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The American Rescue Plan Act (commonly known as “ARPA” or “ARP”) was signed into law on March 11, 2021 to provide additional financial relief in the wake of the COVID-19 pandemic. ARPA includes a significant amount of “Coronavirus State and Local Fiscal Recovery Funds” (SLFRF) for state and local governments to use over a period of several years. The local portion of these federal funds is referred to as the Coronavirus Local Fiscal Recovery Fund (LFRF).
The U.S. Treasury Department distributed LFRF funds in two equal installments, or “tranches,” with the first distribution occurring in mid-2021 and the second occurring in mid-2022. Counties and designated “metropolitan” cities received their distributions directly from the U.S. Treasury Department (“Treasury”), while all other cities and towns – referred to as “non-entitlement units of local government” or “NEUs” – received their distributions through the State of Washington.
LFRF funds may be used to cover qualifying costs obligated between March 3, 2021 and December 31, 2024 and expended by December 31, 2026.
The funds may be used for the following purposes:
The U.S. Treasury Department published an interim rule on May 17, 2021 providing more details about these funding areas (see 86 FR 26786). On January 27, 2022, the Treasury Department adopted the interim rule as final, with amendments providing more flexibility on certain issues (see 87 FR 4338). The final rule took effect April 1, 2022, but Treasury stated that recipients could choose to take advantage of its flexibilities earlier if desired.
A brief summary is provided below; also see Treasury's SLFRF Final Rule: Frequently Asked Questions.
Local governments may use LFRF funds for a wide variety of public health needs and to address negative economic impacts caused by the pandemic.
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 economic impacts section in particular has generated many questions. The interim rule stated that low- and moderate-income households and populations may be presumed to have experienced negative economic impacts, as well as people who experienced unemployment or increased food or housing insecurity.
The final rule provides specific definitions of “low income” and “moderate income” based on the Department of Health and Human Services (HHS) Federal Poverty Guidelines or the Area Median Income (AMI) as published by the Department of Housing and Urban Development (HUD).
Treasury notes that for the vast majority of communities, the Federal Poverty Guidelines are higher than the AMI and would result in more households and communities being presumed eligible.
Treasury has provided a Tool for Determining Low and Moderate Income Households (Excel file download) to help recipients determine income thresholds for their jurisdiction based on the final rule’s definitions.
Using SLFRF revenues for affordable housing. Treasury has expanded its guidance to clarify that affordable housing projects are presumptively eligible if either (a) the project meets certain core requirements for federal housing programs, or (b) the funds are used for affordable rental housing for households at or below 65% of AMI for 20 years or longer. Other affordable housing uses may be eligible if they are related and reasonably proportional to addressing the negative economic impacts of the pandemic and otherwise meet the final rule’s requirements.
Using SLFRF revenues for childcare. SLFRF revenues may be used for qualifying childcare-related expenses, including but not limited to childcare subsidies for low- and moderate-income families, paying for the salary and benefits of eligible school and childcare staff (including increased wages to recruit and retain staff), grants to help small childcare businesses provide high-quality care and expand their businesses, and construction or renovation of childcare facilities.
For more information, see Treasury's SLFRF Final Rule: Frequently Asked Questions (and especially FAQs #2.16 and 2.18).
The Washington State Constitution prohibits gifts of public funds “except for the necessary support of the poor and infirm.” There is a related prohibition in the State Constitution on the lending of credit by public entities.
Based on our understanding of this provision, MRSC has historically advised that financial contributions by local government entities to private businesses, either in the form of a grant or a loan, are generally prohibited. We have also previously advised that there must be a proper public purpose or public benefit resulting from such expenditures beyond providing financial support to a local business.
However, the state Attorney General issued two memos early in the pandemic (see March 17, 2020 memo and April 6, 2020 memo) concluding that local governments may provide cash assistance to low-income individuals struggling with COVID-19 and that, with sufficient safeguards in place, small business “loans or grants are likely permissible if a local government can establish a clear nexus between such programs and either protecting the local economy or promoting compliance with public health guidelines.”
We recommend reading the memos carefully and discussing any proposal related to financial assistance with your legal counsel.
For more details on public health and economic expenditures: See Treasury’s SLFRF Overview of the Final Rule: Responding to Public Health and Economic Impacts of COVID-19 (page 12) and Final Rule FAQs. For the complete final Treasury rule, see Section II.A Public Health and Negative Economic Impacts.
Local governments may use LFRF funds to pay for “government services” in an amount equal to the revenue loss experienced by the local government due to the COVID-19 public health emergency (such as a drop in sales tax or business and occupation tax collections).
Government services generally include any service traditionally provided by a government, including construction of roads and other infrastructure, provision of public safety and other services, and health and educational services.
In order to use funds to replace lost revenue, each local government must first determine revenue loss. The final Treasury rule provides a new, simplified allowance. In short, local governments may either:
Treasury allowed recipients to make a one-time selection between the two methods; local governments are unable to change to the other methodology.
For more details on replacing lost public sector revenue: See Treasury’s SLFRF Overview of the Final Rule: Replacing Lost Public Sector Revenue (page 9) and Final Rule FAQs. For the complete final Treasury rule, see Section II.C Revenue Loss.
Local governments may use LFRF funds to provide premium pay not to exceed $13 per hour (in addition to the regular rate of pay) to certain essential workers, or to fund grants for private employers to provide premium pay to eligible essential workers who perform in-person work. No employee may receive more than $25,000 in total premium pay (for the entire duration of the employee’s performance) using ARPA funds.
The premium pay must be for “eligible workers” performing “essential work,” and it must be “responsive” to such workers.
The final rule states 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 order to be “responsive,” a worker’s pay must be below a certain threshold (or above that threshold if the recipient provides written justification to Treasury explaining how the premium pay is responsive). Alternatively, recipients may demonstrate responsiveness by showing that an eligible worker is non-exempt under the Fair Labor Standards Act (FLSA) overtime provisions.
For more details on premium pay: See Treasury’s SLFRF Overview of the Final Rule: Premium Pay (page 35) and Final Rule FAQs. For the complete final Treasury rule, see Section II.B Premium Pay.
While ARPA states that premium pay may be applied retroactively, the Washington state constitution prohibits government agencies from providing retroactive pay to public employees. For more information on this topic, see our blog post Employee Bonuses and the COVID-19 Pandemic.
However, jurisdictions may still provide premium pay for work not yet performed. For an example of such a policy, see:
Local governments may use LFRF funds for “necessary investments” in water, sewer, and broadband infrastructure. This includes projects under the Environmental Protection Agency’s Clean Water State Revolving Fund (CWSRF) and Drinking Water State Revolving Fund (DWSRF), as well as additional eligible projects. Examples include:
To be considered “necessary” under the final rule, the infrastructure must be:
(The interim rule also stated that the infrastructure project must be unlikely to be made using private funds. The final rule withdrew this requirement due to the difficulty of assessing the likelihood, but recipients are still encouraged to prioritize projects that would provide the greatest public benefit to their respective jurisdictions.)
Local governments may not use LFRF funds for:
ARPA also prohibits states and territories from using SLFRF revenues to offset, directly or indirectly, a reduction in net tax revenue resulting from a change in law, regulation, or administrative interpretation. However, this provision does not apply to local governments.
Local governments should carefully document their use of ARPA funds, as well as electronic copies of the guidance used in program creation, design, and implementation, as such guidance (such as the interim rule) may have evolved over time.
Practice Tip: There is no requirement to start a new fund for LFRF revenues. However, some jurisdictions have created a separate fund to make accounting and reporting easier. For instance, see:
Counties and metropolitan cities that receive funding directly from Treasury must provide the following reports to Treasury, depending on their population size and funding received:
All counties and metropolitan cities were also required to file interim reports by August 31, 2021 or 60 days after receiving funding, but those deadlines have now passed.
All “non-entitlement unit” cities and towns that receive funding through the State of Washington must file annual project and expenditure reports to Treasury by April 30 each year. The first report was due April 30, 2022.
For more information on reporting requirements, see Treasury’s webpage on Recipient Compliance and Reporting Responsibilities, which includes:
Also see Treasury’s Statement Regarding Compliance with the SLFRF Interim Final Rule and Final Rule, which provides guidance on the transition from compliance with the interim rule to the final rule.
The final rule clarifies that when a LFRF recipient 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 (2 CFR 200) and provisions that govern procurement and subgranting of federal funds.
For examples, see:
Below are selected examples of how cities and counties are expending funds, soliciting public input, or providing updates related to ARPA.
The U.S. Treasury Department is posting quarterly and annual reporting data for all public agency recipients nationwide on its Recipient Compliance and Reporting Responsibilities webpage (scroll down toward the bottom to the "Public Reporting" section).
From there can download a detailed Excel spreadsheet showing the recipient name, reporting tier, project name/categories, and more. (You can optionally filter the "state/territory" to show jurisdictions in Washington State only.)
Treasury will publish additional data sets and analysis to that page as they become available following each reporting deadline.
Some other organizations are also attempting to track local government ARPA expenditures, including:
