Treasury Releases Final Rule on American Rescue Plan Fiscal Recovery Funds

Editor's note: For an overview of the current ARPA requirements and resources, see our topic page on the American Rescue Plan Act (ARPA).

On Thursday, January 6, 2022, U.S. Department of Treasury (Treasury) issued the Final Rule regarding Coronavirus State and Local Fiscal Recovery Funds (SLFRF), which

[R]esponds to public comments, implements the ARPA (American Rescue Plan Act) statutory provisions on eligible and ineligible uses of SLFRF funds, and makes several changes to the provisions of the interim final rule…

The Final Rule maintains many items of the Interim Final Rule while also providing greater flexibility and simplicity in the following areas:

• Public health and negative economic impacts;
• Premium pay;
• Revenue loss; and
• Water, sewer, and broadband infrastructure.

Public Health and Negative Economic Impacts

In responding to public health and negative economic impacts, the Final Rule states that Treasury will consider two eligibility requirements: (1) a negative public health impact or harm, and (2) the program, service, or other intervention that responds to the identified impact or harm. Recipients must identify a public health impact on a population or class and responses must be designed to benefit the individual or class that experiences the public health impact or harm.

The Final Rule also clarifies that when a recipient of SLFRF provides funds to another entity to carry out eligible uses of the funds and serve beneficiaries, that entity becomes a subrecipient and must comply with the Uniform Guidance and provisions that govern procurement and subgranting of federal funds.

To help ease the administrative burden of determining eligible populations, particularly low- and moderate-income households, the Final Rule defines low income as:

• Income at or below 185% of the Federal Poverty Guidelines for the size of its household based on the most recently published poverty guidelines by the Department of Health and Human Services (DHHS), or
• Income at or below 40% of the Area Median Income for its county and size of household based on the most recently published data by the Department of Housing and Urban Development (HUD).

Moderate income is defined as:

• Income at or below 300% of the Federal Poverty Guidelines for the size of its household based on the most recently published poverty guidelines by DHHS, or
• Income at or below 65% of the Area Median Income for its county and size of household based on the most recently published data by HUD.

Additionally, the Final Rule allows recipients to determine eligibility for those households that may qualify for other aid-based programs with similar income tests. This includes impacted households identified via eligibility for:

• Children’s Health Insurance Program (CHIP),
• Childcare Subsidies through the Child Care and Development Fund Program (CCDF),
• Medicaid, or
• Affordable housing programs through National Housing Trust Fund (HTF) or the Home Investment Partnership Program (HOME).

Is also includes disproportionately impacted households that can be identified because they also qualify for:

• Temporary Assistance for Needy Families (TANF),
• Supplemental Nutrition Assistance Program (SNAP),
• Free and Reduced-Price Lunch (NSLP) and/or School Breakfast (SBP) programs,
• Medicare Part D low-income subsidies,
• Supplemental Security Income (SSI),
• Head Start and/or Early Head Start,
• Special Supplemental Nutrition Program for Women, Infants, and Children (WIC),
• Section 8 vouchers,
• Low-Income Home Energy Assistance Program (LIHEAP), or
• Pell Grants

Premium Pay

The Interim Final Rule allowed SLFRF to be used for premium pay that meet three criteria: it is for (1) eligible workers, (2) performing essential work, (3) and responsive to workers performing essential work during the COVID-19 public health emergency.

The Final Rule reiterates that all employees of the recipient government are “eligible workers” and maintains that “essential work” is:

[W]ork 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.

In terms of showing that premium pay was responsive to a worker performing essential work, the Interim Final Rule stated that premium pay would be considered responsive if a worker’s pay was below a certain threshold, or for a worker above a certain threshold, if the recipient provided written justification to Treasury explaining that the premium pay was responsive. The Final Rule maintains these two means of establishing responsiveness but also allows recipients to demonstrate responsiveness by showing that an eligible worker is not exempt from the Fair Labor Standards Act (FLSA) overtime provisions.

Is there a reimbursable limit?

Many local governments had questions regarding the $13/hour maximum and the $25,000 limit for premium pay. The Final Rule states that $13 is the maximum to be paid per hour, including for overtime and incentive pay. If a recipient — due to FLSA — must be paid more than $13/hour, the recipient must use a source of funds other than SLFRF to cover the difference. The $25,000 limit is not an annual limit, it’s for the entire period of performance, meaning the maximum premium pay an eligible employee can receive using SLFRF is $25,000.

Revenue Loss

The Final Rule largely maintains the revenue loss formula established in the Interim Final Rule; however, Treasury is now allowing governments the option to use a “standard allowance” of $10 million to fund government services. The $10 million standard allowance is for the period of performance, and local governments may use this standard allowance in lieu of calculating revenue loss using the formula prescribed in the Interim Final Rule.

Local governments can choose to use either the standard allowance or the revenue loss calculation, but not both. The Final Rule states:

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.

For those local governments wishing to use the revenue loss calculations, the Final Rule addresses questions regarding general revenue and makes revisions on presumptions to address tax reductions and presumptions to address tax increases. Discussion of these items can be found beginning on page 243 of the Final Rule.

Water, Sewer, and Broadband Infrastructure

With a “revised standard for determining a necessary water and sewer infrastructure investment,' Treasury has expanded the eligible use categories for water and sewer infrastructure beyond the Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF).

Treasury will consider an investment in infrastructure necessary if it meets two criteria:

1. It is responsive to an identified need to achieve or maintain an adequate minimum level of service, which for some eligible project categories may include a reasonable projection of increased need, whether due to population growth or otherwise, and
2. It is a cost-effective means of meeting that need, considering available alternatives

The Final Rule gives an example of a project that does not meet cost-effective means:

[A] recipient may not use funds to pursue a costly dam rehabilitation to provide drinking water to a community if it could provide the same service with a significantly smaller investment by drawing water from another available reservoir, assuming that doing so would meet the other requirements of the final rule.

Treasury also makes clear in the Final Rule that it interprets “infrastructure” broadly for water and sewer to include:

[T]he underlying framework or system for achieving the given public purpose, whether it be provision of drinking water or management of wastewater or stormwater…[T]his can include not just storm drains and culverts for the management of stormwater, for example, but also bioretention basins and rain barrels implemented across a watershed, including on both public and private property, that together reduce the amount of runoff that needs to be managed by traditional infrastructure.

Eligible projects also include those that increase capacity and extend the useful life of an existing infrastructure.

In regard to broadband infrastructure, the Interim Final Rule limited projects to those focused on serving populations who lacked access to service “capable of reliably delivering at least minimum speeds of 25 Mbps download and 3 Mbps upload.” The Final Rule expands eligible broadband infrastructure projects and allows local governments to identify needs of additional broadband infrastructure investment:

[E]xamples of need include lack of access to a connection that reliably meets or exceeds symmetrical 100 Mbps download and upload speeds, lack of affordable access to broadband service, or lack of reliable broadband service.

Additionally, it states:

Households and businesses with an identified need for additional broadband infrastructure investment do not have to be the only ones in the service area served by an eligible broadband infrastructure project. Indeed, serving these households and businesses may require a holistic approach that provides service to a wider area, for example, in order to make ongoing service of certain households or businesses within the service area economical

Conclusion

Treasury’s Final Rule is a 437-page document and this blog only discusses the major highlights. When local governments are trying to determine the eligibility of specific projects or uses of SLFRF, they should consult the Final Rule, focusing specifically on the sections that apply to a project or its intended use.