients. In the final
rule, Treasury has clarified several
additional uses that generally respond
to pandemic impacts experienced
broadly across jurisdictions and
populations.
Treasury has not chosen to include as
enumerated uses all uses proposed by
commenters; given the significant range,
and in some cases highly specific
nature, of the proposed uses Treasury
was not able to assess that the proposed
uses would respond to negative
economic impacts experienced
generally across the country, supporting
an enumerated eligible use available to
all recipients presumptively.
However, Treasury emphasizes that
the enumerated eligible uses are non-
exhaustive and that other uses, beyond
those enumerated, are eligible. Treasury
recognizes that the impacts of the
pandemic vary over time, by
jurisdiction, and by population; as such,
the final rule provides flexibility for
recipients to identify other public health
or negative economic impacts to
additional households, small
businesses, or nonprofits, including
classes of these entities, and pursue
programs and services that respond to
those impacts. Treasury also notes that
some populations are presumed to be
impacted or disproportionately
impacted by the pandemic, and thus
eligible for responsive services; these
presumed eligible populations may
encompass many individuals in the
specific populations for whom
commenters recommended services. For
details on these issues, see section
General Provisions: Structure and
Standards.
Infrastructure, Community
Development, and General Economic
Development
Some potential additions to
enumerated eligible uses were also
recommended by several commenters
each but are not included as enumerated
eligible uses in the final rule.
Public Comment: Infrastructure: In
the interim final rule, Treasury noted
that a ‘‘general infrastructure project, for
example, typically would not be
included [in this eligible use category]
unless the project responded to a
specific pandemic public health need.’’
Numerous commenters requested that
Treasury permit investments in
infrastructure as a response to the
public health and negative economic
impacts of the pandemic. While these
comments most commonly
recommended that constructing and
maintaining roads and surface
transportation infrastructure be eligible,
the proposed uses for infrastructure
ranged widely and included parking
lots, bridges, traffic management
infrastructure, solid waste disposal
facilities, and utility infrastructure
(outside of water, sewer, and
broadband).
Many commenters argued that
infrastructure development and
maintenance is a pressing need in their
communities and that their
communities had less need for water,
sewer, and broadband infrastructure or
other eligible uses to respond to the
public health and negative economic
impacts of the pandemic. Other
commenters argued that these uses
would stimulate the economy, attract
businesses, or allow for tourist
movement; these commenters argued
that, by generally supporting a stronger
economy or facilitating conditions that
are more conducive to business activity
and tourism, these uses respond to the
negative economic impacts of the
pandemic.
Treasury Response: In the final rule,
Treasury is maintaining the approach
under the interim final rule that general
infrastructure projects, including roads,
streets, and surface transportation
infrastructure, would generally not be
eligible, unless the project responded to
a specific pandemic public health need
or a specific negative economic impact.
The ARPA expressly includes
infrastructure if it is ‘‘necessary’’ and in
water, sewer, or broadband, suggesting
that the statute contemplates only those
types of infrastructure. Further,
responding to the public health and
negative economic impacts of the
pandemic requires identifying whether,
and the extent to which, there has been
a harm that resulted from the COVID–
19 public health emergency and
whether, and the extent to which, the
use would respond or address this
harm. Uses of funds intended to
generally grow the economy and
therefore enhance opportunities for
workers and businesses would not be an
eligible use, because such assistance is
not reasonably designed to impact
individuals or classes that have been
identified as having experienced a
negative economic impact. In other
words, there is not a reasonable
connection between the assistance
provided and an impact on the
beneficiaries. Such an activity would be
attenuated from and thus not reasonably
designed to benefit the households that
experienced the negative economic
impact.
Note, however, that Treasury has
clarified that capital expenditures that
are related and reasonably proportional
to responding to the public health and
economic impacts of the pandemic are
eligible uses of funds, in addition to
programs and services; for details on
eligibility criteria for capital
expenditures, see section Capital
Expenditures in General Provisions:
Other.
Public Comment: Community
Development Block Grant: Several
commenters recommended that
Treasury enumerate as eligible uses
those eligible under the Department of
Housing and Urban Development’s
Community Development Block Grant
(CDBG) or the Housing and Community
Development Act of 1974, which
established the CDBG program.
Commenters requested that these uses
be eligible either to respond to the
negative economic impacts of the
pandemic, or in the alternate the
disproportionate negative economic
impacts of the pandemic in certain
communities. Under the CDBG program,
recipient governments may undertake a
wide range of community and economic
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17.A
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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4397 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 258 See U.S. Department of Labor, Hazard Pay,
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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4398 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 264 See, e.g., sources such as Bureau of Labor
Statistics, Occupational Outlook Handbook,
which provide information on which
professions or occupations are typically
included in interpretations of a sector, https://
www.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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4399 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 266 See generally 29 U.S.C. 207(a); U.S.
Department of Labor, Overtime Pay Requirements of
the FLSA (Fact Sheet No. 23), https://www.dol.gov/
agencies/whd/fact-sheets/23-flsa-overtime-pay.
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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4400 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 269 See 29 U.S.C. 207(a) (‘‘[A]t a rate not less than
one and one-half times the regular rate at which he
is employed.’’).
270 All recipients are required to comply with
otherwise applicable laws, including any wage and
hour requirements in the Fair Labor Standards Act.
See generally, Department of Labor, Wages and the
Fair Labor Standards Act, https://www.dol.gov/
agencies/whd/flsa.
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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17.A
4401 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 275 Analysis of Quarterly Summary of State and
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
17.A
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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140
•Actual Revenue
•Extent of reduction in revenue
130
•Base year revenue
120 ..... counterfactual revenue
110
100
90 80
Jun-19 Dec-20 Dec-21 Dec-22 Dec-23
17.A
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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