The $1.9 trillion American Rescue Plan Act included $350 billion in emergency funding for state, local and territorial and tribal governments, known as the Coronavirus State and Local Fiscal Recovery Funds (“SLFRF”). The first tranche of SLFRF has been distributed to local agencies to help address the impact of COVID-19 in their communities. With the first project and expenditure report deadline approaching on October 31, 2021, it is important to keep in mind that while there is considerable flexibility for the use of these funds, recipients are required to meet certain compliance and reporting requirements issued by the U.S. Department of the Treasury in the Interim Final Rule and SLFRF Compliance and Reporting Guidance.
It is crucial for local agencies to meet these key deadlines and abide by all program requirements, including eligible uses, reporting guidelines, procurement methods and monitoring. Failure to comply may result in the recoupment of funds. Local governments should engage their constituents—with particular attention to communities disproportionately impacted by the pandemic—and carefully consider the best stewardship of these funds in order to meet community needs for recovery and rebuilding.
Statutory Eligible Uses
As discussed in further detail in our previous legal alert, eligible uses for SLFRF fall under four broad categories:
- To respond to public health emergencies and negative economic impacts;
- To provide premium pay to essential workers;
- To replace revenue loss to ensure the provision of general government services; and
- To make infrastructure investments in water, sewer or broadband.
In developing their recovery plans, local agencies may direct funds to COVID-19 mitigation and prevention measures, or to those households, small businesses and industries impacted the most by the pandemic. They may also provide premium pay, subject to limitations, to eligible essential workers who put their physical well-being at risk to meet the daily needs of their communities and to provide care for others, with priority for lower-income workers performing in-person work critical to health and safety.
The Treasury’s Interim Final Rule defines essential work as work involving regular in-person interactions or regular physical handling of items that are handled by others. Accordingly, employees teleworking from a residence would not be engaged in essential work and would not be eligible for premium pay. For eligible employees, premium pay may not exceed $13 per hour and $25,000 in the aggregate per employee.
Agencies facing revenue loss due to COVID-19 may use SLFRF to avoid cuts to and continue the provision of government services. The Treasury’s Interim Final Rule provides a methodology for calculating revenue loss measured relative to the revenue collected in the most recent full fiscal year prior to the COVID-19 emergency. Finally, local agencies may use these funds to make necessary investments in infrastructure, with a focus on underserved communities.
Projects paid for in whole or in part with SLFRF must align with one of the expenditure categories described above. Successful project design and implementation should involve an assessment of the needs and capacity of the local agency, including staffing and administration capacity, as well as outreach and community engagement. At the onset, project goals, policies and processes should align with regulatory requirements of monitoring and compliance.
Restricted Uses
Generally, SLFRF cannot be used to service outstanding debt, satisfy a judgment or settlement, or contribute to a local agency’s “rainy day” fund. Other restrictions include that the funds cannot be deposited into a pension fund or used as a nonfederal match for a federal program.
Eligible Cost Timeframes
Under the guidance, SLFRF may be used to cover eligible “costs incurred” between March 3, 2021, and December 31, 2024, including contracts and awards that will require payment, subject to exceptions for certain costs incurred prior to March 3, 2021 (e.g., retrospective revenue loss and premium pay). Local agencies must obligate funds by December 31, 2024, and expend funds by December 31, 2026.
Administration and Compliance
The Treasury’s Interim Final Rule established certain reporting requirements to ensure transparency and accountability while minimizing the burden, particularly for smaller local governments. Key principles for developing effective compliance regimes as outlined by the Treasury are below.
- SLFRF recipients are responsible for ensuring funds are not used for ineligible purposes and there is no fraud, waste, and abuse.
- Use of SLFRF funds should balance simple and swift program implementation and access across the community with a robust documentation and compliance regiment.
- SLFRF-funded projects should advance shared interests and promote equitable delivery of benefits and opportunities to underserved communities.
- Transparency and public accountability for the use of funds are critical to upholding program integrity.
SLFRF recipients must follow the Uniform Administrative Requirement, cost principles and audit requirements for federal awards (2 CFR Part 200) and the Award Terms and Conditions of the SLFRF financial assistance agreement. Recipients should ensure they develop and implement effective internal controls and follow best practices for procurement, including written policies and procedures, written standards of conduct, risk-based due diligence and compliance monitoring, and record maintenance and retention.
Reporting Requirements
All SLFRF recipients must submit a project and expenditure report by October 31, 2021, and annually thereafter. Project and expenditure reports must include project details, expenditures, status, demographic distribution, subawards, civil rights compliance and programmatic data. Additional interim and recovery plan performance reporting requirements apply in some cases to states, tribes, metropolitan cities, and counties.
OMLO can assist with successful compliance management of these recovery funds. If you have any questions about allowable uses of SLFRF or compliance with procurement and reporting requirements, please contact your OMLO attorney.
OMLO will continue to monitor these developments carefully. This article is for informational purposes only and only provides an overview of specific developments. It is not intended to be, and should not be construed as, legal advice for any particular fact situation. For actual legal advice and specifics pertaining to your governmental entity, please contact your OMLO attorney for assistance.