Earlier this year, President Biden signed into law a $1.9 trillion stimulus package, also known as the American Rescue Plan, to provide much-needed COVID-19 relief. The American Rescue Plan designated $350 billion dollars to the U.S. Treasury to distribute to eligible state, local, territorial, and tribal governments. On May 10, 2021, the U.S. Treasury adopted the Interim Final Rule, which sets forth the rules and approved uses for these funds. Eligible cities may now request their allocation through the Treasury. Cities that are less than 50,000 in population must request funding through their state. Details for small cities will be released in the coming weeks.
Overall Categories of Approved Uses
The Interim Final Rule provides that the state and local governments may use the funds:
- To respond to the public health emergency or its negative economic impacts, including assistance to households, small businesses, and nonprofits, or aid to impacted industries such as tourism, travel, and hospitality;
- To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers;
- For the provision of government services to the extent of the reduction in revenue due to the COVID-19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency; and
- To make necessary investments in water, sewer, or broadband infrastructure.
Eligible expenditures have been expanded further than what was previously allowed under the CARES Act. In addition to supporting efforts to counter the spread of COVID-19, eligible uses now include programs or services that address disparities in public health that have been exacerbated by the pandemic. The Interim Final Rule identifies a non-exclusive list of eligible uses of funding, which include:
- COVID-19 Mitigation and Prevention. Such efforts include vaccination programs; medical care; testing; contact tracing; support for isolation or quarantine; support for vulnerable populations to access medical or public health services; public health surveillance (e.g., monitoring case trends, genomic sequencing for variants); enforcement of public health orders; public communication efforts; enhancement to health care capacity, including through alternative care facilities; purchases of personal protective equipment; support for prevention, mitigation, or other services in congregate living facilities (e.g., nursing homes, incarceration settings, homeless shelters, group living facilities) and other key settings like schools; for ventilation improvements in congregate settings, health care settings, or other key locations; enhancement of public health data systems; capital investments in public facilities to meet pandemic operational needs such as adaptations to public buildings to implement COVID-19 mitigation tactics; and other public health responses.
- Medical Expenses. Providing care and services to individuals suffering the after-effects of contracting COVID-19.
- Behavioral Health Care. The Treasury has identified that some behavioral health needs have been exacerbated by the pandemic. The Interim Final Rule has identified eligible services to include mental health treatment, substance misuse treatment, other behavioral health services, hotlines or warmlines, crisis intervention, overdose prevention, infectious disease prevention, and services or outreach to promote access to physical or behavioral health primary care and preventative medicine.
- Public Health and Safety Staff. Eligible expenses may also include payroll and covered benefits expenses for public safety, public health, health care, human services, and similar employees, to the extent that their services are devoted to mitigating or responding to the COVID–19 public health emergency.
- Expenses to Improve the Design and Execution of Health and Public Health Programs. Funds may be used to engage in planning and analysis in order to improve programs addressing the COVID-19 pandemic, including use of targeting consumer outreach, improvements to data/technology infrastructure, impact evaluations, and data analysis.
- Addressing Disparities in Public Health Outcomes for Low-Income Communities. Specific additional expenditures in low-income communities identified in Qualified Census Tracts will be presumed to be eligible uses of the funds. Such expenditures include: funding community health workers to assist the public access health services and apply for available federal, state, and local public benefits or services; housing services and remediation of lead paint to reduce risk levels among children; and evidence-based community violence intervention programs.
Negative Economic Impacts
The Treasury has identified significant economic and financial hardships faced by individuals, households, businesses, non-profits, and local governments as a result of or exacerbated by the public health emergency. Eligible expenditures include:
- Assistance to workers and families. In addition to aid to unemployed workers and job training, eligible expenditures include aid to households facing food, housing, or other financial insecurity; such as for rent, mortgage, utilities, home repairs, weatherization, or other needs. This may also support cash assistance under specific circumstances and survivor benefits to widows, widowers, or dependents of COVID-19 victims.
- Small Businesses. State, local, and tribal governments 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 for payroll and benefits costs, costs to retain employees, mortgage, rent, utilities, and other operating costs, including assistance to implement COVID-19 prevention or mitigation tactics or technical assistance, counseling, or other services to assist with business planning needs.
Rehiring Local Government Staff. Funds can be used for payroll, covered benefits, and other costs associated with rehiring public sector staff up to the pre-pandemic staffing level.
- Aid to Impacted Industries. Tourism, travel, and hospitality have been identified as industries disproportionately and negatively impacted by the COVID-19 public health emergency. Aid may include assistance to implement COVID-19 mitigation and infection prevention measures to enable safe resumption of tourism, travel, and hospitality services, for example, improvements to ventilation, physical barriers or partitions, signage to facilitate social distancing, provision of masks or personal protective equipment, or consultation with infection prevention professionals to develop safe reopening plans. Aid may also be considered for a planned expansion or upgrade of tourism, travel, and hospitality facilities delayed due to the pandemic.
- Investments in Housing and Neighborhoods. Eligible uses include services to address homelessness such as supportive housing and improved access to stable, affordable housing among unhoused individuals; affordable housing development to increase supply of affordable and high-quality living units; and 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, to help residents increase their economic opportunity and reduce concentrated areas of low economic opportunity.
- Addressing Educational Disparities and Promoting Healthy Childhood Environments. School closures and the transition to remote education have raised particular challenges for lower-income students, while increasing economic hardship among families. Eligible uses of the funds include new, expanded, or enhanced early learning services, including pre-kindergarten, Head Start, or partnerships between pre-kindergarten programs and local education authorities, or administration of those services; assistance to high-poverty school districts to advance equitable funding across districts and geographies; tutoring, summer, afterschool, and other extended learning and enrichment programs; new or expanded child healthcare; and other enhanced services or evidence based practices to address the social, emotional, and mental health needs of students.
Additional requirements and limitations may apply to specific uses since some of these uses are intended to address issues faced by low-income communities disproportionately affected by the pandemic. Our office can assist guiding staff through the limitations and requirements on the proposed expenditure.
The American Rescue Plan has identified essential workers as disproportionately bearing more risks to their physical wellbeing to meet the daily needs of the community and to provide care for others. Subject to certain details and limitations, Fiscal Recovery Funds may be used by recipients to provide “premium pay” to eligible workers performing essential work during the COVID-19 public health emergency or provide grants to third-party employers which employ eligible workers performing essential work. The American Rescue Plan defines “premium pay” to mean an amount of up to $13 per hour in addition to wages or remuneration the worker otherwise receives and in an aggregate amount not to exceed $25,000 per eligible worker.
Such essential workers include: staff at nursing homes, hospitals, and home care settings; workers at farms, food production facilities, grocery stores, and restaurants; janitors and sanitation workers; truck drivers, transit staff, and warehouse workers; public health and safety staff; childcare workers, educators, and other school staff; and social service and human services staff.
Replacing Lost Public Sector Revenue
Funds may be used for local governments to provide government services to the extent of the reduction in revenue due to the pandemic. The Interim Final Rule provides the procedure and sets forth limitations in order to calculate revenue lost due to the COVID-19 public health emergency. The Interim Final Rule also sets forth that the government services that can be supported include, as a partial list: maintenance or pay-go funded building of infrastructure, including roads; modernization of cybersecurity, including hardware, software, and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services. Certain expenses are excluded, such as obligations incurred due to settlement agreement, judgement, consent decree, or those relating to interest or principal on any debt instrument.
Investments in Water, Sewer, or Broadband Infrastructure
To assist in meeting the critical need for investments and improvements to existing infrastructure in water, sewer, and broadband, the Fiscal Recovery Funds provide funds to state, local, and tribal governments to make necessary investments in these sectors. The Interim Final Rule outlines eligible uses within each category, allowing for a broad range of necessary investments in projects that improve access to clean drinking water, improve wastewater and stormwater infrastructure systems, and provide access to high-quality broadband service.
For water, wastewater, and stormwater infrastructure projects, the Interim Final Rule does this by aligning eligible uses of the Fiscal Recovery Funds with the wide range of types or categories of projects that would otherwise be eligible to receive financial assistance through the Environmental Protection Agency’s (EPA) Clean Water State Revolving Fund (CWSRF) or Drinking Water State Revolving Fund (DWSRF). Such projects include projects to construct, improve, and repair wastewater treatment plants, control non-point sources of pollution, improve resilience of infrastructure to severe weather events, create green infrastructure, and protect water bodies from pollution.
For broadband service, the American Rescue Plan specifically identified during this COVID-19 health emergency the importance of universally available, high-speed, reliable, and affordable broadband coverage as millions of Americans rely on the internet to participate in, among critical activities, remote school, healthcare, and work. The American Rescue Plan provides funds to state, territorial, local, and tribal governments to design and create projects that meet specific technical service requirements as provided in the Interim Final Rule.
Restrictions on Use – Offset Tax Reductions and Pension Plan Payments
Several of the categories of eligible uses have particular restrictions on use of the funds. In addition to these, two specific uses have been highlighted as being ineligible: tax reductions and extraordinary deposits into pension funds. The American Rescue Plan does not allow local governmental units to, “use the funds … to either directly or indirectly offset a reduction in … net tax revenue … resulting from a change in law, regulation, or administrative interpretation during the covered period that reduces any tax … or delays the imposition of any tax or tax increase.” Furthermore, it is prohibited to use the funds to make an extraordinary payment into a pension fund for the purpose of reducing an accrued, unfunded liability. This does not include regularly scheduled payroll contributions for premium pay, hiring, and compensating public sector employees as otherwise permitted elsewhere under the American Rescue Plan.
A Call to Action
The Treasury and the states have been directed to expediently disperse the funds from the American Rescue Plan and tight timelines may apply. Certain metropolitan cities may now apply with the Treasury for funds. Non-entitlement units, such local governments with populations of less than 50,000, will apply through the state in the upcoming weeks. For further information or other questions, please contact our office for assistance.
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.