[Federal Register Volume 87, Number 18 (Thursday, January 27, 2022)]
[Rules and Regulations]
[Pages 4338-4454]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-00292]
[[Page 4337]]
Vol. 87
Thursday,
No. 18
January 27, 2022
Part II
Department of the Treasury
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31 CFR Part 35
Coronavirus State and Local Fiscal Recovery Funds; Final Rule
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 /
Rules and Regulations
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DEPARTMENT OF THE TREASURY
31 CFR Part 35
RIN 1505-AC77
Coronavirus State and Local Fiscal Recovery Funds
AGENCY: Department of the Treasury.
ACTION: Final rule.
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SUMMARY: The Secretary of the Treasury (Treasury) is adopting as final
the interim final rule published on May 17, 2021, with amendments. This
rule implements the Coronavirus State Fiscal Recovery Fund and the
Coronavirus Local Fiscal Recovery Fund established under the American
Rescue Plan Act.
DATES: The provisions in this final rule are effective April 1, 2022.
FOR FURTHER INFORMATION CONTACT: Katharine Richards, Director,
Coronavirus State and Local Fiscal Recovery Funds, Office of Recovery
Programs, Department of the Treasury, (844) 529-9527.
SUPPLEMENTARY INFORMATION:
I. Introduction
Overview
Since the first case of coronavirus disease 2019 (COVID-19) was
discovered in the United States in January 2020, the pandemic has
caused severe, intertwined public health and economic crises. In March
2021, as these crises continued, the American Rescue Plan Act of 2021
(ARPA) \1\ established the Coronavirus State and Local Fiscal Recovery
Funds (SLFRF) to provide state, local, and Tribal governments \2\ with
the resources needed to respond to the pandemic and its economic
effects and to build a stronger, more equitable economy during the
recovery. The U.S. Department of the Treasury (Treasury) issued an
interim final rule implementing the SLFRF program on May 10, 2021 \3\
and has since disbursed over $240 billion to state, local, and Tribal
governments and received over 1,500 public comments on the interim
final rule. Treasury is now issuing this final rule which responds to
public comments, implements the ARPA statutory provisions on eligible
and ineligible uses of SLFRF funds, and makes several changes to the
provisions of the interim final rule, summarized below in the section
Executive Summary of Major Changes.
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\1\ Public Law 117-2. https://www.congress.gov/117/plaws/publ2/PLAW-117publ2.pdf.
\2\ Throughout this Supplementary Information, Treasury uses
``state, local, and Tribal governments'' or ``recipients'' to refer
generally to governments receiving SLFRF funds; this includes
states, territories, Tribal governments, counties, metropolitan
cities, and nonentitlement units of local government.
\3\ 86 FR 26786 (May 17, 2021).
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Since Treasury issued the interim final rule in May 2021, both the
public health and economic situations facing the country have evolved.
On the public health front, the United States has made tremendous
progress in the fight against COVID-19, including a historic
vaccination campaign that has reached over 80 percent of adults with at
least one dose and is reaching millions of children as well.\4\
However, the disease continues to present an imminent threat to public
health, especially among unvaccinated individuals. As the Delta variant
spread across the country this summer and fall, the United States faced
another severe wave of cases, deaths, and strain on the healthcare
system, with the risk of hospitalization and mortality exponentially
greater to unvaccinated Americans. COVID-19 has now infected over 50
million and killed over 800,000 Americans since January 2020; tens of
thousands of Americans continue to be infected each day.\5\ Even as the
nation recovers, new and emerging COVID-19 variants may continue to
pose threats to both public health and the economy. Moving forward,
state, local, and Tribal governments will continue to play a major role
in responding through vaccination campaigns, testing, and other
services.
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\4\ Centers for Disease Control and Prevention, COVID Data
Tracker: COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (last visited
December 31, 2021).
\5\ Centers for Disease Control and Prevention, COVID Data
Tracker, http://www.covid.cdc.gov/covid-data-tracker/#datatracker-home (last visited December 7, 2021).
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The economic recovery similarly has made tremendous progress but
faces continued risks from the disease and the disruptions it has
caused. In the early months of the pandemic, the United States
experienced the sharpest economic downturn on record, with unemployment
spiking to 14.8 percent in April 2020.\6\ The economy has gradually
added back jobs, with growth accelerating in the first half of 2021.\7\
However, as the Delta variant spread, the intensified health risks and
renewed disruptions slowed growth, demonstrating the continued risks
from the virus. By fall 2021, the economy had exceeded its pre-pandemic
size \8\ and unemployment had fallen below 5 percent,\9\ but despite
this progress, too many Americans remain unemployed, out of the labor
force, or unable to pay their bills, with this pain particularly acute
among lower-income Americans and communities of color. Again, moving
forward, state, local, and Tribal governments will remain on the
frontlines of the economic response and rebuilding a stronger economy
in the aftermath of the pandemic.
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\6\ U.S. Bureau of Labor Statistics, Unemployment Rate [UNRATE],
retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UNRATE (last visited December 7, 2021).
\7\ Id.
\8\ U.S. Bureau of Economic Analysis, Real Gross Domestic
Product [GDPC1], retrieved from FRED, Federal Reserve Bank of St.
Louis, https://fred.stlouisfed.org/series/GDPC1 (last visited
December 7, 2021).
\9\ U.S. Bureau of Labor Statistics, supra note 6.
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However, as state, local, and Tribal governments continue to face
substantial needs to respond to public health and economic conditions,
they have also experienced severe impacts from the pandemic and
resulting recession. State, local, and Tribal governments cut over 1.5
million jobs in the early months of the pandemic amid sharp declines in
revenue and remain over 950,000 jobs below their pre-pandemic
levels.\10\ As the Great Recession demonstrated, austerity among state,
local, and Tribal governments can hamper overall economic growth and
severely curtail the ability of governments to serve their
constituents.
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\10\ 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 (last visited December 7,
2021).
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Recognizing these imperatives, the SLFRF program provides vital
resources for state, local, and Tribal governments to respond to the
pandemic and its economic effects and to replace revenue lost due to
the public health emergency, preventing cuts to government services.
Specifically, the ARPA provides that SLFRF funds \11\ may be used:
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\11\ The ARPA adds section 602 of the Social Security Act, which
creates the State Fiscal Recovery Fund, and section 603 of the
Social Security Act, which creates the Local Fiscal Recovery Fund
(together, SLFRF). Sections 602 and 603 contain substantially
similar eligible uses; the primary difference between the two
sections is that section 602 establishes a fund for states,
territories, and Tribal governments and section 603 establishes a
fund for metropolitan cities, nonentitlement units of local
government, and counties.
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(a) 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;
(b) To respond to workers performing essential work during the
COVID-19
[[Page 4339]]
public health emergency by providing premium pay to eligible workers;
(c) 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
(d) To make necessary investments in water, sewer, or broadband
infrastructure.
In addition, Congress specified two types of ineligible uses of
funds: funds may not be used for deposit into any pension fund or, for
states and territories only, to directly or indirectly offset a
reduction in net tax revenue resulting from a change in law,
regulation, or administrative interpretation.
Issued May 10, 2021, Treasury's interim final rule provided further
detail on eligible uses of funds within the four statutory categories,
ineligible uses of funds, and administration of the program. The
interim final rule provided state, local, and Tribal governments
substantial flexibility to determine how best to use payments from the
SLFRF program to meet the needs of their communities. The interim final
rule aimed to facilitate swift and effective implementation by
establishing a framework for determining the types of programs and
services that are eligible under the ARPA along with examples of
eligible uses of funds that state, local, and Tribal governments may
consider.
State, local, and Tribal governments are already deploying SLFRF
funds to make an impact in their communities. The SLFRF program ensures
that state, local, and Tribal governments have the resources needed to
fight the pandemic, sustain and strengthen the economic recovery,
maintain vital public services, and make investments that support long-
term growth, opportunity, and equity. Treasury looks forward to
supporting and engaging with state, local, and Tribal governments as
they use these funds to make transformative investments in their
communities. Finally, with so many pressing and effective ways to use
SLFRF funds, there is no excuse for waste, fraud, or abuse of these
funds.
Treasury received over 1,500 comments spanning nearly all aspects
of the interim final rule. The final rule considers and responds to
comments, provides clarification to many aspects of the interim final
rule, and makes several changes to eligible uses under the program,
summarized immediately below.
Executive Summary of Major Changes and Clarifications
The final rule provides broader flexibility and greater simplicity
in the program, in response to public comments. Among other
clarifications and changes, the final rule provides for the following:
Public Health and Negative Economic Impacts: In addition
to programs and services, the final rule clarifies that recipients may
use funds for capital expenditures that support an eligible COVID-19
public health or economic response. For example, recipients may build
certain affordable housing, childcare facilities, schools, hospitals,
and other projects consistent with the requirements in this final rule
and the Supplementary Information.
In addition, the final rule presumes that an expanded set of
households and communities are ``impacted'' or ``disproportionately
impacted'' by the pandemic, thereby allowing recipients to provide
responses to a broad set of households and entities without requiring
additional analysis. Further, the final rule provides a broader set of
enumerated eligible uses available for these communities as part of
COVID-19 public health and economic response, including making
affordable housing, childcare, and early learning services eligible in
all impacted communities and making certain community development and
neighborhood revitalization activities eligible for disproportionately
impacted communities.
Further, the final rule allows for a broader set of uses to restore
and support government employment, including hiring above a recipient's
pre-pandemic baseline, providing funds to employees that experienced
pay cuts or furloughs, avoiding layoffs, and providing retention
incentives.
Premium Pay: The final rule offers more streamlined
options to provide premium pay, by broadening the share of essential
workers who can receive premium pay without a written justification
while maintaining a focus on lower-income and frontline essential
workers.
Revenue Loss: The final rule offers a standard allowance
for revenue loss of up to $10 million, not to exceed a recipient's
SLFRF award amount, allowing recipients to select between a standard
amount of revenue loss or complete a full revenue loss calculation.
Recipients that select the standard allowance may use that amount for
government services.
Water, Sewer, and Broadband Infrastructure: The final rule
significantly broadens eligible broadband infrastructure investments to
address challenges with broadband access, affordability, and
reliability, and adds additional eligible water and sewer
infrastructure investments, including a broad range of lead remediation
and stormwater management projects.
Structure of the Supplementary Information
In addition to this Introduction, this Supplementary Information is
organized into four sections: (1) Eligible Uses, (2) Restrictions on
Use, (3) Program Administration Provisions, and (4) Regulatory
Analyses.
The Eligible Uses section describes the standards to determine
eligible uses of funds in each of the four eligible use categories:
(1) Responding to the public health and negative economic impacts
of the pandemic (which includes several sub-categories)
(2) Providing premium pay to essential workers
(3) Providing government services to the extent of revenue loss due
to the pandemic, and
(4) Making necessary investments in water, sewer, and broadband
infrastructure.
Each eligible use category has separate and distinct standards for
assessing whether a use of funds is eligible. Standards, restrictions,
or other provisions in one eligible use category do not apply to the
others. Therefore, recipients should first determine which eligible use
category a potential use of funds fits within, then assess whether the
potential use of funds meets the eligibility standard or criteria for
that category. In the case of uses to respond to the public health and
negative economic impacts of the pandemic, recipients should also
determine which sub-category the eligible use fits within (i.e., public
health, assistance to households, assistance to small businesses,
assistance to nonprofits, aid to impacted industries, or public sector
capacity and workforce), then assess whether the potential use of funds
meets the eligibility standard for that sub-category. Treasury does not
pre-approve uses of funds; recipients are advised to review the final
rule and may pursue eligible projects under it.
In some sections of the rule, Treasury identifies specific uses of
funds that are eligible, called ``enumerated eligible uses''; for
example, Treasury provides many enumerated eligible uses of funds to
respond to the public health and negative economic impacts of the
pandemic. Uses of funds that are not specifically named as eligible in
this
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final rule may still be eligible in two ways. First, under the revenue
loss eligible use category, recipients have broad latitude to use funds
for government services up to their amount of revenue loss due to the
pandemic. A potential use of funds that does not fit within the other
three eligible use categories may be permissible as a government
service, which recipients can fund up to their amount of revenue loss.
For example, transportation infrastructure projects are generally
ineligible as a response to the public health and negative economic
impacts of the pandemic; however, a recipient could fund these projects
as a government service up to its amount of revenue loss, provided that
other restrictions on use do not apply. See sections Revenue Loss and
Restrictions on Use for further information. Second, the eligible use
category for responding to the public health and negative economic
impacts of the pandemic provides a non-exhaustive list of enumerated
eligible uses, which means that the listed eligible uses include some,
but not all, of the uses of funds that could be eligible. The Eligible
Uses section provides a standard for determining if other uses of
funds, beyond those specifically enumerated, are eligible. If a
recipient would like to pursue a use of funds that is not specifically
enumerated, the recipient should use the standard and other guidance
provided in the section Public Health and Negative Economic Impacts to
assess whether the use of funds is eligible.
Next, the Restrictions on Use section describes limitations on how
funds may be used. Treasury has divided the Restriction on Use section
into (A) statutory restrictions under the ARPA, which include (1)
offsetting a reduction in net tax revenue, and (2) deposits into
pension funds, and (B) other restrictions on use, which include (1)
debt service and replenishing reserves, (2) settlements and judgments,
and (3) general restrictions. These restrictions apply to all eligible
use categories; however, some restrictions apply only to certain types
of recipient governments, and recipients are advised to review the
final rule to determine which restrictions apply to their type of
government (e.g., state, territory, Tribal government, county,
metropolitan city, or nonentitlement unit of government). To reiterate,
for recipient governments covered by a specific restriction, that
restriction applies to all eligible use categories and any use of funds
under the SLFRF program. Specifically:
For states and territories only, funds may not be used to
offset directly or indirectly a reduction in net tax revenue resulting
from a change in state or territory law.
For all recipients except Tribal governments, funds may
not be used for deposits into a pension fund.
For all recipients, funds may not be used for debt service
or replenishing financial reserves.
All recipients must also comply with three general
restrictions. First, a recipient may not use SLFRF funds for a program,
service, or capital expenditure that conflicts with or contravenes the
statutory purpose of ARPA, including a program, service, or capital
expenditure that includes a term or condition that undermines efforts
to stop the spread of COVID-19. Second, recipients may not use SLFRF
funds in violation of the conflict-of-interest requirements contained
in the Award Terms and Conditions, including any self-dealing or
violation of ethics rules. Lastly, recipients should be aware that
federal, state, and local laws and regulations, outside of SLFRF
program requirements, also apply, including for example, environmental
laws and federal civil rights and nondiscrimination requirements, which
include prohibitions on discrimination on the basis of race, color,
national origin, sex (including sexual orientation and gender
identity), religion, disability, age, or familial status (having
children under the age of 18).
The Program Administration Provisions section describes the
processes and requirements for administering the program on an ongoing
basis, specifically as relates to the following: Distribution of funds,
timeline for using funds, transfer of funds from a recipient to
different organizations, use of funds for program administration,
reporting on use of funds, and remediation and recoupment of funds used
for ineligible purposes. Of note, SLFRF funds may only be used for
costs incurred within a specific time period, beginning March 3, 2021,
with all funds obligated by December 31, 2024 and all funds spent by
December 31, 2026. Recipients are advised to also consult Treasury's
Reporting and Compliance Guidance for additional information on program
administration processes and requirements, including applicability of
the Uniform Guidance.
Finally, the section Regulatory Analyses provides Treasury's
analysis of the impacts of this rulemaking, as required by several
laws, regulations, and Executive Orders.
Throughout this Supplementary Information, statements using the
terms ``should'' or ``must'' refer to requirements, except when used in
summarizing opinions expressed in public comments. Statements using the
term ``encourage'' refer to recommendations, not requirements.
II. Eligible Uses
A. Public Health and Negative Economic Impacts
Background
Since the first case of COVID-19 was discovered in the United
States in January 2020, the disease has infected over 50 million and
killed over 800,000 Americans.\12\ The disease--and necessary measures
to respond--have had an immense public health and economic impact on
millions of Americans across many areas of life, as detailed below in
the respective sections on Public Health and Negative Economic Impacts.
Since the release of the interim final rule in May 2021, the country
has made major progress in fighting the disease and rebuilding the
economy but faces continued risks, as illustrated by the spread of the
Delta variant and the resulting slowdown in the economic recovery. The
SLFRF program, and Treasury's interim final rule, provide substantial
flexibility to recipients to respond to pandemic impacts in their local
community; this flexibility is designed to help state, local, and
Tribal governments adapt to the evolving public health emergency and
tailor their response as needs evolve and to the particular local needs
of their communities.
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\12\ Centers for Disease Control and Prevention, COVID Data
Tracker, http://www.covid.cdc.gov/covid-data-tracker/#datatracker-home (last visited December 31, 2021).
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Indeed, state, local, and Tribal governments face continued needs
to respond at scale to the public health emergency. This includes
continued public health efforts to slow the spread of the disease, to
increase vaccination rates and provide vaccinations to new populations
as they become eligible, to protect individuals living in congregate
facilities, and to address the broader impacts of the pandemic on
public health. Similarly, while a strong economic recovery is underway,
the economy remains 3.9 million jobs below its pre-pandemic level,
pointing to the continued need for response efforts, with low-income
workers and communities of color facing elevated rates of unemployment
and economic hardship.\13\ Long-standing disparities in health and
economic outcomes in
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underserved \14\ communities, that amplified and exacerbated the
impacts of the pandemic, also present continued barriers to full and
equitable recovery.
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\13\ U.S. Bureau of Labor Statistics, All Employees, Total
Nonfarm [PAYEMS] https://fred.stlouisfed.org/series/PAYEMS (last
visited December 7, 2021).
\14\ Treasury uses ``underserved'' to refer to populations
sharing a particular characteristic, as well as geographic
communities, that have been systematically denied a full opportunity
to participate in aspects of economic, social, and civic life. In
the interim final rule, Treasury generally used the term
``disadvantaged'' to refer to these same populations and
communities.
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As state, local, and Tribal governments work to meet the public
health and economic needs of their communities, these governments are
also confronting the need to rebuild their own capacity. Facing severe
budget challenges during the pandemic, many state, local, and Tribal
governments have been forced to make cuts to services or their
workforces, including cutting over 1.5 million jobs from February to
May 2020, or delay critical investments. As of fall 2021, state, local,
and Tribal government employment remained over 950,000 jobs below pre-
pandemic levels.\15\ In the recovery from the Great Recession, cuts to
state, local, and Tribal governments became a meaningful drag on
economic growth for several years, and the SLFRF program provides the
resources needed to re-invest in vital public services and workers to
avoid this outcome.\16\
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\15\ 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 (last visited December 7,
2021).
\16\ Tracy Gordon, State and Local Budgets and the Great
Recession, Brookings Institution (Dec. 31, 2012), http://www.brookings.edu/articles/state-and-local-budgets-and-the-great-recession.
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1. General Provisions: Structure and Standards
Background: Sections 602(c)(1)(A) and 603(c)(1)(A) of the Social
Security Act establish that recipients may use funds ``to respond to
the public health emergency with respect to COVID-19 or its negative
economic impacts, including assistance to households, small businesses,
and nonprofits, or aid to impacted industries such as tourism, travel,
and hospitality.'' The interim final rule established three categories
within this eligible use: (1) Public health responses for those
impacted by the pandemic, including the general public; (2) responses
to the negative economic impacts that were experienced by those
impacted as a result of the pandemic; and (3) additional services,
either as a public health response or a response to the negative
economic impacts of the pandemic, for disproportionately impacted
communities.
The interim final rule established the method to determine which
specific programs or services may be eligible to respond to the public
health emergency or to respond to the negative economic impacts of the
public health emergency within this framework. The interim final rule
included multiple enumerated uses that are eligible within each of
these categories when provided to eligible populations, including
populations that the interim final rule presumed to have been impacted
(in the case of public health responses and responses to negative
economic impacts) or disproportionately impacted (in the case of
disproportionately impacted communities). Finally, the interim final
rule also allowed recipients to designate additional individuals or
classes as impacted or disproportionately impacted. The standards for
each of these criteria under the interim final rule are discussed
below.
To assess whether a program or service would be eligible to respond
to the public health emergency or its negative economic impacts, the
interim final rule stated that, ``the recipient [is required] to,
first, identify a need or negative impact of the COVID-19 public health
emergency and, second, identify how the program, service, or other
intervention addresses the identified need or impact [. . . .]
[E]ligible uses under this category must be in response to the disease
itself or the harmful consequences of the economic disruptions
resulting from or exacerbated by the COVID-19 public health
emergency.'' The enumerated eligible uses were presumed to meet this
criterion.
With respect to uses not specifically enumerated in the interim
final rule as eligible public health responses, the interim final rule
stated that, ``[t]o assess whether additional uses would be eligible
under this category, recipients should identify an effect of COVID-19
on public health, including either or both of immediate effects or
effects that may manifest over months or years, and assess how the use
would respond to or address the identified need.''
With respect to uses not specifically enumerated in the interim
final rule as eligible responses to a negative economic impact of the
public health emergency, the interim final rule stated that
``[e]ligible uses that respond to the negative economic impacts of the
public health emergency must be designed to address an economic harm
resulting from or exacerbated by the public health emergency. In
considering whether a program or service would be eligible under this
category, the recipient should assess whether, and the extent to which,
there has been an economic harm, such as loss of earnings or revenue,
that resulted from the COVID-19 public health emergency and whether,
and the extent to which, the use would respond to or address this
harm.\17\ A recipient should first consider whether an economic harm
exists and whether this harm was caused or made worse by the COVID-19
public health emergency.'' The interim final rule went on to say that:
``In addition, the eligible use must `respond to' the identified
negative economic impact. Responses must 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.''
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\17\ In some cases, a use may be permissible under another
eligible use category even if it falls outside the scope of section
(c)(1)(A) of section 602 and 603 of the Social Security Act.
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Throughout this final rule, Treasury refers to households,
communities, small businesses, nonprofits, and industries that
experienced public health or negative economic impacts of the pandemic
as ``impacted.'' The first section in the interim final rule under this
eligible use category included public health responses for these
impacted classes. The second category in the interim final rule under
this eligible use category included responses to the negative economic
impacts that were experienced by these impacted classes as a result of
the pandemic.
The interim final rule further recognized that certain populations
have experienced disproportionate health or negative economic impacts
during the pandemic, as pre-existing disparities in these communities
amplified the impacts of the pandemic. For example, the interim final
rule recognized that the negative economic effects of the pandemic were
particularly pronounced among lower-income families, who were more
likely to experience income loss and more likely to have a job that
required in-person work. The interim final rule recognized the role of
pre-existing social vulnerabilities and disparities in driving the
disparate health and economic outcomes and presumed that programs
designed to address these health or economic disparities are responsive
to the public health or negative economic impacts of the COVID-19
public health emergency, when provided in disproportionately impacted
communities. In addition to identifying certain populations and
communities
[[Page 4342]]
presumed to be disproportionately impacted, it also empowered
recipients to identify other disproportionately impacted households,
populations, communities, or small businesses. The interim final rule
provided that, in identifying these disproportionately impacted
communities, recipients should be able to support their determination
that the pandemic resulted in disproportionate public health or
economic outcomes to the specific populations, households, or
geographic areas to be served.
Throughout this final rule, Treasury refers to those households,
communities, small businesses, and nonprofits that experienced
disproportionate public health or negative economic impacts of the
pandemic as ``disproportionately impacted.'' The third category in the
interim final rule under this eligible use included public health
responses and responses to the negative economic impacts for these
disproportionately impacted classes.
The interim final rule provided significant flexibility for
recipients to determine which households, populations, communities, or
small businesses have been impacted and/or disproportionately impacted
by the pandemic and to identify appropriate responses. The interim
final rule included several provisions to provide simple methods for
recipients to identify impacts and design programs to address those
impacts. First, the interim final rule allowed recipients to
demonstrate a negative economic impact on a population or class and
provide assistance to households or small businesses that fall within
that population or class. In such cases, the recipient need only
demonstrate that an individual household or business is within the
class that experienced a negative economic impact, rather than
requiring a recipient to demonstrate that each individual household or
small business experienced a negative economic impact, because the
impact was already identified for the class.
Second, in the interim final rule, Treasury presumed that certain
populations have been impacted or disproportionately impacted and are
thus eligible for services that respond to these impacts or
disproportionate impacts. Specifically, the interim final rule
permitted recipients to presume that households that experienced
unemployment, increased food or housing insecurity, or are low- or
moderate-income experienced a negative economic impact from the
pandemic. The interim final rule also permitted recipients to presume
that certain services provided in Qualified Census Tracts (QCTs), to
individuals living in QCTs, or by Tribal governments are responsive to
disproportionate impacts of the pandemic. In addition to the
populations presumed to be impacted or disproportionately impacted,
under the interim final rule, recipients could identify other impacted
households or classes, as described above, as well as other
populations, households, or geographic areas that are
disproportionately impacted by the pandemic.
Third, as mentioned previously, the interim final rule included a
non-exhaustive list of uses of funds that Treasury identified as
responsive to the impacts or disproportionate impacts of the pandemic.
Treasury refers to these as ``enumerated eligible uses.''
To summarize, the interim final rule identified certain populations
that are presumed to be impacted by the pandemic (and specific
enumerated uses of funds that are responsive to that impact) and
populations that are presumed to be disproportionately impacted by the
pandemic (and specific enumerated uses of funds that are responsive to
those disproportionate impacts). In addition, the interim final rule
provided standards for recipients to assess whether additional uses of
funds, beyond the enumerated eligible uses, are eligible for impacted
and disproportionately impacted populations and permitted recipients to
identify other households or classes that experienced impacts of the
pandemic or disproportionate impacts of the pandemic.
Rule Structure
Public Comment: Many commenters expressed concern regarding the
structure of the eligible uses, indicating they found the structure of
the public health and negative economic impacts section of the interim
final rule to be confusing or difficult to navigate. Other commenters
indicated that they understood the enumerated uses to be the only
eligible uses and/or the presumed eligible populations to be the only
eligible populations. Several commenters expressed frustration about
the number of eligible uses specifically enumerated in the interim
final rule, which they considered too few, and commenters proposed a
wide range of additional enumerated eligible uses (for further
discussion, see the section Public Health and section Negative Economic
Impacts). Commenters expressed concern with pursuing uses of funds not
explicitly enumerated in the eligible use section or uncertainty
regarding the broad flexibility provided under the interim final rule
to pursue additional programs that respond to the public health or
negative economic impacts of the pandemic or the process for doing so.
Treasury Response: Treasury recognizes that many commenters felt
the structure of the interim final rule could be clarified. These
comments are consistent with many of the questions that Treasury has
received from recipients, which requested clarification regarding the
category their desired response fits into. Treasury observes that these
comments and questions generally fall into four categories: (1) How to
identify the correct public health or negative economic impact category
for a particular response, (2) how to identify whether a particular use
is eligible, (3) how to identify an impacted or disproportionately
impacted class, and (4) whether an enumerated use can be provided to a
class other than those presumed impacted or disproportionately
impacted. In response to comments, Treasury is adjusting the structure
of the public health and negative economic impacts eligible use section
of the final rule to improve clarity and make it easier for recipients
to interpret and apply the final rule.
Specifically, Treasury is restructuring the rule to aid recipients
in determining whether a particular response is eligible and how the
particular response might be eligible under a particular category. This
restructuring reinforces the fundamental criteria that a use of funds
is eligible based on its responsiveness to a public health or negative
economic impact experienced by individuals, households, small
businesses, nonprofits, or impacted industries (together
``beneficiaries'').\18\ This restructuring is intended to make the rule
easier to navigate and to implement, including any criteria or
conditions on particular uses of funds.
---------------------------------------------------------------------------
\18\ Note that small businesses, nonprofits, and industries may
also function as subrecipients. For additional information on these
distinctions see section Distinguishing Subrecipients versus
Beneficiaries.
---------------------------------------------------------------------------
The reorganization of the public health and negative economic
impacts section of the final rule is also intended to clarify the
enumerated eligible uses described in the interim final rule. The
reorganization itself is not intended to change the scope of the
enumerated uses that were included in the interim final rule or that
were allowable under the interim final rule. In some cases, specific
enumerated uses are being altered, and those changes are discussed
[[Page 4343]]
as changes within the section on that enumerated use.
The final rule streamlines and aligns services and standards that
are generally applicable or are provided for public health purposes.
Under this approach, eligible uses to respond to the public health
emergency are organized based on the type of public health problem: (1)
COVID-19 mitigation and prevention, (2) medical expenses, (3)
behavioral health care, and (4) preventing and responding to violence.
Under this approach, eligible uses to respond to the negative economic
impacts of the public health emergency are organized based on the type
of beneficiary: (1) Assistance to households, (2) assistance to small
businesses, and (3) assistance to nonprofits, alongside a fourth
standalone eligibility category for aid to travel, tourism,
hospitality, and other impacted industries. The first three categories,
assistance to households, small businesses, and nonprofits, include
enumerated eligible uses for impacted and disproportionately impacted
beneficiaries. This change in structure is intended to provide a
framework that clearly identifies the intended beneficiaries of uses of
funds and provides clarity about what types of assistance are
``responsive to the pandemic or its negative economic impacts'' for
these beneficiaries.
a. Standards for Identifying a Public Health or Negative Economic
Impact
Standards: Designating a Public Health Impact
Public Comment: Many commenters expressed uncertainty about how to
determine whether a use of funds, beyond those specifically enumerated
as eligible, might be an eligible public health response. For example,
many commenters submitted questions asking whether specific uses of
funds would be eligible. Others described what they considered to be
impacts of the pandemic and argued that uses of funds to respond to
these issues should be eligible. Some commenters requested that
Treasury provide additional detail to guide their assessments of
eligible uses of funds. For example, a commenter requested more
clarification around exactly what and whose medical expenses can be
covered. These comments ranged in their specificity and covered the
full range of the enumerated eligible uses.
Treasury Response: Treasury is clarifying that when assessing
whether a program or service is an eligible use to respond to the
public health impacts of the COVID-19 public health emergency, the
Department will consider the two eligibility requirements discussed
below. These standards apply to all proposed public health uses.
First, there must be a negative public health impact or harm
experienced by an individual or a class. For ease of administration,
the interim final rule allowed, and the final rule maintains the
ability for, recipients to identify a public health impact on a
population or group of individuals, referred to as a ``class,'' and to
provide assistance to that class. In determining whether an individual
is eligible for a program designed to address a harm experienced by a
class, the recipient need only document that the individual is within
the class that experienced a public health impact, see section
Standards: Designating Other Impacted Classes. In the case of some
impacts, for example impacts of COVID-19 itself that are addressed by
providing prevention and mitigation services, such a class could
reasonably include the general public.
Second, the program, service, or other intervention must address or
respond to the identified impact or harm. The final rule maintains the
interim final rule requirement that eligible uses under this category
must be in response to the disease itself or other public health harms
that it caused.\19\
---------------------------------------------------------------------------
\19\ In designing an intervention to mitigate COVID-19, the
recipient should consider guidance from public health authorities,
particularly the Centers for Disease Control and Prevention (CDC),
in assessing appropriate COVID-19 mitigation and prevention
strategies (see Centers for Disease Control and Prevention, COVID-
19, https://www.cdc.gov/coronavirus/2019-ncov/index.html). A program
or service that imposes conditions on participation in or acceptance
of the service that would undermine efforts to stop the spread of
COVID-19 or discourage compliance with practices in line with CDC
guidance for stopping the spread of COVID-19 is not a permissible
use of funds.
---------------------------------------------------------------------------
Responses must be reasonably designed to benefit the individual or
class that experienced the public health impact or harm. Uses of funds
should be assessed based on their responsiveness to their intended
beneficiaries and the ability of the response to address the impact or
harm experienced by those beneficiaries.
Responses must also be related and reasonably proportional to the
extent and type of public health impact or harm experienced. Uses that
bear no relation or are grossly disproportionate to the type or extent
of harm experienced would not be eligible uses. Reasonably proportional
refers to the scale of the response compared to the scale of the harm.
It also refers to the targeting of the response to beneficiaries
compared to the amount of harm they experienced. In evaluating whether
a use is reasonably proportional, recipients should consider relevant
factors about the harm identified and the response. For example,
recipients may consider the size of the population impacted and the
severity, type, and duration of the impact. Recipients may also
consider the efficacy, cost, cost-effectiveness, and time to delivery
of the response.
If a recipient intends to fund capital expenditures in response to
the public health impacts of the pandemic, recipients should refer to
the section Capital Expenditures for details about the eligibility of
capital expenditures.
Standards: Designating a Negative Economic Impact
Public Comment: Many commenters expressed uncertainty about how to
determine whether uses of funds, beyond those specifically enumerated
as eligible, might be eligible responses to negative economic impacts.
For example, many commenters submitted questions asking whether
specific uses of funds would be eligible. Others described what they
considered to be impacts of the pandemic and argued that uses of funds
to respond to these issues should be eligible. Some commenters
requested that Treasury provide additional detail to guide their
assessments of eligible uses of funds. These comments ranged in their
specificity and covered the full range of eligible uses to respond to
negative economic impacts. Several commenters asked for clarification
about what types of food assistance would be considered eligible.
Another commenter requested that the establishment of outdoor dining be
eligible. Many commenters inquired about homeless shelters as an
eligible use of SLFRF funds.
Commenters also expressed uncertainty about the ability to
establish classes, including geographic areas, that experienced a
negative economic impact or disagreed with the requirement that an
individual entity be impacted by the pandemic in order to receive
assistance. For example, a commenter argued that interventions should
not be limited to individuals or businesses that experienced an
economic impact and should instead be used broadly to support economic
growth. These commenters argued that an expenditure that supports a
more robust economy may help combat the pandemic's negative economic
impacts, and it can do so even if funding is provided to individuals or
entities that did not themselves experience a negative economic impact
during the pandemic.
Treasury Response: The final rule maintains the standard
articulated in
[[Page 4344]]
the interim final rule. For clarity, the final rule re-articulates that
when assessing whether a program or service is an eligible use to
respond to the negative economic impacts of the COVID-19 public health
emergency, Treasury will consider the two eligibility requirements
discussed below.
First, there must be a negative economic impact, or an economic
harm, experienced by an individual or a class. The recipient should
assess whether, and the extent to which, there has been an economic
harm, such as loss of earnings or revenue, that resulted from the
COVID-19 public health emergency. A recipient should first consider
whether an economic harm exists and then whether this harm was caused
or made worse by the COVID-19 public health emergency. This approach is
consistent with the text of the statute, which provides that funds in
this category must be used to ``respond to the public health emergency
with respect to . . . its negative economic impacts.''
While economic impacts may either be immediate or delayed,
individuals or classes that did not experience a negative economic
impact from the public health emergency would not be eligible
beneficiaries under this category. As noted above, the interim final
rule permitted recipients to presume that households that experienced
unemployment, increased food or housing insecurity, or are low- or
moderate-income experienced a negative economic impact from the
pandemic. For discussion of the final rule's approach to this
presumption, see section Populations Presumed Eligible.
The final rule also maintains several provisions included in the
interim final rule and subsequent guidance that are intended to ease
administration of identifying that the beneficiary experienced a
negative economic impact or harm. For example, the interim final rule
allowed, and the final rule maintains the ability for, recipients to
demonstrate a negative economic impact on a population or group,
referred to as a ``class,'' and to provide assistance to households,
small businesses, or nonprofits that fall within that class. In such
cases, the recipient need only demonstrate that the household, small
business, or nonprofit is within the class that experienced a negative
economic impact, see section Standards: Designating Other Impacted
Classes. This would allow, for example, an internet access assistance
program for all households with children to support those households'
ability to participate in healthcare, work, and educational activities
like extending learning opportunities, among other critical activities.
In that case, the recipient would only need to identify a negative
economic impact to the class of ``households with children'' and would
not need to document or otherwise demonstrate that each individual
household served experienced a negative economic impact.
Second, the response must be designed to address the identified
economic harm or impact resulting from or exacerbated by the public
health emergency. In selecting responses, the recipient must assess
whether, and the extent to which, the use would respond to or address
this harm or impact. This approach is consistent with the text of the
statute, which provides that funds may be used to ``respond to'' the
``negative economic impacts'' of the public health emergency
``including assistance to households, small businesses, and nonprofits,
or aid to impacted industries such as tourism, travel, and
hospitality.'' The list of potential responses (``assistance'' or
``aid'') suggests that responses should address the ``negative economic
impacts'' of particular types of beneficiaries (e.g., households or
small businesses).
Responses must be reasonably designed to benefit the individual or
class that experienced the negative economic impact or harm. Uses of
funds should be assessed based on their responsiveness to their
intended beneficiary and the ability of the response to address the
impact or harm experienced by that beneficiary.\20\
---------------------------------------------------------------------------
\20\ For example, expenses such as excessive compensation to
employees or expenses which have already been reimbursed through
another federal program, are not reasonably designed to address a
negative economic impact to a beneficiary.
---------------------------------------------------------------------------
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.\21\ Reasonably proportional refers to the
scale of the response compared to the scale of the harm. It also refers
to the targeting of the response to beneficiaries compared to the
amount of harm they experienced; for example, it may not be reasonably
proportional for a cash assistance program to provide assistance in a
very small amount to a group that experienced severe harm and in a much
larger amount to a group that experienced relatively little harm. In
evaluating whether a use is reasonably proportional, recipients should
consider relevant factors about the harm identified and the response.
For example, recipients may consider the size of the population
impacted and the severity, type, and duration of the impact. Recipients
may also consider the efficacy, cost, cost-effectiveness, and time to
delivery of the response.
---------------------------------------------------------------------------
\21\ For example, a program or service that imposes conditions
on participation in or acceptance of the service that would
undermine efforts to stop the spread of COVID-19 or discourage
compliance with practices in line with CDC guidance for stopping the
spread of COVID-19 is not a permissible use of funds.
---------------------------------------------------------------------------
Finally, recipients should be aware of the distinction between
beneficiaries of funds and subrecipients; a recipient may provide
services to beneficiaries through subrecipients that did not experience
a negative economic impact, see section Distinguishing Subrecipients
versus Beneficiaries. That is, a recipient may award SLFRF funds to an
entity that did not experience a negative economic impact in order to
implement a program or provide a service to beneficiaries on its
behalf. Such transfers, when implementing a public health or negative
economic impact response, should be responsive to and designed to
benefit individuals, households, small businesses, nonprofits, or
impacted industries that did experience a public health or negative
economic impact.
Determining the Appropriate Eligible Use Category
Public Comment: Some commenters expressed uncertainty about how to
analyze negative economic impacts to different entities (e.g.,
households, small businesses, nonprofits). For example, commenters
asked whether a nonprofit, which did not experience a negative economic
impact itself, could be granted funds to provide services to
individuals experiencing homelessness, who did experience negative
economic impacts. Other commenters proposed providing assistance to
support the expansion of small businesses, under the theory that this
would create more job opportunities for unemployed workers who
experienced negative economic impacts.
Treasury Response: In the final rule, Treasury is clarifying that
recipients should assess a potential use of funds based on which
beneficiary experienced the negative economic impact, in other words,
the households, small businesses, nonprofits, or impacted industries
that experienced the negative economic impact.
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.
[[Page 4345]]
When a recipient provides funds to another entity to carry out eligible
uses of funds and serve beneficiaries the entity becomes a subrecipient
(see section Distinguishing a Subrecipient versus a Beneficiary). For
example, a recipient may grant funds to a nonprofit organization to
provide food assistance (an eligible use) to low-income households (the
beneficiaries). Recipients only need to assess whether the
beneficiaries experienced a negative economic impact and whether the
eligible use responds to that impact, consistent with the two-part
framework described above; the organization carrying out the eligible
use does not need to have experienced a negative economic impact if it
is serving as the vehicle for reaching the beneficiaries. When making
determinations about how to implement a program, recipients should
consider whether that method of program implementation is an effective
and efficient method to implement the program and do so in accordance
with the Uniform Guidance provisions that govern procurements and sub-
granting of federal funds, as applicable.
As noted above, recipients should analyze eligible uses based on
the beneficiary of the assistance or the entity that experienced a
negative economic impact. Assistance to a small business or to an
impacted industry must respond to a negative economic impact
experienced by that small business or industry. Recipients may not
provide assistance to small businesses or impacted industries that did
not experience a negative economic impact, although recipients can
identify negative economic impacts for classes, rather than individual
businesses, and may also presume that small businesses in certain areas
experienced impacts; see section General Provisions: Structure and
Standards and section Assistance to Small Businesses for details.
Several examples illustrate the application of these concepts. For
example, a recipient could provide assistance to households via a
contract with a business to create subsidized jobs for the long-term
unemployed; in this case the business is a subrecipient and need not
have experienced a negative economic impact, but the recipient would
need to identify a specific connection between the assistance provided
and addressing the negative economic impact experienced by the
unemployed households. The recipient could, for instance, document the
subsidized jobs created under the contract and their reservation for
long-term unemployed individuals. Similarly, a recipient might provide
assistance to a small business that experienced a pandemic-related loss
of revenue. This small business is a beneficiary and may use those
funds in many ways, potentially including hiring or retaining staff.
However, general assistance to a business that did not experience a
negative economic impact under the theory that this assistance
generally grows the economy and therefore enhances opportunities for
unemployed workers would not be an eligible use, because such
assistance is not reasonably designed to impact the individuals or
classes that 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.
b. Populations Presumed Eligible
Presumed Eligibility: Impacted and Disproportionately Impacted
Households and Communities
Background: As noted above, the interim final rule allowed
recipients to presume that certain households were impacted or
disproportionately impacted by the pandemic and thus eligible for
responsive programs or services. Specifically, under the interim final
rule, recipients could presume that a household or population that
experienced unemployment, experienced increased food or housing
insecurity, or is low- or moderate-income experienced negative economic
impacts resulting from the pandemic, and recipients may provide
services that respond to these impacts.
The interim final rule also recognized that pre-existing health,
economic, and social disparities contributed to disproportionate
pandemic impacts in certain communities and allowed for a broader list
of enumerated eligible uses to respond to the pandemic in
disproportionately impacted communities. Under the interim final rule,
recipients were allowed to presume that families residing in QCTs or
receiving services provided by Tribal governments were
disproportionately impacted by the pandemic.
Definition of Low- and Moderate-Income
Public Comment: As noted earlier, many commenters sought a
definition for ``low- and moderate-income'' to provide recipients
greater clarity on which specific households could be presumed to be
impacted by the pandemic.
Treasury Response: The final rule maintains the presumptions
identified in the interim final rule and defines low- and moderate-
income for the purposes of determining which households and populations
recipients may presume to have been impacted. To simplify the
administration of this presumption, the final rule adopts a definition
of low- and moderate-income based on thresholds established and used in
other federal programs.
Definitions. The final rule defines a household as low income if it
has (i) income at or below 185 percent of the Federal Poverty
Guidelines (FPG) for the size of its household based on the most
recently published poverty guidelines by the Department of Health and
Human Services (HHS) or (ii) income at or below 40 percent of the Area
Median Income (AMI) for its county and size of household based on the
most recently published data by the Department of Housing and Urban
Development (HUD).\22\
---------------------------------------------------------------------------
\22\ AMI is also often referred to as median family income for
the area. Since AMI is synonymous with this term and used more
generally, the final rule refers to AMI.
---------------------------------------------------------------------------
The final rule defines a household as moderate income if it has (i)
income at or below 300 percent of the FPG for the size of its household
based on the most recently published poverty guidelines by HHS or (ii)
income at or below 65 percent of the AMI for its county and size of
household based on the most recently published data by HUD.\23\
---------------------------------------------------------------------------
\23\ For the six New England states of Connecticut, Maine,
Massachusetts, New Hampshire, Rhode Island, and Vermont, HUD
provides AMI for towns rather than counties. Recipients in these
states should use the AMI corresponding to their town when
determining thresholds for both low and moderate income.
---------------------------------------------------------------------------
Recipients may determine whether to measure income levels for
specific households or for a geographic area based on the type of
service to be provided. For example, recipients developing a program
that serves specific households (e.g., a subsidy for internet access, a
childcare program) may measure income at the household level.
Recipients providing a service that reaches a general geographic area
(e.g., a park) may measure median income of that area.
Further, recipients should generally use the income threshold for
the size of the household to be served (e.g., when providing childcare
to a household of five, recipients should reference the income
threshold for a household of five); however, recipients may use the
income threshold for a default household size of three if providing
[[Page 4346]]
services that reach a general geographic area or if doing so would
simplify administration of the program to be provided (e.g., when
developing a park, recipients should use the income threshold for a
household size of three and compare it to median income of the
geographic area to be served).
Note that recipients can also identify and serve other classes of
households that experienced negative economic impacts or
disproportionate impacts from the pandemic; recipients can identify
these classes based on their income levels, including above the levels
defined as low- and moderate-income in the final rule. For example, a
recipient may identify that households in their community with incomes
above the final rule threshold for low-income nevertheless experienced
disproportionate impacts from the pandemic and provide responsive
services. See section General Provisions: Standards for Identifying
Other Eligible Populations for details on applicable standards.
Applicable levels. For reference, the FPG is commonly referred to
as the federal poverty level (FPL) and is related to--although distinct
from--the U.S. Census Bureau's poverty threshold. The final rule uses
the FPG when referring specifically to the HHS guidelines, as these are
the quantitative metrics used for determining low- and moderate-income
households.
The FPG by household size for 2021 is included in the table below.
Recipients should refer to HHS Poverty Guidelines for this information,
which is updated annually and available on the HHS website.\24\ For
calculating the thresholds of 40 percent and 65 percent of AMI,
recipients should refer to the annual HUD Section 8 50 percent income
limits by county and household size published by HUD and available on
the HUD website; in particular, recipients should calculate the 40
percent threshold as 0.8 times the 50 percent income limit, and
recipients should calculate the 65 percent threshold as 1.3 times the
50 percent income limit.\25\ Finally, for median income of Census
Tracts and other geographic areas, recipients should refer to the most
recent American Community Survey 5-year estimates available through the
Census website.\26\
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\24\ U.S. Department of Health and Human Service, HHS Poverty
Guidelines for 2021, available at https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines.
\25\ U.S. Department of Housing and Urban Development, FY 2021
Section 8 Income Limits, available at https://www.huduser.gov/portal/datasets/il/il21/Section8-FY21.xlsx. Recipients may refer to
the list of counties (and New England towns) identified by state and
metropolitan area for identifying the appropriate area. U.S.
Department of Housing and Urban Development, FY 2021 List of
Counties (and New England Towns) Identified by State and
Metropolitan Area, available at https://www.huduser.gov/portal/datasets/il/il21/area-definitions-FY21.pdf.
\26\ The U.S. Census Bureau provides an interactive map: U.S.
Census Bureau, Median Household Income State Selection Map,
available at https://data.census.gov/cedsci/map?q=Median%20Household%20Income&g=0100000US%2404000%24001&tid=ACSST5Y2019.S1901&cid=S1901_C01_012E&vintage=2019. The U.S. Census Bureau
also provides an interactive table: U.S. Census Bureau, Median
Household Income In The Past 12 Months (In 2019 Inflation-Adjusted
Dollars), available at https://data.census.gov/cedsci/table?q=b19013&tid=ACSDT5Y2019.B19013&hidePreview=true.
2021 Federal Poverty Guidelines
----------------------------------------------------------------------------------------------------------------
48 contiguous
states and the
Household size District of Alaska Hawaii
Columbia
----------------------------------------------------------------------------------------------------------------
1............................................................... $12,880 $16,090 $14,820
2............................................................... 17,420 21,770 20,040
3............................................................... 21,960 27,450 25,260
4............................................................... 26,500 33,130 30,480
5............................................................... 31,040 38,810 35,700
6............................................................... 35,580 44,490 40.920
7............................................................... 40,120 50,170 46,140
8............................................................... 44,660 55,850 51,360
----------------------------------------------------------------------------------------------------------------
For families/households with more than 8 persons, add the following amounts for each additional person:
48 Contiguous States and the District of Columbia: $4,540.
Alaska: $5,680.
Hawaii: $5,220.
Source: ``HHS Poverty Guidelines for 2021,'' available at https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines.
Rationale. In defining low income, the final rule uses both the FPG
and AMI to account for national trends and regional differences. The
metric of 185 percent of FPG aligns with some other programs; for
instance, under the National School Lunch Program, students with
household incomes under 185 percent of FPG qualify for free or reduced-
price lunch, and schools often use eligibility for free or reduced-
price lunch as an indicator of low-income status under Title 1-A of the
Elementary and Secondary Education Act. Eligibility for other programs,
such as the Federal Communications Commission's e-Rate program and the
Special Supplemental Nutrition Program for Women, Infants and Children
employ this metric as well. In addition, 185 percent of the FPG for a
family of four is $49,025, which is approximately the wage earnings for
a two-earner household in which both earners receive the median wage in
occupations, such as waiters and waitresses and hotel clerks, that were
heavily impacted by COVID-19.\27\ This measure is targeted toward those
at the bottom of the income distribution and thus helps to promote use
of SLFRF funds towards populations with the greatest needs. At the same
time, with approximately one-quarter of Americans below 185 percent of
the poverty threshold, this approach is broad enough to facilitate use
of SLFRF funds across many jurisdictions.\28\ Because regions have
different cost and income levels, this definition also allows for
upward adjustment based on AMI for those regions where 40 percent of
AMI exceeds 185 percent of FPG. The metric of 40 percent of AMI is
based on the midpoint of values often used to designate certain
categories of low-income households; specifically, it is the midpoint
of the 30 percent income limit and the 50 percent income limit
[[Page 4347]]
used in programs such as the Community Development Block Grant (CDBG)
Program.
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\27\ See U.S. Bureau of Labor Statistics, Occupational
Employment and Wage Estimates, https://www.bls.gov/oes/current/oes_nat.htm (last visited December 7, 2021).
\28\ U.S. Census Bureau, Poverty Status by State, https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-pov/pov-46.html (last visited December 7, 2021).
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In defining moderate income, the final rule uses both the FPG and
AMI to account for national trends and regional differences. While
there are different definitions of moderate income, 300 percent of FPG
falls within the range commonly used by researchers.\29\ Analysis of
median wages among a sample of occupations likely impacted by the
pandemic also suggests that an income cutoff of 300 percent of FPG
would include many households with workers in such occupations.\30\
Moreover, the metric of 300 percent of FPG covers households that,
while above the poverty line, often lack economic security.\31\
Treasury determined the AMI threshold for moderate income by
maintaining the same ratio of FPG multiplier to AMI multiplier as in
the definition of low income. This anchors the threshold to the
existing definitions of moderate income from the literature while
taking into account geographical variation in income and expenses in
the same manner as the definition of low income.
---------------------------------------------------------------------------
\29\ For instance, Melissa Kearney et al. (2013) cap the
``struggling lower middle-income class'' at 250 percent of the
federal poverty level, while Isabel Sawhill and Edward Rodrigue
(2015) define the ``middle class'' as those with incomes of at least
300 percent of the poverty line. Melissa Kearney et al., ``A Dozen
Facts about America's Struggling Lower-Middle Class,'' The Hamilton
Project (December 2013), https://www.hamiltonproject.org/assets/legacy/files/downloads_and_links/THP_12LowIncomeFacts_Final.pdf;
Isabel Sawhill and Edward Rodrigue, ``An Agenda for Reducing Poverty
and Improving Opportunity,'' Brookings Institution, https://www.brookings.edu/wp-content/uploads/2016/07/Sawhill_FINAL.pdf.
\30\ Data on median annual wages from: U.S. Bureau of Labor and
Statistics, Occupational Employment and Wage Statistics, available
at https://www.bls.gov/oes/current/oes_nat.htm (last visited
December 7, 2021).
\31\ For instance, households earning between 200 and 300
percent of the FPG have significantly higher rates of food and
housing insecurity than those earning above 300 percent of the FPG.
Table 1, Kyle J. Caswell and Stephen Zuckerman, Food Insecurity,
Housing Hardship, and Medical Care Utilization, Urban Institute
(June 2018), https://www.urban.org/sites/default/files/publication/98701/2001896_foodinsecurity_housinghardship_medicalcareutilization_finalized.pdf.
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Eligibility Presumptions
Public Comment: Many commenters believed that a broader range of
groups should be considered presumptively impacted and
disproportionately impacted, arguing that many households had been
affected by the pandemic and that broader presumed eligibility would
help recipients provide assistance quickly and effectively.
Treasury also received many comments on the presumption that
families living in QCTs or receiving services from Tribal governments
were disproportionately impacted by the pandemic. While many commenters
supported the interim final rule's recognition of disproportionate
impacts of the pandemic on low-income communities, many commenters
disagreed with treating QCTs as the only presumed eligible group of
disproportionately impacted households, apart from households served by
Tribal governments. While acknowledging a potential increase in
administrative burden, commenters recommended that Treasury presume
other households or geographic areas, in addition to QCTs, were
disproportionately impacted; suggestions included all low- and
moderate-income households, geographic areas designated as Opportunity
Zones, Difficult Development Areas (DDAs), areas with a certain amount
of Real Estate Advantage Program (REAP) recipients, or use of
eligibility criteria from the Community Reinvestment Act. One commenter
generally recommended that a clearer definition of ``disproportionately
impacted'' should be provided and that any definition should include
communities of color and people of limited means. Another recommended
specific eligibility for people that had recently interacted with the
criminal justice system. Many commenters representing Tribal
governments and groups recommended a presumption of eligibility for all
Tribal uses of funds, clarification that off reservation members
remained eligible, and broad flexibility on use of funds.
Additionally, commenters noted that some areas are technically
eligible to be QCTs but fall short because of the aggregate population
of eligible tracts. One commenter noted that these areas should be
considered the same as QCTs for the purpose of SLFRF funds. Some
commenters argued that rural counties typically have few QCTs despite
high levels of poverty and disruption caused by the COVID-19 pandemic.
Other rural commenters recommended that the designation be by county
rather than at a more granular level, arguing that the QCT designation
is biased towards urban areas and understates the harm done to rural
America. Many commenters representing Tribal governments supported the
presumption that services provided by Tribal governments respond to
disproportionate impacts.
Treasury Response
Summary: While households residing in QCTs or served by Tribal
governments were presumed to be disproportionately impacted, Treasury
emphasizes that under the interim final rule recipients could also
identify other households, populations, or geographic areas that were
disproportionately impacted by the pandemic and provide services to
respond.
The final rule maintains the presumptions identified in the interim
final rule, as well as recipients' ability to identify other impacted
or disproportionately impacted classes. The final rule also allows
recipients to presume that low-income households were
disproportionately impacted, and as discussed above, defines low- and
moderate-income. Finally, under the final rule recipients may also
presume that households residing in the U.S. territories or receiving
services from territorial governments were disproportionately impacted.
Households presumed to be impacted: Impacted households are those
that experienced a public health or negative economic impact from the
pandemic.
With regard to public health impacts, recipients may presume that
the general public experienced public health impacts from the pandemic
for the purposes of providing services for COVID-19 mitigation and
behavioral health. In other words, recipients may provide a wide range
of enumerated eligible uses in these categories to the general public
without further analysis. As discussed in the introduction, COVID-19 as
a disease has directly affected the health of tens of millions of
Americans, and efforts to prevent and mitigate the spread of the
disease are needed and in use across the country. Further, the stress
of the pandemic and resulting recession have affected nearly all
Americans. Accordingly, the final rule presumes that the general public
are impacted by and eligible for services to respond to COVID-19
mitigation and prevention needs, as well as behavioral health needs.
With regard to negative economic impacts, as with the interim final
rule, under the final rule recipients may presume that a household or
population that experienced unemployment, experienced increased food or
housing insecurity, or is low- or moderate-income experienced negative
economic impacts resulting from the pandemic. The final rule's
definition of low- and moderate-income, by providing standard metrics
based on widely available data, is intended to simplify administration
for recipients.
Households presumed to be disproportionately impacted:
Disproportionately impacted households are those that experienced a
[[Page 4348]]
disproportionate, or meaningfully more severe, impact from the
pandemic. As discussed in the interim final rule, pre-existing
disparities in health and economic outcomes magnified the impact of the
COVID-19 public health emergency on certain households and communities.
As with the interim final rule, under the final rule recipients may
presume that households residing in QCTs or receiving services provided
by Tribal governments were disproportionately impacted by the pandemic.
In addition, under the final rule recipients may presume that low-
income households were disproportionately impacted by the pandemic.
Finally, under the final rule recipients may also presume that
households residing in the U.S. territories or receiving services from
territorial governments were disproportionately impacted.
Treasury notes that households presumed to be disproportionately
impacted would also be presumptively impacted, as these households have
not only experienced pandemic impacts but have experienced
disproportionate pandemic impacts; as a result, these households are
presumptively eligible for responsive services for both impacted and
disproportionately impacted households.
Many different geographic, income-based, or poverty-based
presumptions could be used to designate disproportionately impacted
populations. The combination of permitting recipients to use QCTs, low-
income households, and services provided by Tribal or territorial
governments as presumptions balances these varying methods.
Specifically, QCTs are a commonly used designation of geographic areas
based on low incomes or high poverty rates of households in the
community; for recipients providing geographically targeted services,
QCTs may provide a simple metric with readily available maps for use.
However, Treasury recognizes that QCTs do not capture all underserved
populations, including for reasons noted by commenters. By allowing
recipients to also presume that low-income households were
disproportionately impacted, the final rule provides greater
flexibility to serve underserved households or communities. Data on
household incomes is also readily available at varying levels of
geographic granularity (e.g., Census Tracts, counties), again
permitting flexibility to adapt to local circumstances and needs.
Finally, Treasury notes that, as discussed further below, recipients
may also identify other households, populations, and communities
disproportionately impacted by the pandemic, in addition to those
presumed to be disproportionately impacted.
Additionally, Tribal and territorial governments may face both
disproportionate impacts of the pandemic and administrability
challenges with operationalizing the income-based standard; therefore,
Treasury has presumed that services provided by these governments
respond to disproportionate pandemic impacts. Given a lack of regularly
published data on household incomes in most territories,\32\ as well as
a lack of poverty guidelines developed for these jurisdictions,\33\ it
may be highly challenging to assess disproportionate impact in these
communities according to an income- or poverty-based standard.
Similarly, data on incomes in Tribal communities are not readily
available.\34\ Finally, as described in the sections on Public Health
and Negative Economic Impacts, Tribal communities have faced
particularly severe health and economic impacts of the pandemic.
Similarly, available research suggests that preexisting health and
economic disparities in the territories amplified the impact of the
pandemic on these communities.\35\
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\32\ For instance, the American Community Survey does not
include all territories. U.S. Census Bureau, Areas Published,
https://www.census.gov/programs-surveys/acs/geography-acs/areas-published.html (last visited November 9, 2021).
\33\ U.S. Department of Health and Human Services, supra note
24.
\34\ For instance, data from the American Community Survey is
based on geographical location rather than Tribal membership. U.S.
Census Bureau, My Tribal Area, https://www.census.gov/Tribal/Tribal_glossary.php.
\35\ Lina Stoylar et. al., Challenges in the U.S. Territories:
COVID-19 and the Medicaid Financing Cliff, Kaiser Family Foundation
(May 18, 2021), https://www.kff.org/coronavirus-covid-19/issue-brief/challenges-in-the-u-s-territories-covid-19-and-the-medicaid-financing-cliff/.
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Categorical Eligibility
Public Comment: Several commenters suggested that the final rule
permit recipients to rely on a beneficiary's eligibility for other
federal benefits programs as an easily administrable proxy for
identifying a group or population that experienced a negative economic
impact as a result of the COVID-19 public health emergency (i.e.,
categorical eligibility). In other words, a recipient would determine
that individuals or households are eligible for an SLFRF-funded program
based on the individual or household's eligibility in another program,
typically another federal benefit program. Commenters noted that
categorical eligibility is a common policy in program administration
that can significantly ease administrative burden on both program
administrators and beneficiaries.
Treasury Response: Treasury agrees that allowing recipients to
identify impacted and disproportionately impacted beneficiaries based
on their eligibility for other programs with similar income tests would
ease administrative burden. To the extent that the other program's
eligibility criteria align with a population or class that experienced
a negative economic impact of the pandemic, this approach is also
consistent with the process allowed under the final rule for recipients
to determine that a class has experienced a negative economic impact,
and then document that an individual receiving services is a member of
the class. For these reasons, the final rule recognizes categorical
eligibility for the following programs and populations:
Impacted households. Treasury will recognize a household
as impacted if it otherwise qualifies for any of the following
programs:
[cir] Children's Health Insurance Program (CHIP)
[cir] Childcare Subsidies through the Child Care and Development
Fund (CCDF) Program
[cir] Medicaid
[cir] National Housing Trust Fund (HTF), for affordable housing
programs only
[cir] Home Investment Partnerships Program (HOME), for affordable
housing programs only
Disproportionately impacted households. Treasury will
recognize a household as disproportionately impacted if it otherwise
qualifies for any of the following programs:
[cir] Temporary Assistance for Needy Families (TANF)
[cir] Supplemental Nutrition Assistance Program (SNAP)
[cir] Free and Reduced-Price Lunch (NSLP) and/or School Breakfast
(SBP) programs
[cir] Medicare Part D Low-income Subsidies
[cir] Supplemental Security Income (SSI)
[cir] Head Start and/or Early Head Start
[cir] Special Supplemental Nutrition Program for Women, Infants,
and Children (WIC)
[cir] Section 8 Vouchers
[cir] Low-Income Home Energy Assistance Program (LIHEAP)
[cir] Pell Grants
[cir] For services to address educational disparities, Treasury
will recognize Title
[[Page 4349]]
I eligible schools \36\ as disproportionately impacted and responsive
services that support the school generally or support the whole school
as eligible
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\36\ Title I eligible schools means schools eligible to receive
services under section 1113 of Title I, Part A of the Elementary and
Secondary Education Act of 1965, as amended (20 U.S.C. 6313),
including schools served under section 1113(b)(1)(C) of that Act.
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c. Standards for Identifying Other Eligible Populations
Standards: Designating Other Impacted Classes
Public Comment: Treasury received multiple comments requesting
additional clarification about how classes of impacted individuals may
be designated, as well as questions asking whether recipients must
demonstrate a specific public health or negative economic impact to
each entity served (e.g., each household receiving assistance under a
program). There were several comments requesting that specific
geographic designations, like a county or Impact Zone, be eligible to
use as a determining boundary.
Treasury Response: The interim final rule allowed, and the final
rule maintains, the ability for recipients to demonstrate a public
health or negative economic impact on a class and to provide assistance
to beneficiaries that fall within that class. Consistent with the scope
of beneficiaries included in sections 602(c)(1)(A) and 603(c)(1)(A) of
the Social Security Act, Treasury is clarifying that a recipient may
identify such impacts for a class of households, small businesses, or
nonprofits. In such cases, the recipient need only demonstrate that the
household, small business, or nonprofit is within the relevant class.
For example, a recipient could determine that restaurants in the
downtown area had generally experienced a negative economic impact and
provide assistance to those small businesses to respond. When providing
this assistance, the recipient would only need to demonstrate that the
small businesses receiving assistance were restaurants in the downtown
area. The recipient would not need to demonstrate that each restaurant
served experienced its own negative economic impact.
In identifying an impacted class and responsive program, service,
or capital expenditure, recipients should consider the relationship
between the definition of the class and proposed response. Larger and
less-specific classes are less likely to have experienced similar harms
and thus the responses are less likely to be responsive to the harms
identified. That is, as the group of entities being served by a program
has a wider set of fact patterns, or the type of entities, their
circumstances, or their pandemic experiences differ more substantially,
it may be more difficult to determine that the class has actually
experienced the same or similar negative economic impact and that the
response is appropriately tailored to address that impact.
Standard: Designating Other Disproportionately Impacted Classes
Summary of Interim Final Rule: As noted above, the interim final
rule provided a broad set of enumerated eligible uses of funds in
disproportionately impacted communities, including to address pre-
existing disparities that contributed to more severe pandemic impacts
in these communities. The interim final rule presumed that these
services are eligible uses when provided in a QCT, to families and
individuals living in QCTs, or when these services are provided by
Tribal governments. Recipients may also provide these services to
``other populations, households, or geographic areas disproportionately
impacted by the pandemic'' and, in identifying these disproportionately
impacted communities, should be able to support their determination
that the pandemic resulted in disproportionate public health or
economic outcomes to the group identified.
Public Comment: A significant number of commenters expressed
uncertainty regarding the process for determining eligibility for
disproportionately impacted communities beyond QCTs. A commenter noted
that a clearer definition of ``disproportionately impacted'' should be
delineated and that any definition should include communities of color
and people of limited means. Some commenters suggested a template or
checklist to see if an area meets the standard for disproportionately
impacted communities outside of QCTs. Some commenters stated that QCT
and non-QCT beneficiaries should be treated the same.
Treasury Response: Under the interim final rule, presuming
eligibility for services in QCTs, for populations living in QCTs, and
for Tribal governments was intended to ease administrative burden,
providing a simple path for recipients to offer services in underserved
communities, and is not an exhaustive list of disproportionately
impacted communities. To further clarify, the final rule codifies the
interpretive framework discussed above, including presumptions of
groups disproportionately impacted, as well as the ability to identify
other disproportionately impacted populations, households, or
geographies (referred to here as disproportionately impacted classes).
As discussed in the interim final rule, in identifying other
disproportionately impacted classes, recipients should be able to
support their determination that the pandemic resulted in
disproportionate public health or economic outcomes to the specific
populations, households, or geographic areas to be served. For example,
the interim final rule considered data regarding the rate of COVID-19
infections and deaths in low-income and socially vulnerable
communities, noting that these communities have experienced the most
severe health impacts, compared to national averages. Similarly, the
interim final rule considered the high concentration of low-income
workers performing essential work, the reduced ability to socially
distance, and other pre-existing public health challenges, all of which
correlate with more severe COVID-19 outcomes. The interim final rule
also considered the disproportionate economic impacts of the pandemic,
citing, for example, the rate of job losses among low-income persons as
compared to the general population. The interim final rule then
identified QCTs, a common, readily accessible, and geographically
granular method of identifying communities with a large proportion of
low-income residents, as presumed to be disproportionately impacted by
the pandemic.
In other words, the interim final rule identified
disproportionately impacted populations by assessing the impacts of the
pandemic and finding that some populations experienced meaningfully
more severe impacts than the general public. Similarly, to identify
disproportionately impacted classes, recipients should compare the
impacts experienced by that class to the typical or average impacts of
the pandemic in their local area, state, or nationally.
Recipients may identify classes of households, communities, small
businesses, nonprofits, or populations that have experienced a
disproportionate impact based on academic research or government
research publications, through analysis of their own data, or through
analysis of other existing data sources. To augment their analysis, or
when quantitative data is not readily available, recipients may also
consider qualitative research and sources like resident interviews or
[[Page 4350]]
feedback from relevant state and local agencies, such as public health
departments or social services departments. In both cases, recipients
should consider the quality of the research, data, and applicability of
analysis to their determination.
In designing a program or service that responds to a
disproportionately impacted class, a recipient must first identify the
impact and then identify an appropriate response. To assess
disproportionate impact, recipients should rely on data or research
that measures the public health or negative economic impact. An
assessment of the effects of a response (e.g., survey data on levels of
resident support for various potential responses) is not a substitute
for an assessment of the impact experienced by a particular class. Data
about the appropriateness or desirability of a response may be used to
assess the reasonableness of a response, once an impact or
disproportionate impact has been identified but should not be the basis
for assessing impact.
2. Public Health
Background
On January 21, 2020, the Centers for Disease Control and Prevention
(CDC) identified the first case of novel coronavirus in the United
States.\37\ Since that time, and through present day, the United States
has faced numerous waves of the virus that have brought acute strain on
health care and public health systems. At various points in the
pandemic, hospitals and emergency medical services have seen
significant influxes of patients; response personnel have faced
shortages of personal protective equipment; testing for the virus has
been scarce; and congregate living facilities like nursing homes have
seen rapid spread.
---------------------------------------------------------------------------
\37\ Press Release, Centers for Disease Control and Prevention,
First Travel-related Case of 2019 Novel Coronavirus Detected in
United States (Jan. 21, 2020), https://www.cdc.gov/media/releases/2020/p0121-novel-coronavirus-travel-case.html.
---------------------------------------------------------------------------
Since the initial wave of the COVID-19 pandemic, the United States
has faced several additional major waves that continued to impact
communities and stretch public health services. The summer 2020 wave
impacted communities in the south and southwest. As the weather turned
colder and people spent more time indoors, a wave throughout fall and
winter 2020 impacted communities in almost every region of the country
as the virus reached a point of uncontrolled spread and over 3,000
people died per day due to COVID-19.\38\
---------------------------------------------------------------------------
\38\ Centers for Disease Control and Prevention, COVID Data
Tracker: Trends in Number of COVID-19 Cases and Deaths in the US
Reported to CDC, by State/Territory, https://covid.cdc.gov/covid-data-tracker/#trends_dailytrendscases (last visited December 7,
2021).
---------------------------------------------------------------------------
In December 2020, the Food and Drug Administration (FDA) authorized
COVID-19 vaccines for emergency use, and soon thereafter, mass
vaccination in the United States began. At the time of the interim
final rule publication in May 2021, the number of daily new infections
was steeply declining as rapid vaccination campaigns progressed across
the country. By summer 2021, COVID-19 cases had fallen to their lowest
level since early months of the pandemic, when testing was scarce.
However, throughout late summer and early fall, the Delta variant, a
more infectious and transmittable variant of the SARS-CoV-2 virus,
sparked yet another surge. From June to early September, the seven-day
moving average of reported cases rose from 12,000 to 165,000.\39\
---------------------------------------------------------------------------
\39\ Id.
---------------------------------------------------------------------------
As of December 2021, COVID-19 in total has infected over 50 million
and killed over 800,000 Americans.\40\ Preventing and mitigating the
spread of COVID-19 continues to require a major public health response
from federal, state, local, and Tribal governments.
---------------------------------------------------------------------------
\40\ Centers for Disease Control and Prevention, COVID Data
Tracker, http://www.covid.cdc.gov/covid-data-tracker/#datatracker-home (last visited December 31, 2021).
---------------------------------------------------------------------------
First, state, local, and Tribal governments across the country have
mobilized to support the national vaccination campaign. As of December
2021, more than 80 percent of adults have received at least one dose,
with more than 470 million total doses administered.\41\ Additionally,
more than 15 million children over the age of 12 have received at least
one dose of the vaccine and over 47 million people have received a
booster dose.\42\ Vaccines for younger children, ages 5 through 11,
have been approved and are reaching communities and families across the
country. As new variants continue to emerge globally, the national
effort to administer vaccinations and other COVID-19 mitigation
strategies will be a critical component of the public health response.
---------------------------------------------------------------------------
\41\ Centers for Disease Control and Prevention, COVID Data
Tracker: COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (last visited
December 7, 2021).
\42\ Id.
---------------------------------------------------------------------------
In early reporting on uses of SLFRF funds, recipients have
indicated that they plan to put funds to immediate use to support
continued vaccination campaigns. For example, one recipient has
indicated that it plans to use SLFRF funds to support a vaccine
incentive program, providing $100 gift cards to residents at community
vaccination clinics. The program aimed to target communities with high
public health needs.\43\ Another recipient reported that it is
partnering with multiple agencies, organizations, and providers to
distribute COVID-19 vaccinations to homebound residents in assisted
living facilities.\44\
---------------------------------------------------------------------------
\43\ Columbus, Ohio Recovery Plan, https://www.columbus.gov/recovery/.
\44\ Luzerne County, Pennsylvania Recovery Plan, https://www.luzernecounty.org/DocumentCenter/View/26304/Final-Interim-Recovery-Plan-Performance-Report-83121.
---------------------------------------------------------------------------
State, local, and Tribal governments have also continued to execute
other aspects of a wide-ranging public health response, including
increasing access to COVID-19 testing and rapid at-home tests, contact
tracing, support for individuals in isolation or quarantine,
enforcement of public health orders, new public communication efforts,
public health surveillance (e.g., monitoring case trends and genomic
sequencing for variants), enhancement to health care capacity through
alternative care facilities, and enhancement of public health data
systems to meet new demands or scaling needs.
State, local, and Tribal governments have also supported major
efforts to prevent COVID-19 spread through safety measures at key
settings like nursing homes, schools, congregate living settings, dense
worksites, incarceration settings, and in other public facilities. This
has included, for example, implementing infection prevention measures
or making ventilation improvements.
In particular, state, local, and Tribal governments have mounted
significant efforts to safely reopen schools. A key factor in school
reopening is the ability to implement COVID-19 mitigation strategies
such as providing masks and other hygiene resources, improving air-
quality and ventilation, increasing outdoor learning and eating spaces,
testing and contact tracing protocols, and a number of other
measures.\45\ For example, one recipient described plans to use SLFRF
funds to further invest in school health resources that were critical
components of school reopening and reducing the spread of COVID-19 in
schools. Those investments include the increasing school nurses and
social
[[Page 4351]]
workers, improved ventilation systems, and other health and safety
measures.
---------------------------------------------------------------------------
\45\ This includes implementing mitigation strategies consistent
with the Centers for Disease Control and Prevention's (CDC) Guidance
for COVID-19 Prevention in K-12 Schools (November 5, 2021),
available at https://www.cdc.gov/coronavirus/2019-ncov/community/schools-childcare/k-12-guidance.html.
---------------------------------------------------------------------------
The need for public health measures to respond to COVID-19 will
continue moving forward. This includes the continuation of vaccination
campaigns for the general public, booster doses, and children. This
also includes monitoring the spread of COVID-19 variants, understanding
the impact of these variants, developing approaches to respond, and
monitoring global COVID-19 trends. Finally, the long-term health
impacts of COVID-19 will continue to require a public health response,
including medical services for individuals with ``long COVID,'' and
research to understand how COVID-19 impacts future health needs and
raises risks for the tens of millions of Americans who have been
infected.
The COVID-19 pandemic also negatively impacted other areas of
public health, particularly mental health and substance use. In January
2021, over 40 percent of American adults reported symptoms of
depression or anxiety, up from 11 percent in the first half of
2019.\46\ The mental health impacts of the pandemic have been
particularly acute for adults ages 18 to 24, racial and ethnic
minorities, caregivers for adults, and essential workers, with all
reporting significantly higher rates of considering suicide.\47\ The
proportion of children's emergency department visits related to mental
health has also risen noticeably.\48\ Similarly, rates of substance use
and overdose deaths have spiked: Preliminary data from the CDC show a
nearly 30 percent increase in drug overdose mortality from April 2020
to April 2021, bringing the estimated overdose death toll for a 12-
month period over 100,000 for the first time ever.\49\ The CDC also
found that 13 percent of adults started or increased substance use to
cope with stress related to COVID-19 and 26 percent reported having
symptoms of trauma- and stressor-related disorder (TRSD) related to the
pandemic.\50\
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\46\ Nirmita Panchal et al., The Implications of COVID-19 for
Mental Health and Substance Abuse (Feb. 10, 2021), https://
www.kff.org/coronaviruscovid-19/issue-brief/the-implications-of-
covid-19-for-mental-health-and-substance-use/
#:~:text=Older%20adults%20are%20also%20
more,prior%20to%20the%20current%20crisis; Mark [Eacute]. Czeisler et
al., Mental Health, Substance Abuse, and Suicidal Ideation During
COVID-19 Pandemic--United States, June 24-30 2020, Morb. Mortal.
Wkly. Rep. 69(32):1049-57 (Aug. 14, 2020), https://www.cdc.gov/mmwr/volumes/69/wr/mm6932a1.htm.
\47\ Id.
\48\ Rebecca T. Leeb et al., Mental Health-Related Emergency
Department Visits Among Children Aged <18 Years During the COVID
Pandemic--United States, January 1-October 17, 2020, Morb. Mortal.
Wkly. Rep. 69(45):1675-80 (Nov. 13, 2020), https://www.cdc.gov/mmwr/volumes/69/wr/mm6945a3.htm.
\49\ Centers for Disease Prevention and Control, National Center
for Health Statistics, Provisional Drug Overdose Death Counts,
https://www.cdc.gov/nchs/nvss/vsrr/drug-overdose-data.htm (last
visited May 8 December 6, 2021).
\50\ Panchal, supra note 46; Mark [Eacute]. Czeisler et al.,
supra note 46.
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Another public health challenge exacerbated by the pandemic was
violent crime and gun violence, which increased during the pandemic and
has disproportionately impacted low-income communities.\51\ According
to the Federal Bureau of Investigation (FBI), although the property
crime rate fell 8 percent in 2020, the violent crime rate increased 6
percent in 2020 compared to 2019 data.\52\ In particular, the estimated
number of aggravated assault offenses rose 12 percent, while murder and
manslaughter increased 30 percent from 2019 to 2020.\53\ The proportion
of homicides committed with firearms rose from 73 percent in 2019 to 76
percent in 2020.\54\ Exposure to violence can create serious short-term
and long-term harmful effects to health and development, and repeated
exposure to violence may be connected to negative health outcomes.\55\
Addressing community violence as a public health issue may help prevent
and even reduce additional harm to individuals, households, and
communities.\56\
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\51\ The White House, FACT SHEET: More Details on the Biden-
Harris Administration's Investments in Community Violence
Interventions (April 7, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/04/07/fact-sheet-more-details-on-the-biden-harris-administrations-investments-in-community-violence-interventions/.
\52\ Federal Bureau of Investigation, FBI Releases 2020 Crime
Statistics (September 27, 2021) https://www.fbi.gov/news/pressrel/press-releases/fbi-releases-2020-crime-statistics.
\53\ Id.
\54\ Id.
\55\ The Educational Fund to Stop Gun Violence, Community Gun
Violence, https://efsgv.org/learn/type-of-gun-violence/community-gun-violence/ (last visited November 9, 2021).
\56\ Giffords Law Center, Healing Communities in Crisis:
Lifesaving Solutions to the Urban Gun Violence Epidemic (March
2016), https://giffords.org/wp-content/uploads/2019/01/Healing-Communities-in-Crisis.pdf.
---------------------------------------------------------------------------
Many communities are using SLFRF funds to invest in holistic
approaches in violence prevention that are rooted in targeted outreach
and addressing root causes. For example, the City of St. Louis is
planning to invest in expanding a ``community responder'' model
designed to provide clinical help and to divert non-violent calls away
from the police department. Additionally, the city will expand access
to mental health services, allowing residents to seek support at city
recreation centers, libraries, and other public spaces.\57\ Similarly,
Los Angeles County will further invest in its ``Care First, Jails
Last'' program which seeks to replace ``arrest and incarceration''
responses with health interventions.\58\
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\57\ St. Louis, MO Recovery Plan, https://www.stlouis-mo.gov/government/recovery/covid-19/arpa/plan/.
\58\ Los Angeles County, CA Recovery Plan, http://file.lacounty.gov/SDSInter/bos/supdocs/160391.pdf.
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While the pandemic affected communities across the country, it
disproportionately impacted some demographic groups and exacerbated
health inequities along racial, ethnic, and socioeconomic lines.\59\
The CDC has found that racial and ethnic minorities are at increased
risk for infection, hospitalization, and death from COVID-19, with
Hispanic or Latino and Native American or Alaska Native patients at
highest risk.\60\
---------------------------------------------------------------------------
\59\ Office of the White House, National Strategy for the COVID-
19 Response and Pandemic Preparedness (Jan. 21, 2021), https://www.whitehouse.gov/wp-content/uploads/2021/01/National-Strategy-for-the-COVID-19-Response-and-Pandemic-Preparedness.pdf.
\60\ In a study of 13 states from October to December 2020, the
CDC found that Hispanic or Latino and Native American or Alaska
Native individuals were 1.7 times more likely to visit an emergency
room for COVID-19 than White individuals, and Black individuals were
1.4 times more likely to do so than White individuals. See Sebastian
D. Romano et al., Trends in Racial and Ethnic Disparities in COVID-
19 Hospitalizations, by Region--United States, March-December 2020,
MMWR Morb Mortal Wkly Rep 2021, 70:560-565 (Apr. 16, 2021), https://www.cdc.gov/mmwr/volumes/70/wr/mm7015e2.htm?s_cid=mm7015e2_w.
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Similarly, low-income and socially vulnerable communities have seen
the most severe health impacts. For example, counties with high poverty
rates also have the highest rates of infections and deaths, with 308
deaths per 100,000 compared to the U.S. average of 238 deaths per
100,000, as of December 2021.\61\ Counties with high social
vulnerability, as measured by factors such as poverty and educational
attainment, have also fared more poorly than the national average, with
325 deaths per 100,000 as of December 2021.\62\ Over the course of the
[[Page 4352]]
pandemic, Native Americans have experienced more than one and a half
times the rate of COVID-19 infections, more than triple the rate of
hospitalizations, and more than double the death rate compared to White
Americans.\63\ Low-income and minority communities also exhibit higher
rates of pre-existing conditions that may contribute to an increased
risk of COVID-19 mortality.\64\ In addition, individuals living in low-
income communities may have had more limited ability to socially
distance or to self-isolate when ill, resulting in faster spread of the
virus, and were over-represented among essential workers, who face
greater risk of exposure.\65\
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\61\ Centers for Disease Control and Prevention, COVID Data
Tracker: Trends in COVID-19 Cases and Deaths in the United States,
by County-level Population Factors, https://covid.cdc.gov/covid-data-tracker/#pop-factors_totaldeaths (last visited December 7,
2021).
\62\ The CDC's Social Vulnerability Index includes fifteen
variables measuring social vulnerability, including unemployment,
poverty, education levels, single-parent households, disability
status, non-English speaking households, crowded housing, and
transportation access.
Centers for Disease Control and Prevention, COVID Data Tracker:
Trends in COVID-19 Cases and Deaths in the United States, by Social
Vulnerability Index, https://covid.cdc.gov/covid-data-tracker/#pop-factors_totaldeaths (last visited December 7, 2021).
\63\ Centers for Disease Control and Prevention, Risk for COVID-
19 Infection, Hospitalization, and Death By Race/Ethnicity, https://www.cdc.gov/coronavirus/2019-ncov/covid-data/investigations-discovery/hospitalization-death-by-race-ethnicity.html (last visited
December 7, 2021).
\64\ See, e.g., Centers for Disease Control and Prevention, Risk
of Severe Illness or Death from COVID-19 (Dec. 10, 2020), https://www.cdc.gov/coronavirus/2019-ncov/community/health-equity/racial-ethnic-disparities/disparities-illness.html (last visited December
7, 2021).
\65\ Milena Almagro et al., Racial Disparities in Frontline
Workers and Housing Crowding During COVID-19: Evidence from
Geolocation Data (Sept. 22, 2020), NYU Stern School of Business
(forthcoming), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3695249; Grace McCormack et al., Economic
Vulnerability of Households with Essential Workers, JAMA 324(4):388-
90 (2020), available at https://jamanetwork.com/journals/jama/fullarticle/2767630.
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Social distancing measures in response to the pandemic may have
also exacerbated pre-existing public health challenges. For example,
for children living in homes with lead paint, spending substantially
more time at home raises the risk of developing elevated blood lead
levels, while screenings for elevated blood lead levels declined during
the pandemic.\66\ The combination of these underlying social and health
vulnerabilities may have contributed to more severe public health
outcomes of the pandemic within these communities, resulting in an
exacerbation of pre-existing disparities in health outcomes.\67\
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\66\ See, e.g., Joseph G. Courtney et al., Decreases in Young
Children Who Received Blood Lead Level Testing During COVID-19--34
Jurisdictions, January-May 2020, Morb. Mort. Wkly. Rep. 70(5):155-61
(Feb. 5, 2021), https://www.cdc.gov/mmwr/volumes/70/wr/mm7005a2.htm;
Emily A. Benfer & Lindsay F. Wiley, Health Justice Strategies to
Combat COVID-19: Protecting Vulnerable Communities During a
Pandemic, Health Affairs Blog (Mar. 19, 2020), https://www.healthaffairs.org/do/10.1377/hblog20200319.757883/full/.
\67\ See, e.g., Centers for Disease Control and Prevention,
supra note 62; Benfer & Wiley, supra note 66; Nathaniel M. Lewis et
al., Disparities in COVID-19 Incidence, Hospitalizations, and
Testing, by Area-Level Deprivation--Utah, March 3-July 9, 2020,
Morb. Mortal. Wkly. Rep. 69(38):1369-73 (Sept. 25, 2020), https://www.cdc.gov/mmwr/volumes/69/wr/mm6938a4.htm.
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Summary of the Interim Final Rule Approach to Public Health
Summary: As discussed above, the interim final rule provided
flexibility for recipients to pursue a wide range of eligible uses to
``respond to'' the COVID-19 public health emergency. Uses of funds to
``respond to'' the public health emergency address the SARS-CoV-2 virus
itself, support efforts to prevent or decrease spread of the virus, and
address other impacts of the pandemic on public health. The interim
final rule implemented these provisions by identifying a non-exhaustive
list of programs or services that may be funded as responding to COVID-
19 (``enumerated eligible uses''), along with considerations for
evaluating other potential uses of funds not explicitly listed.
Enumerated eligible uses are discussed below. For guidance on how to
determine whether a particular use is allowable, beyond those
enumerated, see section Standards: Identifying a Public Health Impact.
Enumerated eligible uses under this section built and expanded upon
permissible expenditures under the Coronavirus Relief Fund; for
clarity, the interim final rule expressly listed as eligible uses the
uses permissible under the Coronavirus Relief Fund, with minor
exceptions.\68\ The interim final rule also recognized that the nature
of the COVID-19 public health emergency, and responsive policy
measures, programs, and services, had changed over time and is expected
to continue evolving.
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\68\ Generally, funding uses eligible under CRF as a response to
the direct public health impacts of COVID-19 will continue to be
eligible under the ARPA, including those not explicitly listed in
the final rule, with the following two exceptions: (1) The standard
for eligibility of public health and safety payrolls has been
updated (see section Public Sector Capacity and Workforce in General
Provisions: Other) and (2) expenses related to the issuance of tax-
anticipation notes are no longer an eligible funding use (see
section Restrictions on Use: Debt Service).
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The interim final rule categorized enumerated eligible uses to
respond to the public health emergency into several categories: (1)
COVID-19 mitigation and prevention, (2) medical expenses, (3)
behavioral health care, (4) public health and safety staff, (5)
expenses to improve the design and execution of health and public
health programs, and (6) eligible uses to address disparities in public
health outcomes. For each category in turn, this section describes
public comments received and Treasury's responses, as well as comments
received proposing additional enumerated eligible uses.
Reorganizations and Cross-References: In some cases, enumerated
eligible uses included in the interim final rule under responding to
the public health emergency have been re-categorized in the
organization of the final rule to enhance clarity. For discussion of
eligible uses for public health and safety staff and to improve the
design and execution of public health programs, please see section
Public Sector Capacity and Workforce in General Provisions: Other. For
discussion of eligible uses to address disparities in public health
outcomes, please see section Assistance to Households in Negative
Economic Impacts.
Conversely, discussion of eligible assistance to small businesses
and nonprofits to respond to public health impacts has been moved from
Assistance to Small Businesses and Assistance to Nonprofits in Negative
Economic Impacts to this section. This change is consistent with the
interim final rule, which provides that appropriate responses to
address the public health impacts of COVID-19 may be provided to any
type of entity.
a. COVID-19 Mitigation and Prevention
COVID-19 public health response and mitigation tactics. Recognizing
the broad range of services and programming needed to contain COVID-19,
the interim final rule provided an extensive list of enumerated
eligible uses to prevent and mitigate COVID-19 and made clear that the
public health response to the virus is expected to continue to evolve
over time, necessitating different uses of funds.
Enumerated eligible uses of funds in this category included:
Vaccination programs; medical care; testing; contact tracing; support
for isolation or quarantine; supports 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;
ventilation improvements in congregate settings, health care settings,
or other key locations; enhancement of
[[Page 4353]]
public health data systems; other public health responses; and capital
investments in public facilities to meet pandemic operational needs,
such as physical plant improvements to public hospitals and health
clinics or adaptations to public buildings to implement COVID-19
mitigation tactics. These enumerated uses are consistent with guidance
from public health authorities, including the CDC.
Public Comment: Many commenters were supportive of expansive
enumerated eligible uses for mitigating and preventing COVID-19, noting
the wide range of activities that governments may undertake and the
continued changing landscape of pandemic response. Some commenters
requested that Treasury engage in ongoing consideration of and
consultation on evolving public health needs and resulting eligible
expenses. Some commenters noted that their jurisdiction does not have
an official public health program, for example smaller jurisdictions or
those that do not have a health department, and requested clarification
on whether their public health expenses would still be eligible in
compliance with program rules.
Treasury Response: In the final rule, Treasury is maintaining an
expansive list of enumerated eligible uses to mitigate and prevent
COVID-19, given the wide-ranging activities that governments may take
to further these goals, including ``other public health responses.''
Note that the final rule discusses several of these enumerated uses in
more detail below.
Treasury is further clarifying that when providing COVID-19
prevention and mitigation services, recipients can identify the
impacted population as the general public. Treasury presumes that all
enumerated eligible uses for programs and services, including COVID-19
mitigation and prevention programs and services, are reasonably
proportional responses to the harm identified unless a response is
grossly disproportionate to the type or extent of harm experienced.
Note that capital expenditures are not considered ``programs and
services'' and are not presumed to be reasonably proportional responses
to an identified harm except as provided in section Capital
Expenditures in General Provisions: Other. In other words, recipients
can provide any COVID-19 prevention or mitigation service to members of
the general public without any further analysis of impacts of the
pandemic on those individuals and whether the service is responsive.
This approach gives recipient governments an extensive set of
eligible uses that can adapt to local needs, as well as evolving
response needs and developments in understanding of transmission of
COVID-19. Treasury emphasizes how the enumerated eligible uses can
adapt to changing circumstances. For example, when the interim final
rule was released, national daily COVID-19 cases were at relatively low
levels and declining; \69\ as the Delta variant spread and cases peaked
in many areas of the country, particularly those with low vaccination
rates, government response needs and tactics evolved, and the SLFRF
funds provided the ability to quickly and nimbly adapt to new public
health needs. Treasury also notes that funds may be used to support
compliance with and implementation of COVID-19 safety requirements,
including vaccination requirements, testing programs, or other required
practices.
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\69\ See Centers for Disease Control and Prevention, COVID Data
Tracker, https://covid.cdc.gov/covid-data-tracker/#trends_dailycases
(last visited December 7, 2021).
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Recipient governments do not need to have an official health or
public health program in order to utilize these eligible uses; any
recipient can pursue these eligible uses, though Treasury recommends
consulting with health and public health professionals to support
effective implementation.
The CDC has provided recommendations and guidelines to help
mitigate and prevent COVID-19. The interim final rule and final rule
help support recipients in stopping the spread of COVID-19 through
these recommendations and guidelines.\70\ The final rule reflects
changing circumstances of COVID-19 and provides a broad range of
permissible uses for mitigating and preventing the spread of the
disease, in a manner consistent with CDC guidelines and
recommendations.
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\70\ See Centers for Disease Control and Prevention, COVID-19,
https://www.cdc.gov/coronavirus/2019-ncov/index.html (last visited
November 8, 2021).
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The purpose of the SLFRF funds is to mitigate the fiscal effects
stemming from the COVID-19 public health emergency, including by
supporting efforts to stop the spread of the virus. The interim final
rule and final rule implement this objective by, in part, providing
that recipients may use SLFRF funds for COVID-19 mitigation and
prevention.\71\ A program or service that imposes conditions on
participation in or acceptance of the service that would undermine
efforts to stop the spread of COVID-19 or discourage compliance with
recommendations and guidelines in CDC guidance for stopping the spread
of COVID-19 is not a permissible use of funds. In other words,
recipients may not use funds for a program that undermines practices
included in the CDC's guidelines and recommendations for stopping the
spread of COVID-19. This includes programs that impose a condition to
discourage compliance with practices in line with CDC guidance (e.g.,
paying off fines to businesses incurred for violation of COVID-19
vaccination or safety requirements), as well as programs that require
households, businesses, nonprofits, or other entities not to use
practices in line with CDC guidance as a condition of receiving funds
(e.g., requiring that businesses abstain from requiring mask use or
employee vaccination as a condition of receiving SLFRF funds).
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\71\ See Sec. 35.6(b); Coronavirus State and Local Fiscal
Recovery Funds, 86 FR at 26786.
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Vaccination programs and vaccine incentives. At the time of the
interim final rule release, many vaccination programs were using mass
vaccination tactics to rapidly reach Americans en masse for first
vaccine doses.\72\ Since that time, the FDA has authorized booster
vaccine doses for certain groups and certain vaccines and has also
authorized vaccines for youths \73\ \74\ The inclusion of ``vaccination
programs'' as an eligible use allows for adaptation as the needs of
programs change or new groups become eligible for different types of
vaccinations.
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\72\ Centers for Disease Control and Prevention, COVID Data
Tracker: COVID-19 Vaccinations in the United States, https://covid.cdc.gov/covid-data-tracker/#vaccinations (last visited October
18, 2021).
\73\ U.S. Food and Drug Administration, Coronavirus (COVID-19)
Update: FDA Takes Additional Actions on the Use of a Booster Dose
for COVID-19 Vaccines, https://www.fda.gov/news-events/press-announcements/fda-authorizes-pfizer-biontech-covid-19-vaccine-emergency-use-children-5-through-11-years-age (last visited November
8, 2021).
\74\ U.S. Food and Drug Administration, FDA Authorizes Pfizer-
BioNTech COVID-19 Vaccine for Emergency Use in Children 5 through 11
Years of Age, https://www.fda.gov/news-events/press-announcements/fda-authorizes-pfizer-biontech-covid-19-vaccine-emergency-use-children-5-through-11-years-age (last visited November 8, 2021).
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Public Comment: Since the release of the interim final rule, many
recipient governments have also requested clarification on whether
vaccine incentives are a permissible use of funds.
Treasury Response: Treasury issued guidance clarifying that
``[vaccine] programs that provide incentives reasonably expected to
increase the number of people who choose to get vaccinated, or that
motivate people to get vaccinated sooner than they otherwise would
have, are an allowable
[[Page 4354]]
use of funds so long as such costs are reasonably proportional to the
expected public health benefit.'' \75\ This use of funds remains
permissible under the final rule.
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\75\ Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf. Note that programs
may provide incentives to individuals who have already received a
vaccination if the incentive is reasonably expected to increase the
number of people who choose to get vaccinated or motivate people to
get vaccinated sooner and the costs are reasonably proportional to
the expected public health benefit.
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Capital Expenditures
Public Comment: Many commenters requested clarification around the
types and scope of permissible capital investments in public facilities
to meet pandemic operational needs; ventilation improvements in
congregate settings, health care settings, or other key locations; and
whether support for prevention and mitigation in congregate facilities
could include facilities renovations, improvements, or construction of
new facilities, or if the facilities must solely be used for COVID-19
response.
Treasury Response: For clarity, Treasury has addressed the
eligibility standard for capital expenditures, or investments in
property, facilities, or equipment, in one section of this
Supplementary Information; see section Capital Expenditures in General
Provisions: Other. In recognition of the importance of capital
expenditures in the COVID-19 public health response, Treasury
enumerates that the following projects are examples of eligible capital
expenditures, as long as they meet the standards for capital
expenditures in section Capital Expenditures in General Provisions:
Other:
Improvements or construction of COVID-19 testing sites and
laboratories, and acquisition of related equipment;
Improvements or construction of COVID-19 vaccination
sites;
Improvements or construction of medical facilities
generally dedicated to COVID-19 treatment and mitigation (e.g.,
emergency rooms, intensive care units, telemedicine capabilities for
COVID-19 related treatment);
Expenses of establishing temporary medical facilities and
other measures to increase COVID-19 treatment capacity, including
related construction costs;
Acquisition of equipment for COVID-19 prevention and
treatment, including ventilators, ambulances, and other medical or
emergency services equipment;
Improvements to or construction of emergency operations
centers and acquisition of emergency response equipment (e.g.,
emergency response radio systems);
Installation and improvements of ventilation systems;
Costs of establishing public health data systems,
including technology infrastructure;
Adaptations to congregate living facilities, including
skilled nursing facilities, other long-term care facilities,
incarceration settings, homeless shelters, residential foster care
facilities, residential behavioral health treatment, and other group
living facilities, as well as public facilities and schools (excluding
construction of new facilities for the purpose of mitigating spread of
COVID-19 in the facility); and
Mitigation measures in small businesses, nonprofits, and
impacted industries (e.g., developing outdoor spaces).
Other clarifications on COVID-19 mitigation: Medical care, supports
for vulnerable populations, data systems, carceral settings. Based on
public comments and questions received from recipients following the
interim final rule, Treasury is making several further clarifications
on enumerated eligible uses in this category.
Public Comment: Several commenters requested clarification on
eligible uses of funds for medical care; Treasury addresses those
comments in the section Medical Expenses below.
Public Comment: Recipients posed questions on the type and scope of
activities eligible as ``supports for vulnerable populations to access
medical or public health services.''
Treasury Response: Enumerated eligible uses should be considered in
the context of the eligible use category or section where they appear;
in this case, ``supports for vulnerable populations to access medical
or public health services'' appears in the section COVID-19 Mitigation
and Prevention. As such, these eligible uses should help vulnerable or
high-risk populations access services that mitigate COVID-19, for
example, transportation assistance to reach vaccination sites, mobile
vaccination or testing programs, or on-site vaccination or testing
services for homebound individuals, those in group homes, or similar
settings.
Public Comment: Some commenters asked whether ``enhancement of
public health data systems'' could include investments in software,
databases, and other information technology resources that support
responses to the COVID-19 public health emergency but also provide
benefits for other use cases and long-term capacity of public health
departments and systems.
Treasury Response: These are permissible uses of funds under the
interim final rule and remain eligible under the final rule.
Assistance to Businesses and Nonprofits To Implement COVID-19
Mitigation Strategies
Background: As detailed above, Treasury received many public
comments describing uncertainty about which eligible use category
should be used to assess different potential uses of funds. As a
result, Treasury has re-categorized some uses of funds in the final
rule to provide greater clarity, consistent with the principle that
uses of funds should be assessed based on their intended beneficiary.
For example, COVID-19 mitigation and prevention serves the general
public or specific populations within the public. However, in the
interim final rule, assistance to small businesses, nonprofits, and
impacted industries to implement COVID-19 mitigation and prevention
strategies was categorized in the respective sections within Negative
Economic Impacts. The final rule consolidates all COVID-19 mitigation
and prevention within Public Health.
Public Comment: Treasury has received multiple comments and
questions about which eligible use permits the recipient to provide
assistance to businesses and nonprofits to address the public health
impacts of COVID-19.
Treasury Response: In the final rule, these services have been re-
categorized under COVID-19 mitigation and prevention to reflect the
fact that this assistance responds to public health impacts of the
pandemic rather than the negative economic impacts to a small business,
nonprofit, or impacted industry. When providing COVID-19 mitigation and
prevention services, recipients can identify the impacted entity as
small businesses, nonprofits, or businesses in impacted industries in
general. As with all enumerated eligible uses, recipients may presume
that all COVID-19 mitigation and prevention programs and services are
reasonably proportional responses to the harm identified unless a
response is grossly disproportionate to the type or extent of harm
experienced. Note that capital expenditures are not considered
``programs and services'' and are not presumed to be reasonably
proportional responses to an identified harm except as provided in
section Capital Expenditures in General Provisions: Other. In other
words, recipients can provide any COVID-19 prevention or mitigation
service to small businesses, nonprofits, and businesses in impacted
[[Page 4355]]
industries without any further analysis of impacts of the pandemic on
those entities and whether the service is responsive.
In some cases, this means that an entity not otherwise eligible to
receive assistance to respond to negative economic impacts of the
pandemic, for example an entity that did not experience a negative
economic impact, may still be eligible to receive assistance under this
category for COVID-19 mitigation and prevention services.
Uses of funds can include loans, grants, or in-kind assistance to
small businesses, nonprofits, or other entities to implement COVID-19
prevention or mitigation tactics, such as vaccination; testing; contact
tracing programs; physical plant changes to enable greater use of
outdoor spaces or ventilation improvements; enhanced cleaning efforts;
and barriers or partitions. For example, this would include assistance
to a restaurant to establish an outdoor patio, given evidence showing
much lower risk of COVID-19 transmission outdoors.\76\ Uses of funds
can also include aid to travel, tourism, hospitality, and other
impacted industries to implement COVID-19 mitigation and prevention
measures to enable safe reopening, for example, vaccination or testing
programs, 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.
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\76\ See Centers for Disease Control and Prevention, Participate
in Outdoor and Indoor Activities, https://www.cdc.gov/coronavirus/2019-ncov/daily-life-coping/outdoor-activities.html (last visited
November 8, 2021).
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Recipients providing assistance to small businesses, nonprofits, or
impacted industries that includes 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 Made with SLFRF Funds in General Provisions: Other.
Recipients should also be aware of the difference between
beneficiaries of assistance and subrecipients when working with small
businesses, nonprofits, or impacted industries. As noted above,
Treasury presumes that the general public, as well as small businesses,
nonprofits, and impacted industries in general, has been impacted by
the COVID-19 disease itself and is eligible for services that mitigate
or prevent COVID-19 spread. As such, a small business, nonprofit, or
impacted industry receiving assistance to implement COVID-19 mitigation
measures is a beneficiary of assistance (e.g., granting funds to a
small business to develop an outdoor patio to reduce transmission). In
contrast, if a recipient contracts with, or grants funds to, a small
business, nonprofit, or impacted industry to carry out an eligible use
for COVID-19 mitigation on behalf of the recipient, the entity is a
subrecipient (e.g., contracting with a small business to operate COVID-
19 vaccination sites). For further information on distinguishing
between beneficiaries and subrecipients, as well as the impacts of the
distinction on reporting and other requirements, see section
Distinguishing Subrecipients versus Beneficiaries.
b. Medical Expenses
Background: The interim final rule also included as an enumerated
eligible use medical expenses, including medical care and services to
address the near-term and potential longer-term impacts of the disease
on individuals infected.
Public Comment: Some commenters sought clarification on the types
of medical expenses eligible and for whom, including whether funds
could be used under this category for expanding health insurance
coverage (e.g., subsidies for premiums, expanding a group health plan),
improvements to healthcare facilities or establishment of new medical
facilities, direct costs of medical services, and costs to a self-
funded health insurance plan (e.g., a county government health plan)
for COVID-19 medical care.
Treasury Response: In the final rule, Treasury is maintaining this
enumerated eligible use category and clarifying that it covers costs
related to medical care provided directly to an individual due to
COVID-19 infection (e.g., treatment) or a potential infection (e.g.,
testing). This can include medical costs to uninsured individuals;
deductibles, co-pays, or other costs not covered by insurance; costs
for uncompensated care at a health provider; emergency medical response
costs; and, for recipients with a self-funded health insurance plan,
excess health insurance costs due to COVID-19 medical care. These are
medical expenses due to COVID-19 and distinguish this category of
eligible uses from other related eligible uses, like COVID-19
mitigation and prevention and health insurance expenses to households,
to provide greater clarity for recipients in determining which category
of eligible uses they should review to assess a potential use of funds.
For discussion of eligibility for programs to expand health insurance
coverage, see section Assistance to Households.
c. Behavioral Health Care
Background: Recognizing that the public health emergency, necessary
mitigation measures like social distancing, and the economic downturn
have exacerbated mental health and substance use challenges for many
Americans, the interim final rule included an enumerated eligible use
for mental health treatment, substance use treatment, and other
behavioral health services, including a non-exhaustive list of specific
services that would be eligible under this category.
Public Comment: Many commenters expressed support for the interim
final rule's recognition of behavioral health impacts of the pandemic
and eligible uses under this category. Several commenters requested
clarification on the types of eligible services under this category,
specifically whether both acute and chronic care are included as well
as services that often do not directly accept insurance payments, like
peer support groups. Some commenters highlighted the importance of
cultural competence in providing effective behavioral health services.
Some commenters suggested that funding should be available broadly and
quickly for this purpose, recommending that funding available for
behavioral health not be tied to the amount of revenue loss experienced
by the recipient.
Treasury Response: In the final rule, Treasury is maintaining this
enumerated eligible use category and clarifying that it covers an
expansive array of services for prevention, treatment, recovery, and
harm reduction for mental health, substance use, and other behavioral
health challenges caused or exacerbated by the public health emergency.
The specific services listed in the interim final rule also remain
eligible.\77\
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\77\ 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.
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Treasury is further clarifying that when providing behavioral
health services, recipients can identify the impacted population as the
general public and, as with all enumerated eligible uses, presume that
all programs and services are reasonably proportional responses to the
harm identified unless a response is grossly disproportionate to the
type or extent of harm experienced. In contrast, capital expenditures
are not
[[Page 4356]]
considered ``programs and services'' and are not presumed to be
reasonably proportional responses to an identified harm except as
provided in section Capital Expenditures in General Provisions: Other.
In other words, recipients can provide behavioral health services
to members of the general public without any further analysis of
impacts of the pandemic on those individuals and whether the service is
responsive. Recipients may also use this eligible use category to
respond to increased rates of behavioral health challenges at a
population level or, at an individual level, new behavioral health
challenges or exacerbation of pre-existing challenges, including new
barriers to accessing treatment.
Services that respond to these impacts of the public health
emergency may include services across the continuum of care, including
both acute and chronic care, such as prevention, outpatient treatment,
inpatient treatment, crisis care, diversion programs (e.g., from
emergency departments or criminal justice system involvement), outreach
to individuals not yet engaged in treatment, harm reduction, and
supports for long-term recovery (e.g., peer support or recovery
coaching, housing, transportation, employment services).
Recipients may also provide services for special populations, for
example, enhanced services in schools to address increased rates of
behavioral health challenges for youths, mental health first responder
or law enforcement-mental health co-responder programs to divert
individuals experiencing mental illness from the criminal justice
system, or services for pregnant women with substance use disorders or
infants born with neonatal abstinence syndrome. Finally, recipients may
use funds for programs or services to support equitable access to
services and reduce racial, ethnic, or socioeconomic disparities in
access to high-quality treatment.
Eligible uses of funds may include services typically billable to
insurance \78\ or services not typically billable to insurance, such as
peer support groups, costs for residence in supportive housing or
recovery housing, and the 988 National Suicide Prevention Lifeline or
other hotline services. Recipients may also use funds in conjunction
with other federal grants or programs (see section Program
Administration Provisions), though eligible services under SLFRF are
not limited to those eligible under existing federal programs.
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\78\ However, SLFRF funds may not be used to reimburse a service
that was also billed to insurance.
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Given the public health emergency's exacerbation of the ongoing
opioid and overdose crisis, Treasury highlights several ways that funds
may be used to respond to opioid use disorder and prevent overdose
mortality.\79\ Specifically, eligible uses of funds include programs to
expand access to evidence-based treatment like medications to treat
opioid use disorder (e.g., direct costs or incentives for emergency
departments, prisons, jails, and outpatient providers to offer
medications and low-barrier treatment), naloxone distribution, syringe
service programs, outreach to individuals in active use, post-overdose
follow up programs, programs for diversion from the criminal justice
system, and contingency management interventions.
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\79\ In line with the Department of Health and Human Services,
Overdose Prevention Strategy, https://www.hhs.gov/overdose-prevention/, and the Office of National Drug Control Policy,
Administration's Statement on Drug Policy Priorities for Year One
(April 1, 2021), https://www.whitehouse.gov/wp-content/uploads/2021/03/BidenHarris-Statement-of-Drug-Policy-Priorities-April-1.pdf.
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Finally, for clarity, Treasury has addressed the eligibility
standard for capital expenditures, or investments in property,
facilities, or equipment, in one section of this Supplementary
Information; see section Capital Expenditures in General Provisions:
Other. Examples of capital expenditures related to behavioral health
that Treasury recognizes as eligible include behavioral health
facilities and equipment (e.g., inpatient or outpatient mental health
or substance use treatment facilities, crisis centers, diversion
centers), as long as they adhere to the standards detailed in the
Capital Expenditures section.
d. Preventing and Responding to Violence
Background: The interim final rule highlighted that some types of
violence had increased during the pandemic and that the ability of
victims to access services had decreased, noting as an example the
challenges that individuals affected by domestic violence face in
accessing services. Accordingly, the interim final rule enumerated as
an eligible use, in disproportionately impacted communities, evidence-
based community violence intervention programs. Following the release
of the interim final rule, Treasury received several recipient
questions regarding whether and how funds may be used to respond to an
increase in crime, violence, or gun violence in some communities during
the pandemic. Treasury released further guidance identifying how
enumerated eligible uses and eligible use categories under the interim
final rule could support violence reduction efforts, including rehiring
public sector staff, behavioral health services, and services to
address negative economic impacts of the pandemic that may aid victims
of crime. The guidance also identified an expanded set of enumerated
eligible uses to address increased gun violence.
Public Comment: Several commenters expressed support for this use
of funds.
Treasury Response: In the final rule, Treasury is maintaining
enumerated eligible uses in this area and clarifying how to apply
eligibility standards. Throughout the final rule, enumerated eligible
uses should respond to an identified impact of the COVID-19 public
health emergency in a reasonably proportional manner to the extent and
type of harm experienced. Many of the enumerated eligible uses--like
behavioral health services, services to improve employment
opportunities, and services to address educational disparities in
disproportionately impacted communities--that respond to the public
health and negative economic impacts of the pandemic may also have
benefits for reducing crime or aiding victims of crime. For example,
the pandemic exacerbated the impact of domestic violence, sexual
assault, and human trafficking; enumerated eligible uses like emergency
housing assistance, cash assistance, or assistance with food,
childcare, and other needs could be used to support survivors of
domestic violence, sexual assault, or human trafficking who experienced
public health or economic impacts due to the pandemic.
Public Comment: Several commenters expressed support for community
violence intervention programs or argued that traditional public safety
approaches had negatively impacted the social determinants of health in
their communities. Several commenters recommended inclusion of
approaches like mental health or substance use diversion programs.
Treasury Response: Treasury recognizes the importance of
comprehensive approaches to challenges like violence. The final rule
includes an enumerated eligible use for community violence intervention
programs in all communities, not just the disproportionately impacted
communities eligible under the interim final rule. Given the increased
rate of violence during the pandemic, Treasury has determined that this
enumerated
[[Page 4357]]
eligible use is responsive to the impacts of the pandemic in all
communities. The final rule incorporates guidance issued after the
interim final rule on specifically types of services eligible,
including:
Evidence-based practices like focused deterrence, street
outreach, violence interrupters, and hospital-based violence
intervention models, complete with wraparound services such as
behavioral therapy, trauma recovery, job training, education, housing
and relocation services, and financial assistance; and
Capacity-building efforts at community violence
intervention programs like funding more intervention workers,
increasing their pay, providing training and professional development
for intervention workers, and hiring and training workers to administer
the programs.
Public Comment: Some commenters sought further clarification on
whether some of the enumerated eligible uses are considered responsive
to all crime, violent crime, or gun violence.
Treasury Response: Enumerated eligible uses that respond to an
increase in gun violence may be pursued in communities experiencing an
increase in gun violence associated with the pandemic, specifically:
(1) Hiring law enforcement officials--even above pre-pandemic levels--
or paying overtime where the funds are directly focused on advancing
community policing strategies for gun violence, (2) additional
enforcement efforts to reduce gun violence exacerbated by the pandemic,
including prosecuting gun traffickers, dealers, and other parties
contributing to the supply of crime guns, as well as collaborative
federal, state, and local efforts to identify and address gun
trafficking channels, and (3) investing in technology and equipment to
allow law enforcement to more efficiently and effectively respond to
the rise in gun violence resulting from the pandemic, for example
technology to assist in the identification of guns whose serial numbers
have been damaged.
3. Negative Economic Impacts
a. Assistance to Households
Background
While the U.S. economy is now on the path to a strong recovery, the
public health emergency, including the necessary measures taken to
protect public health, resulted in significant economic and financial
hardship for many Americans. As businesses closed, consumers stayed
home, schools shifted to remote education, and travel declined
precipitously, over 22 million jobs were lost in March and April
2020.\80\ One year later, in April 2021, the economy still remained
over 8 million jobs below its pre-pandemic peak,\81\ and the
unemployment rate hovered around 6 percent.\82\
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\80\ U.S. Bureau of Labor Statistics, All Employees, Total
Nonfarm [PAYEMS], retrieved from FRED, Federal Reserve Bank of St.
Louis; https://fred.stlouisfed.org/series/PAYEMS (last visited
December 7, 2021).
\81\ Id.
\82\ U.S. Bureau of Labor Statistics, Unemployment Rate
[UNRATE], retrieved from FRED, Federal Reserve Bank of St. Louis;
https://fred.stlouisfed.org/series/UNRATE (last visited December 7,
2021).
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In the months since Treasury issued the interim final rule in May
2021, the economy has made large strides in its recovery. The economy
gained over 4 million jobs in the seven months from May to November
2021; \83\ the unemployment rate fell more than 1.5 percentage points
to 4.2 percent, which is the lowest rate since February 2020; \84\ and
the size of the nation's economy surpassed the pre-pandemic peak in the
second quarter of 2021.\85\
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\83\ U.S. Bureau of Labor Statistics, supra note 80.
\84\ U.S. Bureau of Labor Statistics, supra note 82.
\85\ U.S. Bureau of Economic Analysis, Real Gross Domestic
Product [GDPC1], retrieved from FRED, Federal Reserve Bank of St.
Louis, https://fred.stlouisfed.org/series/GDPC1 (last visited
December 7, 2021).
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While the economy has made immense progress in its recovery since
May 2021, the economy has also faced setbacks that illustrate the
continued risks to the recovery. As the Delta variant spread across the
country this summer and fall, the United States faced another severe
wave of cases, deaths, and strain on the healthcare system, which
contributed to a slowdown in the pace of recovery in the third
quarter.\86\ Supply chain disruptions have also demonstrated the
difficulties of restarting a global economy.\87\ Moreover, although
many Americans have returned to work as of November 2021, the economy
remains 3.9 million jobs below its pre-pandemic peak,\88\ and 2.4
million workers have dropped out of the labor market altogether
relative to February 2020.\89\ Thus, despite much progress, there is a
continued need to respond to the pandemic's economic effects to ensure
a full, broad-based, and equitable recovery.
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\86\ U.S. Department of the Treasury, Economy Statement by
Catherine Wolfram, Acting Assistant Secretary for Economy Policy,
for the Treasury Borrowing Advisory Committee (November 1, 2021),
available at https://home.treasury.gov/news/press-releases/jy0453.
\87\ Yuka Hayashi, IMF Cuts Global Growth Forecast Amid Supply-
Chain Disruptions, Pandemic Pressures, Wall Street Journal (October
12, 2021), available at https://www.wsj.com/articles/imf-cuts-global-growth-forecast-amid-supply-chain-disruptions-warns-of-inflation-risks-11634043601.
\88\ U.S. Bureau of Labor Statistics, supra note 80.
\89\ U.S. Bureau of Labor Statistics, Civilian Labor Force Level
[CLF16OV], retrieved from FRED, Federal Reserve Bank of St. Louis,
https://fred.stlouisfed.org/series/CLF16OV (last visited December 7,
2021).
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Indeed, the pandemic's economic impacts continue to affect some
demographic groups more than others. Rates of unemployment remain
particularly severe among workers of color and workers with lower
levels of educational attainment; for example, the overall unemployment
rate in the United States was 4.2 percent in November 2021, but certain
groups saw much higher rates: 6.7 percent for Black workers, 5.2
percent for Hispanic or Latino workers, and 5.7 percent for workers
without a high school diploma.\90\ Job losses have also been
particularly steep among low-wage workers, with these workers remaining
furthest from recovery as of the end of 2020.\91\ A severe recession,
and its concentrated impact among low-income workers, has amplified
food and housing insecurity, with an estimated nearly 20 million adults
living in households where there is sometimes or often not enough food
to eat and an estimated 12 million adults living in households that
were not current on rent.\92\
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\90\ U.S. Bureau of Labor Statistics, Labor Force Statistics
from the Current Population Survey: Employment status of the
civilian population by sex and age (December 6, 2021), https://www.bls.gov/news.release/empsit.t01.htm (last visited December 7,
2021); U.S. Bureau of Labor Statistics, Labor Force Statistics from
the Current Population Survey: Employment status of the civilian
noninstitutional population by race, Hispanic or Latino ethnicity,
sex, and age (December 6, 2021), https://www.bls.gov/web/empsit/cpseea04.htm (last visited December 7, 2021); U.S. Bureau of Labor
Statistics, Labor Force Statistics from the Current Population
Survey: Employment status of the civilian noninstitutional
population 25 years and over by educational attainment (December 6,
2021), https://www.bls.gov/web/empsit/cpseea05.htm (last visited
December 7, 2021).
\91\ Elise Gould & Jori Kandra, Wages grew in 2020 because the
bottom fell out of the low-wage labor market, Economic Policy
Institute (Feb. 24, 2021), https://files.epi.org/pdf/219418.pdf. See
also, Michael Dalton et al., The K-Shaped Recovery: Examining the
Diverging Fortunes of Workers in the Recovery from the COVID-19
Pandemic using Business and Household Survey Microdata, U.S. Bureau
of Labor Statistics Working Paper Series (July 2021), https://www.bls.gov/osmr/research-papers/2021/pdf/ec210020.pdf.
\92\ Center on Budget and Policy Priorities, Tracking the COVID-
19 Recession's Effects on Food, Housing, and Employment Hardships,
https://www.cbpp.org/research/poverty-and-inequality/tracking-the-covid-19-economys-effects-on-food-housing-and (last visited December
17, 2021).
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While economic effects have been seen across many communities,
there are additional disparities by race and income. For example,
approximately
[[Page 4358]]
half of low-income, Black, and Hispanic parents reported difficulty
covering costs related to food, housing, utility, or medical care.\93\
Over the course of the pandemic, inequities also manifested along
gender lines, as schools closed to in-person activities, leaving many
working families without childcare during the day.\94\ Women of color
have been hit especially hard: The labor force participation rate for
Black women has fallen by 3.6 percentage points \95\ during the
pandemic as compared to 1.3 percentage points for Black men \96\ and
1.7 percentage points for White women.\97\
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\93\ Michael Karpman, Dulce Gonzalez, Genevieve M. Kenney,
Parents Are Struggling to Provide for Their Families during the
Pandemic, Urban Institute (May 2020), https://www.urban.org/research/publication/parents-are-struggling-provide-their-families-during-pandemic?utm_source=urban_researcher&utm_medium=email&utm_campaign=covid_parents&utm_term=lhp.
\94\ Women have carried a larger share of childcare
responsibilities than men during the COVID-19 crisis. See, e.g.,
Gema Zamarro & Mar[iacute]a J. Prados, Gender differences in
couples' division of childcare, work and mental health during COVID-
19, Rev. Econ. Household 19:11-40 (2021), available at https://link.springer.com/article/10.1007/s11150-020-09534-7; Titan Alon et
al., The Impact of COVID-19 on Gender Equality, National Bureau of
Economic Research Working Paper 26947 (April 2020), available at
https://www.nber.org/papers/w26947.
\95\ U.S. Bureau of Labor Statistics, Labor Force Participation
Rate--20 Yrs. & Over, Black or African American Women [LNS11300032],
retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNS11300032 (last visited December 7,
2021).
\96\ U.S. Bureau of Labor Statistics, Labor Force Participation
Rate--20 Yrs. & Over, Black or African American Men [LNS11300031],
retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNS11300031 (last visited December 7,
2021).
\97\ U.S. Bureau of Labor Statistics, Labor Force Participation
Rate--20 Yrs. & Over, White Women [LNS11300029], retrieved from
FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/LNS11300029 (last visited December 7,
2021).
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As the economy recovers, the effects of the pandemic-related
recession may continue to impact households, including a risk of
longer-term effects on earnings and economic potential. For example,
unemployed workers, especially those who have experienced longer
periods of unemployment, earn lower wages over the long term once
rehired.\98\ In addition to the labor market consequences for
unemployed workers, recessions can also cause longer-term economic
challenges through, among other factors, damaged consumer credit scores
\99\ and reduced familial and childhood wellbeing.\100\ These potential
long-term economic consequences underscore the continued need for
robust policy support.
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\98\ See, e.g., Michael Greenstone & Adam Looney, Unemployment
and Earnings Losses: A Look at Long-Term Impacts of the Great
Recession on American Workers, Brookings Institution (Nov. 4, 2011),
https://www.brookings.edu/blog/jobs/2011/11/04/unemployment-and-earnings-losses-a-look-at-long-term-impacts-of-the-great-recession-on-american-workers/.
\99\ Chi Chi Wu, Solving the Credit Conundrum: Helping
Consumers' Credit Records Impaired by the Foreclosure Crisis and
Great Recession, National Consumer Law Center (Dec. 2013), https://www.nclc.org/images/pdf/credit_reports/report-credit-conundrum-2013.pdf.
\100\ Irwin Garfinkel, Sara McLanahan, Christopher Wimer, eds.,
Children of the Great Recession, Russell Sage Foundation (Aug.
2016), available at https://www.russellsage.org/publications/children-great-recession.
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Low- and moderate-income households, those with income levels at or
below 300 percent of the federal poverty level (FPL), face particular
hardships and challenges. These households report much higher rates of
food insecurity and housing hardships than households with higher
incomes. For example, households with incomes at or below 300 percent
FPL are several times more likely to have reported struggling with food
insecurity compared to households with income above 300 percent
FPL.\101\ Similarly, low- and moderate-income households reported being
housing insecure \102\ at rates more than twice as high as higher-
income households, and low- and moderate-income households reported
housing quality hardship \103\ at rates statistically significantly
greater than the rate for higher-income households.\104\ The economic
crisis caused by the pandemic worsened economic outcomes for workers in
many low- and moderate-income households. Industries that employed low-
wage workers experienced a disproportionate level of job loss. For
example, from February 2020 to February 2021, the hospitality and
leisure industry lost nearly 3.5 million jobs.\105\ While the entire
industry was impacted, 72 percent of the job losses occurred in the
lowest wage service occupations compared to only a 6 percent rate of
job loss in the highest wage management and finance jobs.\106\ Similar
trends exist in other heavily impacted industries. In public education,
the lowest wage occupations, service and transportation jobs, saw a job
loss rate of 20 and 26 percent, respectively.\107\ During that same
time period, the highest wage occupations in public education,
management, actually saw jobs increase by 7 percent.\108\
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\101\ Kyle J. Casewell and Stephen Zuckerman, Food Insecurity,
Housing Hardship, and Medical Care Utilization, Urban Institute
(June 2018), available at https://www.urban.org/sites/default/files/publication/98701/2001896_foodinsecurity_housinghardship_medicalcareutilization_finalized.pdf.
\102\ Housing insecurity is defined as not paying the full
amount of rent or mortgage and/or utility bills (gas, oil, or
electricity) sometime in the previous 12 months.
\103\ Housing quality hardship is defined as an affirmative
response to one or more questions related to problems with a
respondent's physical dwelling: Pests and/or insects; leaking roof
or ceiling; windows that are broken or cannot shut; exposed
electrical wires; broken plumbing (toilet, hot water, other); holes
in walls, ceiling, or floor; no appliances (refrigerator or stove);
and no phone (of any kind).
\104\ Id.
\105\ Elise Gould and Melat Kassa. Low-wage, low-hours workers
were hit hardest in the COVID-19 recession: The State of Working
America 2020 employment report, Economic Policy Institute (May
2021), available at https://www.epi.org/publication/swa-2020-employment-report/.
\106\ Id.
\107\ Id.
\108\ Id.
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While many households suffered negative economic outcomes as a
result of the COVID-19 pandemic and economic recession, households with
low incomes were impacted in disproportionate and exceptional ways.
From January 2020 to March 2021, low-wage workers experienced job loss
at a rate five times higher than middle-wage workers, and high-wage
workers actually experienced an increase in job opportunities.\109\
Because workers in low-income households were more likely to lose their
job or experience reductions in pay, those same households were also
more likely to experience economic hardships like trouble paying
utility bills, affording rent or mortgage payments, purchasing food,
and paying for medical expenses.\110\ The disproportionate negative
impacts the pandemic has had on low-income families extend beyond
financial insecurity. For example, low-income families have reported
higher levels of social isolation, stress, and other negative mental
health outcomes during the pandemic. While over half of all U.S. adults
report that their mental health was negatively affected by the
pandemic, adults with low incomes reported major negative mental health
impacts at a rate nearly twice that of adults with high incomes.\111\
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\109\ R. Chetty, J. Friedman, N. Hendren, M. Stepner, & Team, T.
O. I., The Economic Impacts of COVID-19: Evidence from a New Public
Database Built Using Private Sector Data (No. w27431; p. w27431)
(2020), National Bureau of Economic Research. https://doi.org/10.3386/w27431.
\110\ M. Despard, Michal Grinstein-Weiss, Yung Chun, and Stephen
Roll, COVID-19 job and income loss leading to more hunger and
financial hardship, Brookings Institute (July 13, 2020), https://www.brookings.edu/blog/upfront/2020/07/13/covid-19-job-and-income-loss-leading-to-more-hunger-and-financial-hardship/.
\111\ N. Panchal, R. Kamal, C. Mu[ntilde]ana, & P. Chidambaram,
The Implications of COVID-19 for Mental Health and Substance Use,
Kaiser Family Foundation (February 10, 2021), https://www.kff.org/coronavirus-covid-19/issue-brief/the-implications-of-covid-19-for-mental-health-and-substance-use/.
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[[Page 4359]]
Summary of Interim Final Rule and Final Rule Structure
Summary: The interim final rule provided a non-exhaustive list of
enumerated eligible uses to respond to the negative economic impacts of
the pandemic through assistance to households, as well as a standard
for assessing whether uses of funds beyond those enumerated are
eligible.
The interim final rule described enumerated eligible uses for
assistance to households in several categories: (1) Assistance to
unemployed workers, (2) state Unemployment Insurance Trust Funds, (3)
assistance to households, and (4) expenses to improve the efficacy of
economic relief. Note that the interim final rule posed several
questions to the public on enumerated eligible uses for assistance to
households; comments on these questions are addressed in the relevant
subject matter section below.
In addition, in recognition that pre-existing health, economic, and
social disparities contributed to disproportionate pandemic impacts in
certain communities, the interim final rule also provided a broader
list of enumerated eligible uses to respond to the pandemic in
disproportionately impacted communities, specifically: (1) Building
stronger communities through investments in housing and neighborhoods,
(2) addressing educational disparities, and (3) promoting healthy
childhood environments. In the interim final rule, under the Public
Health section, recipients could also provide services to address
health disparities and increase access to health and social services;
these eligible uses have been re-organized into the Assistance to
Households section to consolidate responses in disproportionately
impacted communities and enhance clarity.
This section addresses enumerated eligible uses in the final rule
to respond to negative economic impacts to households. As a reminder,
recipients may presume that a household or population that experienced
unemployment, experienced increased food or housing insecurity, or is
low or moderate income experienced negative economic impacts resulting
from the pandemic, and recipients may provide services to them that
respond to these impacts, including these enumerated eligible uses.
For guidance on how to determine whether a particular use, beyond
those enumerated, is eligible; further detail on which households and
communities are presumed eligible for services; and how to identify
eligible households and communities beyond those presumed eligible, see
section General Provisions: Structure and Standards.
Reorganizations and Cross-References: The final rule reorganizes
all enumerated eligible uses for impacted and disproportionately
impacted households into the section Assistance to Households, with the
exception that expenses to improve the efficacy of economic relief has
been re-categorized into a different section of the final rule for
increased clarity; for discussion of that use category, see section
General Provisions: Other.
Note that in conducting this reorganization, and based on further
analysis and in response to comments, Treasury has determined that
several enumerated uses included in the interim final rule for
disproportionately impacted communities are directly responsive to
negative economic impacts experienced by impacted households. In the
final rule, these uses have been moved from ``disproportionately
impacted'' to ``impacted'' households accordingly, making these
services available to both disproportionately impacted and impacted
households. These uses include assistance applying for public benefits
or services; programs or services that address or mitigate the impacts
of the COVID-19 public health emergency on childhood health or welfare,
including childcare, early learning services, programs to provide home
visits, and services for families involved in the child welfare system
and foster youth; programs to address the impacts of lost instructional
time for students; \112\ and programs or services that address housing
insecurity, lack of affordable housing, or homelessness.
---------------------------------------------------------------------------
\112\ For which recipients may presume that any student who did
not have access to in-person instruction for a significant period of
time was impacted by the pandemic.
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The following activities remain enumerated eligible uses for
disproportionately impacted households: Remediation of lead paint or
other lead hazards; housing vouchers and assistance relocating to
neighborhoods with higher levels of economic opportunity; and programs
or services that address educational disparities, including assistance
to high-poverty school districts to advance equitable funding across
districts and geographies and evidence-based services to address the
academic, social, emotional, and mental health needs of students.
Enumerated Eligible Uses for Impacted Households
The interim final rule included several enumerated eligible uses to
provide assistance to households or populations facing negative
economic impacts due to COVID-19. Enumerated eligible uses included:
Food assistance; rent, mortgage, or utility assistance; counseling and
legal aid to prevent eviction or homelessness; emergency assistance for
burials, home repairs, weatherization, or other needs; internet access
or digital literacy assistance; cash assistance; or job training to
address negative economic or public health impacts experienced due to a
worker's occupation or level of training. It also posed a question as
to what other types of services or costs Treasury should consider as
eligible uses to respond to the negative economic impacts of COVID-19.
This section addresses each of these enumerated eligible uses in
turn, with the exception of job training, which has been re-categorized
for increased clarity to the eligible use for ``assistance to
unemployed and underemployed workers.'' In general, commenters
supported inclusion of these enumerated eligible uses to address key
economic needs among households due to the pandemic, and Treasury is
maintaining these eligible uses in the final rule, in line with
commenters' recommendations.
1. Food assistance. The interim final rule included an enumerated
eligible use for food assistance. Some commenters expressed support for
this eligible use and emphasized the importance of aid to address food
insecurity. Some commenters raised questions as to whether food
assistance funds could be used to augment services provided through
organizations like food banks, churches, and other food delivery
services, or generally be sub-awarded to these organizations.
Treasury Response: Treasury is maintaining this enumerated eligible
use without change. Recipients may, as was the case under the interim
final rule, administer programs through a wide range of entities,
including nonprofit and for-profit entities, to carry out eligible uses
on behalf of the recipient government (see section Distinguishing
Subrecipients versus Beneficiaries). Further, Treasury is clarifying
that capital expenditures related to food banks and other facilities
primarily dedicated to addressing food insecurity are eligible;
recipients seeking to use funds for capital expenditures should refer
to the section Capital Expenditures in General
[[Page 4360]]
Provisions: Other for additional eligibility standards that apply to
uses of funds for capital expenditures.
2. Emergency housing assistance. The interim final rule included an
enumerated eligible use for rent, mortgage, or utility assistance and
counseling and legal aid to prevent eviction or homelessness.
Public Comment: Several commenters supported the inclusion of
eviction prevention activities as an eligible use given the high number
of households behind on rent and potentially at risk of eviction.
Following release of the interim final rule, Treasury had also received
requests for elaboration on the types of eligible services in this
category. Some commenters also recommended including assistance to
households for delinquent property taxes, for example to prevent tax
foreclosures on homes, as an enumerated eligible use.
Treasury Response: In response to requests for elaboration on the
types of eligible services for eviction prevention, Treasury has
provided further guidance that these services include ``housing
stability services that enable eligible households to maintain or
obtain housing, such as housing counseling, fair housing counseling,
case management related to housing stability, outreach to households at
risk of eviction or promotion of housing support programs, housing
related services for survivors of domestic abuse or human trafficking,
and specialized services for individuals with disabilities or seniors
that support their ability to access or maintain housing,'' as well as
``legal aid such as legal services or attorney's fees related to
eviction proceedings and maintaining housing stability, court-based
eviction prevention or eviction diversion programs, and other legal
services that help households maintain or obtain housing.'' \113\
Treasury also emphasized that recipients may work with court systems,
nonprofits, and a wide range of other organizations to implement
strategies to support housing stability and prevent evictions.
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\113\ See FAQ 2.21. Coronavirus State and Local Fiscal Recovery
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
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In the final rule, Treasury is maintaining these enumerated
eligible uses, including those described in the interim final rule and
later guidance, in line with commenters' recommendations. To enhance
clarity, Treasury is also elaborating on some types of services
included under this eligible use category; this remains a non-
exhaustive list of eligible services. For example, eligible services
under this use category include: Rent, rental arrears, utility costs or
arrears (e.g., electricity, gas, water and sewer, trash removal, and
energy costs, such as fuel oil), reasonable accrued late fees (if not
included in rental or utility arrears), mortgage payment assistance,
financial assistance to allow a homeowner to reinstate a mortgage or to
pay other housing-related costs related to a period of forbearance,
delinquency, or default, mortgage principal reduction, facilitating
mortgage interest rate reductions, counseling to prevent foreclosure or
displacement, relocation expenses following eviction or foreclosure
(e.g., rental security deposits, application or screening fees).
Treasury is clarifying that assistance to households for delinquent
property taxes, for example to prevent tax foreclosures on homes, was
permissible under the interim final rule and continues to be so under
the final rule. In addition, Treasury is also clarifying that
recipients may administer utility assistance or address arrears on
behalf of households through direct or bulk payments to utility
providers to facilitate utility assistance to multiple consumers at
once, so long as the payments offset customer balances and therefore
provide assistance to households.
This eligible use category also includes emergency assistance for
individuals experiencing homelessness, either individual-level
assistance (e.g., rapid rehousing services) or assistance for groups of
individuals (e.g., master leases of hotels, motels, or similar
facilities to expand available shelter).
Further, Treasury is clarifying that transitional shelters (e.g.,
temporary residences for people experiencing homelessness) are eligible
capital expenditures. 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.
Note that this enumerated eligible use describes ``emergency
housing assistance,'' or assistance for responses to the immediate or
near-term negative economic impacts of the pandemic. The final rule
also clarifies and expands the ability of recipients to use SLFRF funds
to address the general lack of affordable housing and housing
challenges underscored by the pandemic. For discussion of affordable
housing eligible uses, including services that primarily increase
access to affordable, high-quality housing and support stable housing
and homeownership over the long term, see the eligible use for
``promoting long-term housing security: Affordable housing and
homelessness.''
3. Emergency assistance for pressing needs: Burials, home repairs,
weatherization, or other needs. The interim final rule included an
enumerated eligible use for emergency assistance for burials, home
repairs, weatherization, and other needs; these types of programs may
provide emergency assistance for pressing and unavoidable household
needs. Treasury did not receive comments on this eligible use and is
maintaining it in the final rule.
Background on Home Repairs and Weatherization: The economic
downturn has meant fewer households had the resources needed to make
necessary home repairs and improvements. In May 2021, 28 percent of
landlords reported deferring maintenance and 27 percent of tenants
reported maintenance requests going unanswered.\114\ While small and
cosmetic repairs can often wait, deferring major repairs, such as
plumbing needs, can result in unsafe and unhealthy living environments
and, eventually, the need for more expensive repairs and fixes.
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\114\ Jung Hyun Choi, Laurie Goodman, and Daniel Pang, The
Pandemic Is Making It Difficult for Mom-and-Pop Landlords to
Maintain Their Properties, Urban Institute (July 23, 2021), https://www.urban.org/urban-wire/pandemic-making-it-difficult-mom-and-pop-landlords-maintain-their-properties.
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In addition to repairs, many homes are in need of weatherization.
Weatherization assistance helps low- and moderate-income Americans save
energy, reduce their utility bills, and keeps them and their homes
safe. One in three households is energy insecure,\115\ meaning they do
not have the ability to meet their energy needs.\116\ Weatherization
efforts are particularly important for low- and moderate-income
households. Households of color, renters, and households with low or
moderate incomes are all more likely to report energy insecurity.\117\
These
[[Page 4361]]
disparities are partially a result of economic hardship but are also
caused by inequitable access to housing with proper insulation, up to
date heating, cooling, and ventilation systems, and functioning and up
to date lighting and appliances.\118\ While programs that address the
effects of energy hardships, like the Low-Income Home Energy Assistance
Program (LIHEAP), are critical, weatherization attempts to address root
causes by addressing issues that lead to energy insecurities.
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\115\ U.S. Energy Information Administration, Residential Energy
Consumption Survey (2017), Retrieved from https://www.eia.gov/consumption/residential/data/2015/hc/php/hc11.1.php.
D. Hern[aacute]ndez, Understanding `energy insecurity' and why
it matters to health, Social Science & Medicine, 167, 1-10 (2016),
https://doi.org/10.1016/j.socscimed.2016.08.029.
\116\ Hern[aacute]ndez, D. (2016). Understanding `energy
insecurity' and why it matters to health. Social Science & Medicine,
167, 1-10. https://doi.org/10.1016/j.socscimed.2016.08.029.
\117\ U.S. Energy Information Administration, Residential Energy
Consumption Survey (RECS) https://www.eia.gov/consumption/residential/data/2015/hc/php/hc11.1.php. (last visited November 9,
2021)
\118\ A. Drehobl, & L. Ross, Lifting the high energy burden in
America's largest cities: How energy efficiency can improve low
income and underserved communities, American Council for an Energy
Efficient Economy (2016), https://www.aceee.org/sites/default/files/publications/researchreports/u1602.pdf.
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4. Internet access or digital literacy assistance. The interim
final rule included an enumerated eligible use for assistance to
households for internet access or digital literacy assistance. This
enumerated eligible use, which responds to the negative economic
impacts of the pandemic on a household by providing assistance that
helps them secure internet access or increase their ability to use
computers and the internet, is separate from the eligible use category
for investments in broadband infrastructure, under Sections
602(c)(1)(D) and 603(c)(1)(D), which is used to build new broadband
networks through infrastructure construction or modernization. For
discussion of broadband infrastructure investment in the final rule,
see section Broadband Infrastructure in Infrastructure.
Background: The COVID-19 public health emergency has underscored
the importance of universally available, high-speed, reliable, and
affordable broadband coverage as millions of Americans rely on the
internet to participate in, among other critical activities, school,
healthcare, and work. Recognizing the need for such connectivity, SLFRF
funds can be used to make necessary investments in broadband
infrastructure that increase access over the long term, as well as the
necessary supports to purchase internet access or gain digital literacy
skills needed to complete activities of daily living during the
pandemic.
The National Telecommunications and Information Administration
(NTIA) highlighted the growing necessity of broadband in daily lives
through its analysis of NTIA internet Use Survey data, noting that
Americans turn to broadband internet service for every facet of daily
life including work, study, and healthcare.\119\ With increased use of
technology for daily activities and the movement by many businesses and
schools to operating remotely during the pandemic, broadband has become
even more critical for people across the country to carry out their
daily lives.
---------------------------------------------------------------------------
\119\ See, e.g., Nation Telecommunications and Information
Administration, More than Half of American Households Used the
Internet for Health-Related Activities in 2019, NTIA Data Show
(December 7, 2020), https://www.ntia.gov/blog/2020/more-half-american-households-used-internet-health-related-activities-2019-ntia-data-show; Nation Telecommunications and Information
Administration, Nearly a Third of American Employees Worked Remotely
in 2019, NTIA Data Show (September 3, 2020) https://www.ntia.gov/blog/2020/nearly-third-american-employees-worked-remotely-2019-ntia-data-show; and generally, Nation Telecommunications and Information
Administration, Digital Nation Data Explorer (June 10, 2020),
https://www.ntia.gov/data/digital-nation-data-explorer.
---------------------------------------------------------------------------
However, even in areas where broadband infrastructure exists,
broadband access may be out of reach for millions of Americans because
it is unaffordable, as the United States has some of the highest
broadband prices in the Organisation for Economic Co-operation and
Development (OECD).\120\ According to a 2021 Pew Research Center study,
20 percent of non-broadband users say that the monthly cost of home
broadband is the primary reason they do not have broadband at home, and
40 percent say that cost is one reason for their lack of home
broadband.\121\ Further, according to another survey, 22 percent of
parents with homebound schoolchildren during the COVID-19 pandemic say
that it is very or somewhat likely that their children will have to
rely on public wi-fi to finish their schoolwork because there is no
reliable internet connection at home; this percentage nearly doubles
for lower-income parents, 40 percent of whom noted that their children
will have to rely on public wi-fi.\122\ The same survey showed that 36
percent of lower-income parents with homebound children say their child
will not be able to complete their schoolwork because they do not have
access to a computer at home.\123\
---------------------------------------------------------------------------
\120\ BroadbandSearch Blog Post, How Do U.S. Internet Costs
Compare To The Rest Of The World?, available at https://www.broadbandsearch.net/blog/internet-costs-compared-worldwide.
\121\ Pew Research Center, Mobile Technology and Home Broadband
2021 (June 3, 2021), https://www.pewresearch.org/internet/2021/06/03/mobile-technology-and-home-broadband-2021/.
\122\ Pew Research Center, 53% of Americans Say the internet Has
Been Essential During the COVID-19 Outbreak (April 30, 2020),
https://www.pewresearch.org/internet/2020/04/30/53-of-americans-say-the-internet-has-been-essential-during-the-covid-19-outbreak/.
\123\ Id.
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Public Comment: Many commenters highlighted the importance of
broadband access during the pandemic, including for remote work and
education, and argued that affordability presents a major barrier to
broadband adoption by households; in other words, many households live
in areas that have broadband infrastructure and service available but
are unable to purchase service for their household due to the high
cost. These commenters argued that broadband must be affordable to be
accessible.
Commenters proposed several potential responses to affordability
concerns. Some commenters recommended that building ``gap networks,''
or broadband networks built at low cost to provide affordable service
in areas where it is lacking, be eligible as assistance to households
to respond to the negative economic impacts of the pandemic, even if
they do not meet the technical standards for eligibility under the
eligible use category of broadband infrastructure investment,
especially the required speed standards for new service. These
commenters argued that the networks have shown promise as a timely
means to expand access to affordable broadband internet during the
pandemic, even if they may not provide service speeds needed for more
intensive internet uses. Another commenter requested eligible uses
include funding cellular towers to decrease costs. One commenter
recommended that affordability should be addressed through other
programs but not SLFRF given that affordability and availability may
require nuanced solutions that would be complex to combine.
Treasury Response: The interpretive framework and enumerated
eligible uses allow recipients flexibility to address identified
pandemic impacts, including through solutions that take into account
the particularized issues in their community. Given extensive commenter
feedback on the importance of affordability to achieving broadband
access, and the centrality of broadband to participating in work,
education, healthcare, and other activities during the pandemic,
affordability programs are an appropriate eligible use to respond to
the negative economic impacts of the pandemic and Treasury is
maintaining the enumerated eligible use for assistance to households
for internet access and digital literacy programs in the final rule.
Building or constructing new broadband networks is an
infrastructure investment and is governed by a separate clause in the
statute. Treasury has addressed comments on ``gap networks'' that
require infrastructure build-out in the section Broadband
Infrastructure in Infrastructure.
[[Page 4362]]
Public Comment: Some commenters also use the term ``gap networks''
to refer to equipment installed as part of wi-fi systems, such as
routers, repeaters, and access points; this equipment provides consumer
access to an existing broadband network and does not require new
network build-out or construction. These commenters recommended that
Treasury permit, as assistance to households for internet access,
investments in public wi-fi networks, free wi-fi in public housing
communities, and other equipment that offers internet access to end
users by utilizing existing broadband networks.
Other commenters recommended that eligible uses in this category
include providing devices and equipment necessary to access the
internet, like computers and routers, directly to low-income
households.
Treasury Response: Treasury has determined that these services,
which expand internet access without constructing new networks, are an
appropriate enumerated eligible use as assistance to households to
respond to a negative economic impact, and they are permitted under the
final rule. Treasury is clarifying that eligible uses under this
category can also include a wide range of programs and services to
expand internet access and digital literacy, such as subsidies for the
cost of internet service, other programs that support adoption of
internet service where available, digital literacy programs, or
programs that provide devices and equipment to access the internet
(e.g., programs that provide equipment like tablets, computers, or
routers) to households. Recipients seeking to use funds for equipment
should refer to the section Capital Expenditures in General Provisions:
Other for additional eligibility standards that apply to uses of funds
for capital expenditures (e.g., equipment, property, and facilities).
5. Cash assistance. The interim final rule included as an
enumerated eligible use cash assistance and provided that cash
transfers must be ``reasonably proportional'' to the negative economic
impact they address and may not be ``grossly in excess of the amount
needed to address'' the impact. In assessing whether a transfer is
reasonably proportional, recipients may ``consider and take guidance
from the per person amounts previously provided by the Federal
Government in response to the COVID-19 crisis,'' and transfers
``grossly in excess of such amounts'' are not eligible.
Public Comment: Several commenters expressed support for this
eligible use, noting that this is a common policy tool for some
governments to support the well-being of households and individuals in
their communities. Some commenters requested that Treasury set a
specific dollar amount for permissible cash transfers, and Treasury has
also received recipient questions on whether specific types of
transfers, such as those to a substantial share of the population in
the jurisdiction, would be a permissible use of funds.
Treasury Response: Treasury is maintaining this enumerated eligible
use in the final rule, in line with commenters' recommendations.
Because the final rule is intended to provide flexibility to recipients
to respond to the particularized pandemic impacts in their communities,
which may vary in type and intensity, setting a specific dollar
threshold for eligible cash transfers would fail to recognize the
particularized needs of communities and limit recipients' flexibility
to tailor their response to those needs.
To provide greater clarity, Treasury is elaborating on the analysis
that recipients may undertake to assess the eligibility of specific
cash assistance programs or transfers. Cash transfers, like all
eligible uses in this category, must respond to the negative economic
impacts of the pandemic on a household or class of households. For the
reasons discussed above, recipients may presume that low- and moderate-
income households (as defined in the final rule), as well as households
that experienced unemployment, food insecurity, or housing insecurity,
experienced a negative economic impact due to the pandemic.
Recipients may also identify other households or classes of
households that experienced a negative economic impact of the pandemic
and provide cash assistance that is reasonably proportional to, and not
grossly in excess of, the amount needed to address the negative
economic impact. For example, in the ARPA, Congress authorized Economic
Impact Payments to households at certain income levels, identifying and
responding to a negative economic impact of the pandemic on these
households.
Finally, Treasury has reiterated in the final rule that responses
to negative economic impacts should be reasonably proportional to the
impact that they are intended to address. Uses that bear no relation or
are grossly disproportionate to the type or extent of harm experienced
would not be eligible uses. Reasonably proportional refers to the scale
of the response compared to the scale of the harm. It also refers to
the targeting of the response to beneficiaries compared to the amount
of harm they experienced; for example, it may not be reasonably
proportional for a cash assistance program to provide assistance in a
very small amount to a group that experienced severe harm and in a much
larger amount to a group that experienced relatively little harm.
6. Survivor's benefits. The interim final rule included an
enumerated eligible use for survivor's benefits to surviving family
members of individuals who have died from COVID-19, including cash
assistance to widows, widowers, or dependents.
Public Comment: Treasury did not receive any comments on the
inclusion of survivor's benefits as an enumerated use for impacted
households in the interim final rule.
Treasury Response: This use of funds remains eligible under the
final rule. Consistent with the general reorganization noted above, the
final rule organizes survivor's benefits under assistance to households
to clarify that households are the intended beneficiaries of survivor's
benefits.
7. Assistance accessing or applying for public benefits or
services. Recognizing that eligible households often face barriers to
accessing public benefits or services that improve health and economic
outcomes, the interim final rule included as an enumerated eligible use
in disproportionately impacted communities, public benefits navigators
to assist community members with navigating and applying for available
federal, state, and local public benefits or services. Treasury also
clarified in subsequent guidance after the interim final rule that this
eligible use category would include outreach efforts to increase uptake
of the Child Tax Credit.
Background: The under-enrollment of eligible households in social
assistance programs is a well-recognized and persistent challenge.
There are many reasons why a household may not be receiving a
particular benefit even though they are eligible. For many federal
programs, enrollment processes vary from state-to-state. Sometimes,
households are simply unaware that they are eligible for a particular
benefit.\124\ For example, despite having one of the highest rates of
participation of any benefits program, nearly 20 percent of eligible
individuals do not participate in the Supplementary Nutritional
Assistance Program
[[Page 4363]]
(SNAP).\125\ In other cases, policies like public charge and asset
testing can discourage otherwise eligible households.\126\ While the
gap between households that need assistance and the number of
households participating in public benefit programs has always existed,
narrowing that gap and ensuring households receive the support they
need is critical in mitigating the negative economic impacts of the
pandemic.
---------------------------------------------------------------------------
\124\ Amy Finkelstein & Matthew J Notowidigdo, Take-Up and
Targeting: Experimental Evidence from SNAP, The Quarterly Journal of
Economics, vol 134(3), pages 1505-1556 (2019), https://www.nber.org/papers/w24652.
\125\ United States Department of Agriculture, Trends in
Supplemental Nutrition Assistance Program Participation Rates:
Fiscal Year 2016 to Fiscal Year 2018 (May 2021), https://fns-prod.azureedge.net/sites/default/files/resource-files/Trends2016-2018.pdf.
\126\ Jeremy Barofsky et al., Spreading Fear: The Announcement
Of The Public Charge Rule Reduced Enrollment In Child Safety-Net
Programs, Health Affairs (October 2020), https://www.healthaffairs.org/doi/full/10.1377/hlthaff.2020.00763.
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Public Comment: Treasury has also received feedback from recipients
and stakeholders noting the need to increase awareness and uptake of
assistance programs, including gaps that remain in enrollment of
eligible households in programs to address the negative economic
impacts of the pandemic.\127\
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\127\ See, e.g., U.S. Department of the Treasury, By ZIP Code:
Number of Children under Age 18 with a Social Security Number Who
Are Not Found on a Tax Year 2019 or 2020 Tax Return but who Appear
on a Tax Year 2019 Form 1095 and Associated Number of Policy Holders
(June 2021), https://home.treasury.gov/system/files/131/Estimated-Counts-of-Children-Unclaimed-for-CTC-by-ZIP-Code-2019.pdf.
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Treasury Response: Treasury has determined that this impact of the
pandemic is widely experienced across many jurisdictions and programs
or services to increase awareness and uptake of assistance programs
would respond to the pandemic's negative economic impact in all
communities. As such, in the final rule, this use is eligible for any
impacted household or class of households, not only in
disproportionately impacted communities.
8. Promoting healthy childhood environments. The interim final rule
included programs and services that promote healthy childhood
environments as an enumerated eligible use for disproportionately
impacted households. The interim final rule listed three programs or
services included under this use: Childcare; programs to provide home
visits by health professionals, parent educators, and social service
professionals to individuals with young children to provide education
and assistance for economic support, health needs, or child
development; and services for child welfare-involved families and
foster youth to provide support and education on child development,
positive parenting, coping skills, or recovery for mental health and
substance use. The interim final rule also included an enumerated
eligible use for early learning services in disproportionately impacted
communities, to address disparities in education.
Public Comment: Childcare and Early Learning: Treasury received
multiple comments that were supportive of the provision of childcare.
Treasury has also received multiple comments and questions indicating
that recipients have identified a need for childcare for a broader
range of households and communities, for example those that may need
childcare in order to return to work, in addition to households and
communities disproportionately impacted by the pandemic. Several
commenters expressed uncertainty about how childcare facilities should
interact with the boundaries of a QCT. Finally, one commenter
recommended that pre-K or early learning services encompass care for
infants and toddlers, arguing that these types of care are often more
expensive or challenging to access for families.
Background: Childcare and Early Learning: As daycares and schools
closed in-person activities during the pandemic, many working families
were left without childcare during the day.\128\ Although daycare
centers and schools have since reopened in many communities, there
remains a persistent childcare shortage as childcare employment levels
have not fully rebounded since the sharp decline in childcare
employment at the beginning of the pandemic.\129\ As a result, working
parents in communities across the country, and more specifically women,
may face challenges entering or reentering the labor force.\130\
---------------------------------------------------------------------------
\128\ Women have carried a larger share of childcare
responsibilities than men during the COVID-19 crisis. See, e.g.,
Gema Zamarro & Mar[inodot][acute]a J. Prados, Gender differences in
couples' division of childcare, work and mental health during COVID-
19, Rev. Econ. Household 19:11-40 (2021), available at https://link.springer.com/article/10.1007/s11150-020-09534-7; Titan Alon et
al., The Impact of COVID-19 on Gender Equality, National Bureau of
Economic Research Working Paper 26947 (April 2020), available at
https://www.nber.org/papers/w26947.
\129\ See, e.g., Center For The Study Of Child Care Employment
(CSCCE), Child Care Sector Jobs: BLS Analysis (November 8, 2021),
https://cscce.berkeley.edu/child-care-sector-jobs-bls-analysis/;
Emma K. Lee, and Zachary Parolin. The Care Burden during COVID-19: A
National Database of Child Care Closures in the United States,
Socius (January 2021), doi:10.1177/23780231211032028.
\130\ Jason Furman, Melissa Schettini Kearney, and Wilson
Powell, The Role of Childcare Challenges in the US Jobs Market
Recovery During the COVID-19 Pandemic, NBER Working Paper No. 28934
(June 2021), https://www.nber.org/papers/w28934.
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Low-income households are also more likely to lose access to
quality childcare.\131\ The widespread closure of childcare centers
combined with a lack of access to paid family leave means parents in
low-income households are more likely to experience a reduction of
income or leave their jobs due to a lack of childcare options.\132\
---------------------------------------------------------------------------
\131\ U.S. Census Bureau, Phase 3.2 Household Pulse Survey:
Table 2. Childcare Arrangements in the Last 4 Weeks for Children
Under 5 Years Old, by Selected Characteristics, (Washington: 2021),
available at https://www.census.gov/programs-surveys/household-pulse-survey/data.html.
\132\ Id.
---------------------------------------------------------------------------
Additionally, childcare providers serving primarily low-income
families were less likely to remain open during the pandemic because of
tighter profit margins and general community financial insecurity,
compared to childcare providers serving primarily high-income
families.\133\ \134\
---------------------------------------------------------------------------
\133\ N. Kalluri, C. Kelly, & A. Garg, Child Care During the
COVID-19 Pandemic: A Bad Situation Made Worse. Pediatrics (2021),
https://doi.org/10.1542/peds.2020-041525.
\134\ National Association for the Education of Young Children,
Am I Next? Sacrificing to Stay Open, Child Care Providers Face a
Bleak Future Without Relief (December 2020), https://www.naeyc.org/sites/default/files/globally-shared/downloads/PDF.
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In addition to disruptions to childcare, early learning services
were also significantly impacted by the pandemic, and the disruption of
these services had widespread ramifications for learning loss, parental
support, and equity. Early learning centers have seen declined
enrollment across the board, though there was a larger dip in
enrollment for low-income households.\135\ This lower enrollment
coincides with a diminishing workforce, as similarly to childcare,
early childhood educators have been leaving the profession due to long
hours, low pay,\136\ and health and safety concerns.\137\ As a result,
children's school readiness has suffered, leading to potential long-
term impacts on life outcomes.\138\ The impact also extended
[[Page 4364]]
to parents. Parents, especially mothers, may face challenges reentering
or remaining in the workforce if early learning services are
unavailable.
---------------------------------------------------------------------------
\135\ G. G. Weisenfeld, Impacts of Covid-19 on Preschool
Enrollment and Spending, New Brunswick, NJ: National Institute for
Early Education Research (2021), https://nieer.org/wp-content/uploads/2021/03/NIEER_Policy_Brief_Impacts-of-Covid-19on_Preschool_Enrollment_and_Spending_3_16_21.pdf.
\136\ Heather Long, `The pay is absolute crap': Child-care
workers are quitting rapidly, a red flag for the economy, Washington
Post (September 19, 2021), https://www.washingtonpost.com/business/2021/09/19/childcare-workers-quit/.
\137\ Monash University, The emotional toll of COVID-19 among
early childhood educators (August 5, 2020) https://lens.monash.edu/@education/2020/08/05/1381001/the-emotional-toll-of-covid-19-among-early-childhood-educators.
\138\ Daphna Bassok and Anna Shapiro, Understanding COVID-19-era
enrollment drops among early-grade public school students, Brookings
Institution (February 22, 2021), https://www.brookings.edu/blog/brown-center-chalkboard/2021/02/22/understanding-covid-19-era-enrollment-drops-among-early-grade-public-school-students/.
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Treasury Response: Childcare and Early Learning Services: Treasury
agrees with commenters' analysis that challenges accessing or affording
childcare have been widespread during the pandemic, affecting many
jurisdictions and populations across the country. Disruptions to early
care and learning services similarly have had broad impact and likely
result in negative impacts for young children and their parents. As
such, these enumerated eligible uses are generally responsive to the
negative economic impacts of the pandemic in all communities, not just
in disproportionately impacted communities. Under the final rule,
childcare and early learning services are available to impacted
households or classes of households, not just those disproportionately
impacted. These eligible uses can include new or expanded services,
increasing access to services, efforts to bolster, support, or preserve
existing providers and services, and similar activities.
Further, Treasury is clarifying that improvements to or new
construction of childcare, daycare, and early learning facilities are
eligible capital expenditures. 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.
Public Comment: Home Visiting: Treasury has also received questions
about whether the provision of home visiting services would be
responsive to the health and mental health needs of impacted new
mothers, citing the positive mental health impacts shown on the mother
as well as improved outcomes for children.
Background: Home Visiting: Pregnant and recently pregnant
individuals are at an increased risk for serious illness from COVID-
19.\139\ Furthermore, pregnant individuals with COVID-19 are more
likely to experience preterm birth (delivering the baby earlier than 37
weeks).\140\ In addition to heightened health risks from COVID-19,
pregnant individuals may have experienced significant changes to their
prenatal care during the pandemic \141\ or may also have experienced
increased mental health challenges, including high levels of
depression, anxiety, loneliness, and post-traumatic stress during the
pandemic.\142\
---------------------------------------------------------------------------
\139\ Centers for Disease Control and Prevention, Pregnant and
Recently Pregnant People, https://www.cdc.gov/coronavirus/2019-ncov/need-extra-precautions/pregnant-people.html (last visited November
9, 2021).
\140\ Id.
\141\ Sarah Javaid, Sarah Barringer, Sarah D Compton, Elizabeth
Kaselitz, Maria Muzik, Cheryl A. Moyer, The impact of COVID-19 on
prenatal care in the United States: Qualitative analysis from a
survey of 2519 pregnant women, Midwifery, Volume 98, 2021, 102991,
ISSN 0266-6138, https://doi.org/10.1016/j.midw.2021.102991.
\142\ A Basu, HH Kim, R Basaldua, KW Choi, L Charron, et al., A
cross-national study of factors associated with women's perinatal
mental health and wellbeing during the COVID-19 pandemic, PLOS ONE
16(4): e0249780, (2021), https://doi.org/10.1371/journal.pone.0249780.
---------------------------------------------------------------------------
Home visiting services provided to families, particularly new
mothers and newborns, feature regular home visits from trained nurses,
social workers, and/or counselors who provide health care, mental
health resources, positive parenting support, support in making
personal health decisions, and awareness of other potentially helpful
services. These functions have become even more essential at mitigating
negative factors associated with the pandemic. Home visits give
professionals a chance to flag potential domestic violence, which has
risen worldwide over the course of the pandemic.\143\ Racial health
disparities can also be driven down by home visits. For example, Black
women are more likely to avoid hospitals during the pandemic, and home
visitors can help either assuage concerns around hospitals or give
effective advice for alternative methods of childbirth.\144\ Given the
disproportionate effect of the pandemic on people of color, home visits
are an essential equity tool that tackle major negative effects of the
pandemic. These are just a few selections from the evidence that
suggests many home visiting models can have a positive effect on
maternal physical and mental health.\145\
---------------------------------------------------------------------------
\143\ Amanda Taub, A New Covid-19 Crisis: Domestic Abuse Rises
Worldwide, New York Times (April 6, 2020), https://www.nytimes.com/2020/04/06/world/coronavirus-domestic-violence.html.
\144\ Xenia Shih Bion, Efforts to Reduce Black Maternal
Mortality Complicated by COVID-19, California Health Care Foundation
(April 20, 2020), https://www.chcf.org/blog/efforts-reduce-black-maternal-mortality-complicated-covid-19/.
\145\ U.S. Department of Health and Human Services, Home
Visiting Evidence of Effectiveness, https://homvee.acf.hhs.gov/outcomes/maternal%20health/In%20Brief.
---------------------------------------------------------------------------
Treasury Response: Home Visiting: Given the widespread impact of
COVID-19 on pregnant and recently pregnant individuals, Treasury is re-
categorizing home visiting services as an eligible use for impacted
communities, not just disproportionately impacted communities. Under
the final rule, these eligible uses are available to impacted
households or classes of households.
Public Comment: Child Welfare: While the interim final rule noted
that certain types of assistance, particularly around child development
and parenting, were eligible for child welfare-involved families,
Treasury has received some recipient questions asking whether
financial, educational, housing, or other supports and services are
eligible uses for foster youth, including those aging out of the
system, and child welfare-involved families. Other commenters asked
about whether funding for kinship care would be eligible.
Background: Child Welfare: The COVID-19 pandemic placed meaningful
strain on the child welfare and foster care system. Court hearings were
delayed,\146\ essential mental health care was shifted to a virtual
environment, and attendance and performance in school among foster
children dropped sharply.\147\ Additionally, there was a nationwide
rise of new children entering the foster care system and many states
placed temporary moratoria on children aging out of the foster care
system.\148\ As these temporary moratoria expire, additional support
will be needed to assist children exiting the system.
---------------------------------------------------------------------------
\146\ National Conference of State Legislatures, Criminal
Justice System Responses to COVID-19 (November 16, 2020), https://www.ncsl.org/research/civil-and-criminal-justice/criminal-justice-and-covid-19.aspx.
\147\ John Burton Advocates for Youth, The Cumulative Impact of
the Pandemic on Youth Who Have Been in Foster Care or Homeless (May
2020) https://jbay.org/wp-content/uploads/2021/04/JBAY-COVID-19-Impact.pdf.
\148\ John Kelly, Next Week, Thousands of Foster Youth Will Age
Out on the Same Day (September 21, 2021), https://imprintnews.org/subscriber-content/thousands-of-foster-youth-will-age-out-on-the-same-day/59006.
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Additionally, financial and material hardship are causal factors in
the increase of new children entering the foster care system, whether
through loss of a caregiver, domestic violence,\149\ or other
associated costs of the pandemic. Therefore, support to decrease these
hardships will support families and increase positive outcomes for
youth
[[Page 4365]]
and families that may otherwise become involved in the child welfare
system.
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\149\ Conrad-Hiebner, Aislinn, and Elizabeth Byram, The Temporal
Impact of Economic Insecurity on Child Maltreatment: A Systematic
Review. Trauma, Violence, & Abuse, vol. 21, no. 1, Jan. 2020, pp.
157-178, doi:10.1177/1524838018756122.
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Treasury Response: In the final rule, Treasury is clarifying that
services to foster youth, including those aging out of the system, and
child welfare-involved families may encompass a wide array of
financial, educational, child development, or health supports, or other
supports necessary, including supports for kinship care.
9. Addressing the impacts of lost instructional time.
Public Comment: The interim final rule included an enumerated
eligible use to address educational disparities in disproportionately
impacted communities, recognizing that underserved students have been
more severely impacted by the pandemic and including responsive
services for early learning, enhance funding to high-poverty districts,
and providing evidence-based services to address the academic, social,
emotional, and mental health needs of students. Some commenters
expressed concerns that learning loss or the negative impacts of lost
instructional time due to school closures or remote education during
the pandemic had affected a significant share of students in grades
kindergarten through twelve (K-12), including students who may not fall
within a disproportionally impacted group.
Background: The COVID-19 pandemic resulted in the widespread
closure of schools across the nation. While many schools and districts
reopened to in-person instruction or implemented remote learning, the
shift was not immediate or without consequence. Children who received
virtual only or combined remote and in-person instruction were more
likely to report experiencing negative mental- and physical health
outcomes than children who received in-person instruction.\150\
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\150\ Verlenden JV, Pampati S, Rasberry CN, et al. Association
of Children's Mode of School Instruction with Child and Parent
Experiences and Well-Being During the COVID-19 Pandemic--COVID
Experiences Survey, United States, October 8-November 13, 2020. MMWR
Morb Mortal Wkly Rep 2021;70:369-376. DOI: http://dx.doi.org/10.15585/mmwr.mm7011a1external icon.
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Treasury Response: Under the final rule, addressing the impact of
lost instructional time and/or learning loss is an enumerated eligible
use for impacted households. When providing services to address lost
instructional time, 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.
Interventions or services that address the impact of lost
instructional time may include offering high-quality tutoring and other
extended learning opportunities, providing differentiated instruction,
implementing activities to meet the comprehensive needs of students,
expanding and improving language access for parents and families,
providing information and assistance to parents and families on how
they can effectively support students, including in a distance learning
environment, improving student engagement in distance education, and
administering and using high-quality assessments to assess students'
academic progress, among others. In designing services under this
eligible use, recipients may wish to reference guidance from the
Department of Education on strategies for addressing lost instructional
time.\151\
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\151\ U.S. Department of Education, Strategies for Using
American Rescue Plan Funding to Address the Impact of Lost
Instructional Time, August 2021. Retrieved from https://www2.ed.gov/documents/coronavirus/lost-instructional-time.pdf.
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The final rule also maintains a separate enumerated eligible use
for addressing educational disparities in disproportionately impacted
communities. This eligible use includes services to address disparities
in educational outcomes that predate the pandemic and amplified its
impact on underserved students; these include, for example, enhanced
funding to high-poverty districts and providing evidence-based services
to address the academic, social, emotional, and mental health needs of
students.
Finally, as described in the section Public Health, recipients can
provide a broad range of behavioral health services, including services
for children and youth in schools, to respond to the impacts of the
pandemic on mental health and other behavioral health issues. When
providing behavioral health services, recipients may presume that the
general public was impacted by the pandemic and provide behavioral
health services to members of the general public, including children
and youth in schools, without any further analysis of impacts of the
pandemic on those individuals and whether the service is responsive.
10. Promoting long-term housing security: affordable housing and
homelessness. Under the interim final rule, recipients may use SLFRF
funds to provide a set of housing services to communities that have
been disproportionately impacted by the pandemic. Specifically, the
interim final rule provided that programs or services that address
housing insecurity, lack of affordable housing, or homelessness, were
responsive to the negative economic impacts of the pandemic when
provided to disproportionately impacted households and communities. The
enumerated uses included supportive housing or other programs or
services to improve access to stable, affordable housing among
individuals who are homeless and development of affordable housing to
increase supply of affordable and high-quality living units. Many
recipients have already announced plans to use SLFRF funds for
affordable housing interventions in all of these categories. Treasury
received many comments asking for additional clarity or flexibility in
these uses.
As detailed below, based on multiple public comments and questions
and Treasury's subsequent analysis, Treasury has determined that
supportive housing or other programs or services to improve access to
stable, affordable housing among individuals who are homeless, and the
development of affordable housing to increase supply of affordable and
high-quality living units are responsive to the needs of impacted
populations, not only disproportionately impacted populations. This
final rule reflects this clarification and builds on the objectives
stated in the interim final rule to improve access to stable,
affordable housing, including through interventions that increase the
supply of affordable and high-quality living units, improve housing
security, and support durable and sustainable homeownership.
Finally, note that ``emergency housing assistance,'' or assistance
for responses to the immediate negative economic impacts of the
pandemic through services like financial assistance for rental arrears
or mortgage payments, is also an eligible use category for assistance
to households under the final rule; see the eligible use for
``emergency housing assistance'' above. The provision of housing
vouchers and assistance relocating to neighborhoods with higher levels
of economic opportunity remains an eligible use under assistance to
disproportionately impacted households; for discussion, see the
eligible use for ``housing vouchers and assistance relocating'' below.
Background: Affordable Housing: It is clear that the ongoing
pandemic and resulting economic crisis are having a profound, long-term
negative effect on the pre-existing affordable housing crisis facing
low-income households.\152\
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The combination of a large number of higher-income households who have
weathered the pandemic without significant income losses, low interest
rates, and housing supply constraints exacerbated by the pandemic, have
driven a sharp increase in the sale price of homes.\153\ Meanwhile,
many low-income renters and homeowners are struggling with lost
employment and income and are behind on their housing payments.\154\
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\152\ Consumer Financial Protection Bureau, Housing insecurity
and the COVID-19 pandemic (March 2020), https://files.consumerfinance.gov/f/documents/cfpb_Housing_insecurity_and_the_COVID-19_pandemic.pdf.
\153\ Joint Center For Housing Studies Of Harvard University,
The State of the Nation's Housing (June 2021), https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_State_Nations_Housing_2021.pdf.
\154\ Davin Reed and Eileen Divringi, Household Rental Debt
During COVID-19: Update for 2021, Federal Reserve Bank of
Philadelphia (2020), available at: https://www.philadelphiafed.org/community-development/housing-and-neighborhoods/household-rental-debt-during-covid-19-update-for-2021. Further, some research
suggests that liquidity may be a more important predictor of default
than other factors, including income or equity. See Trading Equity
for Liquidity (June 2019), available at https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/institute/pdf/institute-trading-equity-for-liquidity.pdf.
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Public Comment: Affordable Housing Outside of Low-Income
Geographies: A major theme in comments was that affordable housing
interventions, especially development of affordable housing, should be
allowed outside of QCTs, as concentrating the supply of affordable
housing in low-income geographies can have the effect of increasing
both concentrated poverty and racial and economic segregation, while
locking lower-income households in need of housing support out of high-
opportunity neighborhoods with access to employment and amenities.
Treasury Response: Affordable Housing Outside Low-Income
Geographies: As previously stated, affordable housing is not confined
to low-income geographies under the interim final rule. As discussed
elsewhere, the interim final rule presumed that QCTs, as well as
communities served by Tribal governments, were disproportionately
impacted for administrative convenience, but recipients may identify
other populations, households, or geographic areas with disparate
impacts of COVID-19 and provide affordable housing services to them.
For example, under the interim final rule, a city could determine that
its low-income residents faced disproportionate impacts of COVID-19 and
develop affordable housing targeted to these households. Such a
scenario could include, for example, affordable projects in higher-
income neighborhoods that would allow residents to live closer to jobs
and well-resourced schools.
Additionally, as noted above, Treasury is finalizing the rule with
some changes to the treatment of affordable housing development
designed to clarify that permanent supportive housing or other programs
or services to improve access to stable, affordable housing among
individuals who are homeless, and the development of affordable housing
to increase supply of affordable and high-quality living units, are
responsive to individuals and households that were impacted by the
pandemic in addition to those that were disproportionately impacted.
This shift is in line with commenters' recommendations and consistent
with the facts described above, which demonstrate that lack of supply
of affordable housing units contributed to the pandemic's impact on
housing insecurity and unsustainable housing cost burdens and that
these impacts were experienced broadly across the country.
Public Comment: Eligible Activities: Many commenters asked for
clarity on what types of activities (e.g., land acquisition,
construction, pre-construction costs, operating costs, etc.) are
eligible uses of SLFRF, and what affordability criteria must be applied
to affordable housing development. Commenters encouraged Treasury to
allow the full array of affordable housing activities, including
particular requests for broad flexibility for Tribal communities, and
to specify that ``development'' should include construction,
preservation, rehabilitation, and operation. Other commenters requested
clarification about permissible program administration approaches for
affordable housing, such as contracting methods and distribution of
funds.
Some commenters asked that Treasury require SLFRF funds to be
focused on the lowest-income households, who suffer the most severe
rent burdens and risks of housing instability, and whose housing
situation has left them particularly vulnerable to COVID-19. For
example, one commenter argued that SLFRF funds should only be used to
support affordable housing for households making 50 percent of AMI or
less and that recipients should be required to set aside significant
portions of any developments for renters making 30 percent of AMI or
less and persons with physical and sensory disabilities. Other
commenters requested a more flexible approach to affordable housing
definitions.
Treasury Response: Eligible Activities: The final rule clarifies
eligibility of affordable housing development for recipients; these
uses were eligible under the interim final rule, but Treasury is
providing further guidance to enhance clarity and respond to recipient
and commenter questions.
As with all interventions to address the negative economic impacts
of the pandemic, affordable housing projects must be responsive and
proportional to the harm identified. This test may be met by affordable
housing development projects--which may involve large expenditures and
capital investments--if the developments increase the supply of long-
term affordable housing for low-income households. While there may be
less costly (or non-capital) alternatives to affordable housing
development, a comprehensive response to the widespread housing
challenges underscored by the pandemic will require the production of
additional affordable homes, and targeted affordable housing
development is a cost-effective and proportional response to this need.
For purposes of this test, Treasury will presume that any projects
that would be eligible for funding under either the National Housing
Trust Fund (HTF) or the Home Investment Partnerships Program (HOME) are
eligible uses of SLFRF funds. Note that these programs use different
income limits than the definition of low- and moderate-income adopted
by Treasury. Given the severity of the affordable housing shortage, and
the ways in which the pandemic has exacerbated the need for affordable,
high-quality dwelling units, Treasury has determined that the
households served by these federal housing programs have been impacted
by the pandemic and its negative economic impacts and that development
of affordable housing consistent with these programs is a related and
reasonably proportional response to those impacts. Additionally,
affordable housing projects provided by a Tribal government are
eligible uses of SLFRF if they would be eligible for funding under the
Indian Housing Block Grant program, the Indian Community Development
Block Grant program, or the Bureau of Indian Affairs Housing
Improvement Program. Alignment with these programs, which define
``affordable housing'' in a manner consistent with a proportionate
response to the affordable housing challenges faced by low- and
moderate-income households as a result of the negative economic impacts
of the pandemic, is intended to give recipients comfort and clarity as
they design a
[[Page 4367]]
wide variety of affordable housing interventions, including production,
rehabilitation, and preservation of affordable rental housing and, in
some cases, affordable homeownership units. These programs allow the
financing of a wide range of affordable housing activities and set
clear eligibility criteria that many recipients are already familiar
with.
Finally, to further support sustainable and durable homeownership,
recipients may consider offering down payment assistance, such as
through contributions to a homeowner's equity at origination or that
establish a post-closing, mortgage reserve account on behalf of the
borrower that may be utilized to make a missed or partial mortgage
payment at any point during the life of the loan (e.g., if the borrower
faces financial stress). Homeownership assistance that would be
eligible under the Community Development Block Grant (at 24 CFR
507.201(n)) is also an eligible use of SLFRF funds.
Public Comment: Permanent Supportive Housing: Treasury has received
comments encouraging the use of SLFRF funds for permanent supportive
housing. This is an eligible use under the interim final rule: Both the
development of affordable housing (including operating subsidies) and
wraparound services such as behavioral health services, employment
services, and other supportive services, are eligible responses to the
public health crisis or its negative economic impacts.
Treasury Response: The final rule maintains the eligibility of
permanent supportive housing as an enumerated use. Treasury is also
clarifying that other affordable housing developments targeted to
specialized populations are also eligible, for example recovery housing
for individuals in recovery from substance use.
Public Comment: Operating Expenses: Commenters specifically asked
that Treasury allow the use of SLFRF funds for operating expenses of
affordable housing units, as operating subsidies are typically required
to reach extremely low-income households, whose affordable rents may be
lower than the ongoing cost of operating their unit.
Treasury Response: Operating expenses for eligible affordable
housing were an eligible use of funds under the interim final rule and
the final rule maintains this treatment. This may include capitalized
operating reserves.
Rehabilitation and repair of public housing will also be considered
an eligible use of SLFRF funds.
Public Comment: Affordable Housing Loans and Revolving Loan Funds:
Some commenters requested that loans with maturities beyond the period
of performance or revolving loan funds that revolve beyond the period
of performance be eligible uses of SLFRF funds if used for affordable
housing. Some commenters pointed out that for-profit developers of low-
income housing through the Low-Income Housing Tax Credit (LIHTC) may be
deterred from accepting grants to bridge funding gaps in current LIHTC
deals by the treatment of grants to for-profit entities in the
calculation of eligible basis for the LIHTC.
Treasury Response: The final rule does not change the treatment of
loans from the interim final rule. For more details see section
Treatment of Loans in Program Administration Provisions. Similarly, the
final rule does not change the treatment of grants to support
affordable housing development, including developments supported by the
LIHTC: such grants are an eligible use of funds.
Additional enumerated eligible uses for assistance to impacted
households. As noted above, 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 negative economic impacts of COVID-19.
In response, commenters proposed a wide variety of additional
recommended enumerated eligible uses to assist households, ranging from
general categories of services (e.g., legal and social services) to
services that respond to needs widely experienced across the country
(e.g., access to and affordability of health insurance) to services
that are most applicable to the particularized needs of certain
populations or geographic areas of the United States (e.g., senior
citizens, SNAP recipients, 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's approach to assistance to households in the
final rule aims to clarify additional enumerated eligible uses that
respond to 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. In the final rule, Treasury is clarifying several additional
uses, which generally respond to pandemic impacts experienced broadly
across jurisdictions and populations, are eligible under the interim
final rule as assistance to households and continue to be so under the
final rule, as outlined below.
11. Paid sick, medical, or family leave.
Public Comment: Some commenters argued that the pandemic increased
the need for paid sick or medical leave, as staying home when ill is
recommended by the CDC to prevent spread of the virus but lack of
access to paid sick leave often prevents workers from staying home.
Other commenters recommended paid family leave as an eligible use,
arguing that shortages in access to childcare or home health
assistance, as well as school closures, may increase the need for
family members to serve as caretakers.
Background: The COVID-19 pandemic highlighted the importance of
paid leave as well as the number of workers who do not have access to
paid sick and/or family leave. When workers have access to paid leave,
they are less likely to report to work sick, and therefore less likely
to spread illnesses in the workplace: One study demonstrates that the
emergency sick leave provision of the Families First Coronavirus
Response Act (FFCRA) reduced the spread of COVID-19.\155\
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\155\ Stefan Pichler, Katherine Wen, and Nicolas R. Ziebarth,
COVID-19 Emergency Sick Leave Has Helped Flatten The Curve In The
United States: Study examines the impact of emergency sick leave on
the spread of COVID-19, Health Affairs 39, no. 12 (2020): 2197-2204,
https://www.healthaffairs.org/doi/10.1377/hlthaff.2020.00863.
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The lack of paid leave exacerbates financial hardships experienced
as a result of the public health emergency. A 2018 survey by the
Department of Labor found that two-thirds of employees that took unpaid
or partial-paid leave experienced financial hardship.\156\ Furthermore,
because the Family and Medical Leave Act (FMLA) excludes small
employers, part-time workers, and workers who have been with their
employer for less than a year, 44 percent of workers do not have access
to even unpaid leave.\157\ Workers of color and workers with lower
incomes are less likely to have access to paid leave.158 159
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\156\ Scott Brown et al., Employee and Worksite Perspectives of
the Family and Medical Leave Act: Results from the 2018 Surveys, Abt
Associates (July 2020), https://www.dol.gov/sites/dolgov/files/OASP/evaluation/pdf/WHD_FMLA2018SurveyResults_FinalReport_Aug2020.pdf.
\157\ Id.
\158\ Ann P. Bartel et al., Racial and ethnic disparities in
access to and use of paid family and medical leave: evidence from
four nationally representative datasets, U.S. Bureau of Labor
Statistics (BLS) (January 2019), https://www.bls.gov/opub/mlr/2019/article/racial-and-ethnic-disparities-in-access-to-and-use-of-paid-family-andmedical-leave.htm.
\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.
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[[Page 4368]]
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\
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\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.tandfonline.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.
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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\
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\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.
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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\
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\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.
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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,
[[Page 4369]]
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.
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\172\ Federal Deposit Insurance Corporation, FDIC National
Survey of Unbanked and Underbanked Households (2015), https://www.fdic.gov/householdsurvey/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.
\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.federalreserve.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.
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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.
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\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.
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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
[[Page 4370]]
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.
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\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.
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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.
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\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.
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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
[[Page 4371]]
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
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\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.
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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\
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\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.
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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\
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\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/.
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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.
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\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.
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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
[[Page 4372]]
requested further clarification on their role.\187\ Treasury is
maintaining this eligible use in the final rule.
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\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).
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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\
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\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.
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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.
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\189\ See, e.g., Opportunity Insights, Creating Moves To
Opportunity (August 2019), https://opportunityinsights.org/policy/cmto/.
---------------------------------------------------------------------------
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.
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\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/socialdeterminants/about.html (last visited November 9,
2021).
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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.
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\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).
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Second, some commenters also suggested that access to healthy food
in a neighborhood impacts health outcomes. These commenters reasoned
[[Page 4373]]
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\
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\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.
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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
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\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.
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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.
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\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 Despr[eacute]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.
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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.
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\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/.
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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.
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\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.
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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
[[Page 4374]]
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.
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\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/.
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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\
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\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%20the%20sage,through%20data
%20and%20model%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.
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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
[[Page 4375]]
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.
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\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.
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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
[[Page 4376]]
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\
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\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).
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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\
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\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.
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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\
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\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.
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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\
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\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.
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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\
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\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.
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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
[[Page 4377]]
``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
[[Page 4378]]
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.
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\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).
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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 fa[ccedil]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
[[Page 4379]]
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\
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\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.
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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\
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\228\ Sec. 35.3 Definitions.
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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\
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\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.
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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
[[Page 4380]]
leading to a changing financial landscape for nonprofits.
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\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.
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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\
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\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.
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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
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\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.''
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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
[[Page 4381]]
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\
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\234\ Sec. 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).
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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.
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\236\ Coronavirus State and Local Fiscal Recovery Funds, 86 FR
at 26795.
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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.
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\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.
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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.
[[Page 4382]]
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.
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\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.
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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.''
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\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).
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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.
[[Page 4383]]
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.
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\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.
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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.
[[Page 4384]]
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.
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\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.
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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.''
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\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.
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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
[[Page 4385]]
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
[[Page 4386]]
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.
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\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.
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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).
[[Page 4387]]
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.
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\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.
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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
[[Page 4388]]
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.
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\246\ Results for America, Invest in What Works State Standard
of Excellence (August 2020), https://2020state.results4america.org/2020_State-Standard-of-Excellence.pdf.
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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.
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\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.
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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).
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\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.
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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
[[Page 4389]]
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.
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\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 resolution, and other
expenses to expedite case resolution are eligible uses.''
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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.
[[Page 4390]]
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.
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\250\ See 25 U.S.C. 5108.
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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
[[Page 4391]]
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.
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\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.
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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\
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\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.
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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.
[[Page 4392]]
------------------------------------------------------------------------
and the use is
and the use is beyond those
If a project has total expected enumerated by enumerated by
capital expenditures of Treasury as Treasury as
eligible, then eligible, then
\254\ \255\
------------------------------------------------------------------------
Less than $1 million............ No Written No Written
Justification Justification
required. required.
Greater than or equal to $1 Written Written
million, but less than $10 Justification Justification
million. required but required and
recipients are recipients must
not required to submit as part of
submit as part of regular reporting
regular reporting to Treasury.
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.
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\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.
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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,
[[Page 4393]]
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,''
[[Page 4394]]
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.''
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\256\ In this context, a pass-through entity means a recipient
of SLFRF funds.
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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
[[Page 4395]]
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
[[Page 4396]]
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\
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\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.
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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
[[Page 4397]]
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\
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\258\ See U.S. Department of Labor, Hazard Pay, https://www.dol.gov/general/topic/wages/hazardpay (last visited October 18,
2021).
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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.
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\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.
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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.
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\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.
---------------------------------------------------------------------------
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
[[Page 4398]]
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.
---------------------------------------------------------------------------
\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.
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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
[[Page 4399]]
(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\
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\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.
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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.
---------------------------------------------------------------------------
\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.
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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
[[Page 4400]]
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\
---------------------------------------------------------------------------
\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.'').
---------------------------------------------------------------------------
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.
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\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.
---------------------------------------------------------------------------
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\
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\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.
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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
[[Page 4401]]
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.
---------------------------------------------------------------------------
\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.
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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\
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\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.
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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) [caret] (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.
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\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.
---------------------------------------------------------------------------
Step 3: Identify actual revenue,\283\ which equals
revenues collected over the twelve months immediately preceding the
calculation date.
---------------------------------------------------------------------------
\283\ As explained below, in the final rule, recipients must
adjust actual revenue amounts based on certain tax policy changes.
---------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------------------------------
[[Page 4402]]
The figure below illustrates the reduction in revenue for the
hypothetical recipient calculated in accordance with the methodology.
[GRAPHIC] [TIFF OMITTED] TR27JA22.000
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
[[Page 4403]]
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.
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\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).
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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\
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\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'').
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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\
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\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.
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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
[[Page 4404]]
transfers from the federal government, including transfers made
pursuant to section 9901 of the ARPA.\290\ In the case of Tribal
governments, it also included revenue from Tribal business enterprises.
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\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.
\290\ The interim final rule stated that ``general revenue'' and
``tax revenue'' excludes refunds and other correcting transactions.
Instead of ``excluding'' refunds and other correcting transactions,
the Census Bureau methodology upon which those definitions are based
provides that general revenue and tax revenue are determined ``net
of'' refunds and other correcting transactions. The use of
``excluding'' in the interim final rule is substantively the same as
the Census Bureau methodology. However, to be consistent with the
terminology used by the Census Bureau, the final rule uses ``net
of'' instead of ``excluding.'' Current charges are defined as
``charges imposed for providing current services or for the sale of
products in connection with general government activities.'' It
includes revenues such as public education institution, public
hospital, and toll revenues. Miscellaneous general revenue comprises
of all other general revenue of governments from their own sources
(i.e., other than utility and insurance trust revenue), including
rents, royalties, lottery proceeds, and fines.
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Public Comment: Many commenters asked Treasury to include certain
items in the definition of ``general revenue.'' For instance, several
commenters that operate their own utilities asked that revenue from
utilities be included, arguing that declines in utility revenue
directly affect contributions to their general funds. Many of these
commenters noted that moratoriums on utility shutoffs and a decline in
collections have resulted in significant budgetary pressures.
Some commenters also asked for the exclusion of certain
intergovernmental transfers in the definition of general revenue,
including transfers of shared revenue from the state.\291\ Other
commenters asked for the inclusion of certain transfers from the
federal government, including fees paid for services and grants that
are, in effect, paid for the provision of services.
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\291\ The interim final rule excluded governmental transfers
from the Federal Government, but it did not exclude
intergovernmental transfers from other governmental units for
purposes of the revenue loss provisions.
---------------------------------------------------------------------------
Treasury also received multiple requests to include revenue from
Tribal enterprises in the definition of ``general revenue'' and that
``Tribal enterprise'' be defined broadly. Others asked for the ability
to choose whether to include revenue from Tribal enterprises.
Finally, some commenters requested that the definition of general
revenue exclude certain sources of revenue, such as revenue sources
that do not support a general fund (i.e., revenue sources that are
restricted in use). Commenters also asked that general revenue exclude
revenue from special assessments, settlements that make the recipient
whole for past expenditures, and one-time revenues such as revenue from
the sale of property.
Treasury Response: In the final rule, Treasury has maintained the
definition of ``general revenue'' from the interim final rule with two
exceptions.
Treasury has adjusted the definition to allow recipients that
operate utilities that are part of their own government to choose
whether to include revenue from these utilities in their revenue loss
calculation. This change responds to comments from recipients
indicating that revenue from utilities is used to fund other government
services and that utility revenues have declined on aggregate.\292\
This approach is consistent with other eligible uses, which recognize
decreased ability of many households to make utility payments; see
section Assistance to Households, which identifies utility assistance
as an enumerated eligible use of funds, including through direct or
bulk payments to utilities for consumer assistance. Furthermore, for
utilities or other entities (e.g., certain service districts) that are
not part of the recipient government, a transfer from the utility to
the recipient constitutes an intergovernmental transfer and therefore
is included in the definition of ``general revenue.'' \293\
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\292\ U.S. Energy Information Administration, Annual Electric
Utility Data (October 2021), available at https://www.eia.gov/electricity/sales_revenue_price/.
\293\ FAQ 3.14 provides further guidance on how to determine
what entities constitute a government for purposes of calculating
revenue loss. See Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
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Treasury has also added liquor store revenue to the definition of
general revenue. The Supplemental Information to the interim final rule
stated that the definition of tax revenue would include liquor store
revenue, but the text of the rule did not include it. Accordingly, in
the final rule, Treasury is clarifying that revenue includes liquor
store revenue. However, Treasury believes revenue from government-owned
liquor stores is better classified as general revenue than it is as tax
revenue, so the final rule includes it as part of general revenue.
In response to requests that the definition of general revenue
exclude revenue from special assessments, settlements that make the
recipient whole for past expenditures, and one-time revenues such as
revenue from the sale of property, Treasury is maintaining its position
in the final rule that such revenue is included in general revenue.
While such revenues may be less predictable than other sources of
revenue (e.g., property taxes), these are not uncommon sources of
revenue for recipients, and their inclusion provides a more complete
view of the financial health of a recipient government and is
consistent with the Census Bureau methodology. Treasury is also
maintaining the exclusion of all payments from the federal government
(including payments for services) from general revenue in order to
avoid substantial dilution of the definition of revenue, particularly
in light of extraordinary fiscal support provided during the pandemic.
Treasury is maintaining the inclusion of intergovernmental transfers
other than from the federal government for the reasons provided in the
Supplemental Information to the interim final rule; to do otherwise
would be to significantly distort the revenue calculations for local
governments that regularly receive revenue sharing payments, for
example, from their state governments. Treasury is also maintaining the
approach that ``general revenue'' includes revenue from Tribal
enterprises. This approach recognizes that these enterprises often form
the revenue base for Tribal governments' budgets.
To ease the burden on recipients and account for anomalous
variations in revenue, as mentioned above, Treasury has incorporated a
``standard allowance'' option into the final rule. A recipient may
choose to use the standard allowance, which under the final rule is set
at up to $10 million, not to exceed the recipient's SLFRF award amount,
as an alternative to calculating revenue loss according to the formula
described above. This addition will promote administrative efficiency
and simplify the revenue loss calculation for the vast majority of
recipients. Treasury intends to amend its reporting forms to provide a
mechanism for recipients to elect to utilize either the revenue loss
formula or the standard allowance, in addition to other changes made as
part of the final rule.
Aggregate Revenue Loss Calculation
Under the interim final rule, revenue loss was calculated based on
aggregate revenues and therefore loss in one type of revenue could be
offset by gains in another. The amount of SLFRF funds available to
provide government services was based on overall net revenue loss. In
the Supplementary Information to the interim final rule, Treasury asked
commenters to discuss the advantages and disadvantages of, and any
potential concerns with, this approach, including circumstances in
which it could be necessary or
[[Page 4405]]
appropriate to calculate the reduction in revenue by source.
Public Comment: Treasury received many comments stating that
revenue loss should be calculated on a source-by-source basis. Some
commenters argued that a source-by-source approach would be
administratively simpler. Other commenters argued that calculating
revenue loss source-by-source would better reflect the impact of the
COVID-19 pandemic on their ability to fund government services because
revenue gains in one source cannot always be used to make up for losses
in another. For similar reasons, other commenters asked that revenue
loss be calculated on a fund basis.
Treasury Response: Treasury considered alternative methods (e.g.,
source-by-source, fund-by-fund) but ultimately determined to maintain
the calculation of revenue loss in the aggregate. The pandemic has had
different effects on recipients (and their revenues), and Treasury
recognized that one particular type of revenue or one particular source
may have experienced a greater amount of loss for some recipients.
However, the statute refers only to ``the reduction in revenue of such
State, local government, or Tribal government.'' The statute is thus
clear that Treasury is to refer to the aggregate revenue reduction of
the recipient due to the public health emergency. Further, this
provision is designed to address declines in the recipients' overall
ability to pay for governmental services, and calculating revenue loss
on an aggregate basis provides a more accurate representation of the
effect of the pandemic on overall revenues and the fiscal health of the
recipient. In many circumstances, recipient governments have
flexibility to use revenues from an array of sources and offset
declines in some sources with gains in others. While the details and
configuration of this flexibility vary widely across recipient
governments, calculating revenue loss on a source-by-source or fund-by-
fund basis would not capture how recipient governments balance their
budgets in the regular course of business. Accordingly, the final rule
maintains the requirement that revenue loss is to be calculated on an
aggregate basis.
Calculation Dates
Public Comment: Under the interim final rule, recipients calculate
revenue loss as of the end of the calendar year. Treasury received many
comments requesting that recipients be permitted to calculate revenue
loss as of the end of their fiscal year. Commenters argued that doing
so would be simpler and less burdensome on recipients and that
financial data as of the end of the fiscal year is audited and
therefore more reliable. Commenters also argued that recipients' fiscal
years are structured around the timing of major revenue sources, and
that the Census Bureau uses fiscal years in its Annual Survey.
Treasury also received comments about the use of multiple
calculation dates. Several Tribal governments stated that they would
not see ongoing revenue losses due to the COVID-19 public health
emergency and asked to be able to determine revenue loss as of the
first calculation date. Several commenters asked whether revenue loss
is determined independently for each year, so that a gain in one year
does not offset a loss in another, or whether revenue loss is
cumulative from the beginning of the pandemic.
Treasury Response: In the final rule, Treasury has made adjustments
to give recipients more flexibility with respect to calculation dates
and to clarify certain elements. Specifically, the final rule provides
recipients the option to choose whether to calculate revenue loss on a
fiscal year or calendar year basis, though they must choose a
consistent basis for loss calculations throughout the period of
performance. Treasury has also clarified in the final rule that revenue
loss is calculated separately for each year such that the calculation
of revenue lost in one year does not affect the calculation of revenue
lost in prior or future years.
Presumption That Revenue Loss Is Due to the Pandemic
As stated above, 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.'' As discussed in
the interim final rule, although revenue may decline for reasons
unrelated to COVID-19, in order to minimize the administrative burden
on recipients in calculating revenue loss and take into consideration
the devastating effects of the COVID-19 public health emergency, any
reduction in revenue relative to the counterfactual estimate was
presumed in the interim final rule to be considered revenue lost due to
the pandemic.
Treasury stated in the Supplementary Information to the interim
final rule that it was considering when, if ever, during the period of
performance it would be appropriate to reevaluate the presumption that
all losses are attributable to the public health emergency. Treasury
also sought comment on whether 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.
Public Comment: Treasury received many comments in support of the
presumption, as well as some opposed. Some commenters argued that the
presumption eases the administrative burden on recipients because,
without it, it would be difficult to identify which losses are
attributable to the COVID-19 public health emergency. Many commenters
also argued that Treasury should maintain the presumption because
recipients are likely to experience losses due to the public health
emergency even after the end of the public health emergency. Treasury
also received comments asking that it adjust any revenue loss
calculation to account for tax changes enacted by the recipient. In
particular, some commenters noted that some recipients had increased
taxes in order to meet additional demands for government services or to
address declines in revenue due to the pandemic. These tax increases
have in some cases offset some or all of the actual revenue loss
attributable to the public health emergency. Because the interim final
rule calculates revenue loss by reference to actual revenue collected,
commenters argued that the calculation of revenue loss ``due to'' the
public health emergency needs to take into consideration the effects of
tax increases by deducting the effect of these tax increases from
actual revenue collected.
Treasury Response: In the final rule, Treasury has maintained the
presumption that a reduction in a recipient's revenue is due to the
public health emergency with certain adjustments to respond to comments
and to better account for revenue loss ``due to the COVID-19 public
health emergency.'' The final rule makes adjustments to the presumption
to take into account certain government actions to change tax policy.
In particular, Treasury is adjusting the presumption to account for
changes to tax policy by providing that changes in revenue that are
caused by tax increases or decreases adopted after the issuance of the
final rule will not be treated as due to the public health emergency.
[[Page 4406]]
Presumption of Revenue Loss ``Due To'' the Pandemic
In enacting sections 602(c)(1)(C) and 603(c)(1)(C) of the Social
Security Act, Congress provided that a state, local government, or
Tribal government could use funds to ``cover costs . . . for the
provision of government services,'' but only ``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.'' In doing so, Congress recognized that the
pandemic was causing significant disruption to economic activity and
sought to minimize the impact of associated revenue losses on the
ability of the recipient to provide government services when such
services were needed most.\294\ The text of the statute itself
reinforces this important context: The law specifically limits funds to
cover revenue losses that both are ``due to the COVID-19 public health
emergency'' and could impact ``the provision of government services.''
---------------------------------------------------------------------------
\294\ See also sections 602(a)(1) and 603(a) of the Social
Security Act (appropriating the funds for payment to recipients in
order to ``mitigate the fiscal effects stemming from the public
health emergency'').
---------------------------------------------------------------------------
Courts have recognized that the phrase ``due to'' can refer to
various causal standards.\295\ Here, in the context of Congress's
addressing economic disruptions caused by the COVID-19 pandemic that
could impact both revenues and government services, the key
consideration is whether a revenue loss experienced by the recipient
resulted from the exogenous impacts of the public health emergency (and
were thus ``due to'' the pandemic) or instead from the recipient's own
discretionary actions (and, in this context, were not ``due to'' the
pandemic). Reductions in revenue due to the public health emergency
does not cover revenue reductions that resulted from a recipient's own
discretionary actions.
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\295\ U.S. Postal Service v. Postal Regulatory Comm'n, 640 F.3d
1263 (D.C. Cir. 2011); see Kimber v. Thiokol Corp., 196 F.3d 1092,
1100 (10th Cir. 1999); Adams v. Director, OWCP, 886 F.2d 818, 821
(6th Cir. 1989).
---------------------------------------------------------------------------
In the interim final rule, Treasury included a presumption that all
revenue loss is due to the pandemic in order to minimize the
administrative burden on recipients discussed above and take into
consideration the devastating effects of the COVID-19 public health
emergency. Based on comments, Treasury believes that the reasons for
the presumption continue to be valid and has determined to maintain the
presumption in the final rule with certain modifications. In
particular, at this point in the course of the pandemic, with the
fiscal pressure on state and local governments having been
significantly reduced, it is appropriate for Treasury to reassess
aspects of this presumption. As discussed below, the final rule
requires recipients to exclude the value of tax policy changes adopted
after January 6, 2022.
Recipients of the SLFRF range from states to the smallest local
governments. At the time that the interim final rule was adopted, it
was important for recipients to be able to calculate with ease and
certainty their amount of revenue loss so that they could begin
deploying these funds to continue to maintain essential government
services. To this end, the presumption in the interim final rule
provided a relatively simple formula for all recipients to use, but the
exigent need for recipients to immediately deploy funds for the
provision of government services has decreased and the benefit of the
presumption in reducing administrative burden is less relevant for
those governments that are not likely to avail themselves of the
standard allowance described above.
Consistent with these considerations, the final rule requires
recipients to exclude revenue loss due to tax changes adopted after
January 6, 2022. Eliminating revenue loss due to tax changes from the
presumption is appropriate given the significance of tax revenue as a
portion of all revenue for state and local governments, the direct
impact of tax policy decisions on revenue collected, and the relative
ease with which recipients can isolate the estimated effect of a tax
change on revenue.\296\ Most state budgeting processes require a
``budget score,'' often developed through a consensus process with
executive and legislative branch experts,\297\ and Treasury expects
that larger localities, those most likely to utilize the revenue loss
formula rather than the standard allowance, also regularly use revenue
or budget estimates when considering changes to tax policies. As such,
in many cases, recipients already prepare estimates of the impact of
tax changes on revenue, and as discussed below, Treasury will generally
permit recipients to rely on such estimates in adjusting their revenue
loss calculations.
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\296\ Treasury considered whether to also eliminate the
presumption with respect to losses resulting from other changes in
policy, such as decreases in user fees or fines. However, the
effects of these changes are more minor overall and would be more
challenging to accurately identify and quantify, so the
administrability benefit of the presumption for recipients outweighs
whatever distortion there might be as a result of not reflecting
such changes.
\297\ See generally, National Association of State Budget
Officers, Budget Processes in the States, (2021), available at
https://higherlogicdownload.s3.amazonaws.com/NASBO/9d2d2db1-c943-4f1b-b750-0fca152d64c2/UploadedImages/Budget%20Processess/NASBO_2021_Budget_Processes_in_the_States_S.pdf.
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Reductions in revenue that are not attributable to tax changes
would continue to be subject to the presumption. A requirement that
recipients evaluate the revenue effect of changes in discretionary
policy actions other than tax changes would be more difficult for
recipients than evaluating the changes attributable to tax changes
given that state and local governments do not generally prepare
estimates of the revenue effects of other actions. Finally, as noted
above, taxes are the single largest source of revenue for state and
local government recipients in the aggregate.
Revisions to Presumption To Address Tax Reductions
For these reasons, Treasury is providing in the final rule that
changes in general revenue that are caused by tax cuts adopted after
the date of adoption of the final rule (January 6, 2022) will not be
treated as due to the public health emergency, and the estimated fiscal
impact of such tax cuts must be added to the calculation of ``actual
revenue'' for purposes of calculation dates that occur on or after
April 1, 2022. Tax cuts include final legislative or regulatory action
or a new or changed administrative interpretation that reduces any tax
(by providing for a reduction in a rate, a rebate, a deduction, a
credit, or otherwise) or delays the imposition of any tax or tax
increase and that the recipient assesses has had the effect of reducing
tax revenue relative to current law. This includes the phase-in or
taking effect of any statute or rule if the phase-in or taking effect
was not prescribed prior to the issuance of the final rule.
In assessing whether a tax change has had the effect of reducing
tax revenue, recipients may either calculate the actual effect on
revenue or rely on estimates prepared at the time the tax change was
adopted. More specifically, recipients may rely on information
typically prepared in the course of developing the budget (e.g.,
expected revenues) and/or considering tax changes (e.g., budget scores,
revenue notes) to determine the amount of revenue that would have been
collected in the absence of the tax cut, as long as those estimates are
based on reasonable assumptions and do not use dynamic methodologies
that incorporate the projected effects of macroeconomic growth, given
that macroeconomic
[[Page 4407]]
growth is accounted for in the counterfactual growth assumptions.
Recipients that choose to calculate the actual effect of a tax change
on revenue must similarly base their calculations on reasonable
estimates that do not use dynamic methodologies. Recipients should
apply this adjustment in determining their actual revenue totals at
Step 3 in the revenue loss calculation described above.
Revisions to Presumption To Address Tax Increases
As noted above, the calculation methodology in the interim final
rule implicitly assumed that recipients did not experience a reduction
in revenue due to the public health emergency if they did not
experience a reduction in aggregate revenue relative to the
counterfactual estimate. Treasury recognizes that some recipients may
have experienced a reduction in revenue due to the public health
emergency that was offset by other revenue, particularly in the case of
increases to tax revenue resulting from a tax increase. The final rule
requires recipients that increased taxes to deduct the amount of
increases to revenue attributable to such tax increase. This change is
also consistent with the incorporation in the interim final rule and
final rule of a counterfactual growth rate, which effectively permits
recipients to count revenue losses due to the public health emergency
that are offset by increased tax revenue resulting from organic growth.
For these reasons, Treasury is providing in the final rule that
recipients must subtract from their calculation of actual revenue the
effect of tax increases adopted after the date of adoption of this
final rule (January 6, 2022) for purposes of calculation dates that
occur on or after April 1, 2022. This change and the change to the
final rule described above treat tax changes in a consistent manner: In
the case of reduction in revenue resulting from a tax cut, a recipient
must add the amount of that reduction to its calculation of actual
revenue, and in the case of an increase in revenue resulting from a tax
increase, a recipient must subtract the amount of additional revenue
collected as a result of the tax increase from its calculation of
actual revenue.\298\
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\298\ The final rule does not permit recipients to reflect the
effects of other changes in policy, such as increases in fees
adopted after adoption of the final rule. Treasury understands that
the main beneficiaries of such a change would be those recipients
that will benefit from the standard allowance provided for in the
final rule and that for other recipients the administrative burden
on recipients needed to calculate these adjustments would outweigh
the benefit of having a somewhat larger amount of funds available
for government services.
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As is the case with tax cuts, discussed above, tax increases that
must be reflected in the calculation of revenue include final
legislative or regulatory action or a new or changed administrative
interpretation that increases any tax and that the recipient assesses
has had the effect of increasing tax revenue relative to current law.
In assessing whether a tax change has had the effect of increasing tax
revenue, recipients may either calculate the actual effect on revenue
or rely on estimates prepared at the time the tax change was adopted.
Recipients may rely on information typically prepared in the course of
developing the budget (e.g., expected revenues) and/or considering tax
changes (e.g., budget scores, revenue notes) to determine the amount of
revenue that was collected as a result of the tax increase as long as
those estimates are based on reasonable assumptions and do not use
dynamic methodologies that incorporate the projected effects of
macroeconomic growth, given that macroeconomic growth is accounted for
in the counterfactual growth assumptions. Recipients that choose to
calculate the actual effect of a tax change on revenue must similarly
base their calculations on reasonable estimates that do not use dynamic
methodologies. Recipients should apply this adjustment in determining
their actual revenue totals at Step 3 in the revenue loss calculation
described above.
Previously Adopted Tax Changes
As discussed above, the final rule will not require recipients to
reflect the revenue effects of tax increases or decreases adopted prior
to the adoption of the final rule. Recipients that adopted a tax change
in a previous period will not be required to recalculate the amount of
revenue loss as of prior calculation dates or to reflect the fiscal
impacts of such tax changes in calculation dates after the effective
date of the final rule. However, the final rule will permit recipients
to elect to reflect the revenue effects of their tax changes adopted
between the beginning of the public health emergency and the adoption
of the final rule.\299\ If a recipient elects to do so, it must do so
with respect to all of its tax changes adopted between the beginning of
the public health emergency and the adoption of the final rule.
Treasury intends to revise its reporting requirements to permit
recipients to amend their previously reported calculation periods to
reflect such changes.
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\299\ The final rule also addresses the possibility that some
recipients may have fiscal years ending during the period between
January 6, 2022 and April 1, 2022; such recipients' election to
reflect tax changes from prior periods would also apply to changes
during this period with respect to the calculation date in this
period.
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Determination of the Base Year
Under the ARPA and interim final rule, SLFRF funds may be used
``for the provision of government services to the extent of the
reduction in revenue . . . relative to revenues collected in the most
recent full fiscal year'' of the recipient. Therefore, the base year
for the revenue loss calculation is the most recent full fiscal year
prior to the COVID-19 public health emergency.
Public Comment: Treasury received multiple comments asking for
flexibility in determining base year revenues. For instance, some
commenters asked to use a different base year than the ``most recent
full fiscal year'' prior to the pandemic for calculating revenue loss;
others asked to be able to average prior years. Commenters stated that,
for various reasons, revenue was artificially low in the last full
fiscal year prior to the public health emergency, and, therefore, using
revenue in that year as the base year did not accurately reflect
expected revenue in a normal year. For example, several Tribes stated
that unforeseeable weather events resulted in forced closure of casinos
which, in turn, artificially deflated revenues in the base year. Other
commenters indicated that one-time anomalies in the timing of tax
collection in that year artificially pushed revenue into the following
fiscal year. Similarly, a few commenters noted that tax changes that
took effect in the middle of the base year may artificially skew the
size of the revenue loss experienced by the recipient government.
Treasury Response: Treasury understands that recipients may have
experienced events in the base year that led to lower or higher
revenues than what they otherwise would have collected. The ARPA
provides that revenue loss is to be determined with respect to revenue
in the most recent full fiscal year prior to the pandemic, and
therefore the final rule maintains its incorporation of the statutory
definition.
In calculating revenue loss, recipients may use data on a cash,
accrual, or modified accrual basis, provided that recipients are
consistent in their choice of methodology throughout the covered
period, which might help recipients adjust to certain delays in revenue
receipt. Both the standard allowance and elements of the formula (e.g.,
[[Page 4408]]
counterfactual growth rate) incorporate generous assumptions to give
recipients flexibility and to account for variation among recipients'
experiences during the pandemic.
Government Services
The Supplemental Information to the interim final rule provided a
non-exhaustive list of examples of services that are government
services. The interim final rule also discussed why neither payment of
debt service nor replenishing financial reserves constitutes government
services, as these expenditures do not provide services but relate to
the financing of such services. Similarly, government services under
the interim final rule did not include satisfaction of any obligation
arising under or pursuant to a settlement agreement, judgment, consent
decree, or judicially confirmed debt restructuring in a judicial,
administrative, or regulatory proceeding, unless the judgment or
settlement required the provision of government services.
Public Comment: Treasury received several comments requesting
further clarification regarding the scope of government services,
including asking for either a specific definition of government
services or that a specific use be expressly deemed to be a government
service. Some commenters disagreed with the exclusions from government
services in the interim final rule. For instance, many of the comments
Treasury received suggested that replenishing reserve funds and at
least certain types of debt service should be treated as providing
governmental services. Some commenters also suggested that a recipient
should be able to use funds for costs incurred before March 3, 2021.
Other commenters asked Treasury to maintain the prohibition on using
the funds to pay debt service.
Treasury Response: Treasury continues to believe that the lists of
activities that either are or are not providing government services are
accurate but is clarifying here that, generally speaking, services
provided by the recipient governments are ``government services'' under
the interim final rule and final rule, unless Treasury has stated
otherwise. Government services include, but are not limited to,
maintenance or pay-go funded building \300\ 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.
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\300\ Pay-go infrastructure funding refers to the practice of
funding capital projects with cash-on-hand from taxes, fees, grants,
and other sources, rather than with borrowed sums.
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The aforementioned list of government services is not exclusive.
However, recipients should be mindful that other restrictions may
apply, including those articulated in the section Restrictions on Use.
In the final rule, Treasury is maintaining the limitations on
government services included in the interim final rule and has
addressed and responded to public commenters on these issues in the
section Restrictions on Use.
D. Investments in Water, Sewer, and Broadband Infrastructure
Summary of Interim Final Rule
Under the ARPA, recipients may use funds to make necessary
investments in water, sewer, and broadband infrastructure. The interim
final rule provided recipients with the ability to use funds for a
broad array of uses within these categories.
The interim final rule discussed two general provisions that apply
across all water, sewer, and broadband infrastructure investments.
First, the interim final rule addressed the meaning of ``necessary''
investments as meaning those designed to provide an adequate minimum
level of service and unlikely to be made using private sources of
funds. Second, the interim final rule encouraged recipients to use
strong labor standards in water, sewer, and broadband projects, as
discussed below.
Necessary Investments
The statute limits investments to those that are necessary. As
discussed in more detail below, Treasury determined that the types of
water and sewer projects that were authorized under the interim final
rule by reference to existing Environmental Protection Agency (EPA)
programs would in all cases be necessary investments given the
conditions applicable to such EPA programs. Similarly, the interim
final rule's definition of eligible broadband projects as those
designed to provide a certain standard of service to those households
and businesses with limited existing service was based on the statutory
requirement that investments in water, sewer, and broadband must be
``necessary.''
As discussed further below, Treasury has expanded the scope of what
is an eligible water and sewer infrastructure project to include
additional uses. In particular, the final rule permits use of SLFRF
funds for certain dam and reservoir restoration projects and certain
drinking water projects to support population growth. The nature of
these additional uses is such that additional factors must be
considered in determining whether one of these additional uses is a
necessary project. In addition, Treasury recognizes that there may be a
need for improvements to broadband beyond those households and
businesses with limited existing service as defined in the interim
final rule. Treasury has replaced this specific requirement based on an
understanding that broadband investments may be necessary for a broader
set of reasons.
Given this expansion of what is considered in scope as a water,
sewer, or broadband infrastructure project, the final rule provides a
further elaboration of Treasury's understanding of the conditions under
which an infrastructure project will be considered to be a necessary
investment. Treasury considers a necessary investment in infrastructure
to be one that is (1) responsive to an identified need to achieve or
maintain an adequate minimum level of service, which may include a
reasonable projection of increased need, whether due to population
growth or otherwise and (2) a cost-effective means for meeting that
need, taking into account available alternatives. In addition, given
that drinking water is a resource that is subject to depletion, in the
case of investments in infrastructure that supply drinking water in
order to meet projected population growth, the project must be
projected to be sustainable over its estimated useful life.
Not included in the list of criteria above is the requirement in
the interim final rule that the project be unlikely to be made using
private sources of funds. Given that it may be difficult to assess in a
particular case what the probability of private investment in a project
would be, Treasury has eliminated this standard from the meaning of
necessary but still encourages recipients to prioritize projects that
would provide the greatest public benefit in their respective
jurisdictions.
Strong Labor Standards in Water, Sewer, and Broadband Construction
As stated in the Supplementary Information to the interim final
rule, Treasury encourages recipients to carry out investments in water,
sewer, or broadband infrastructure in ways that produce high-quality
infrastructure, avert disruptive and costly delays, and
[[Page 4409]]
promote efficiency.\301\ 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.
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\301\ Treasury received several comments related to its
encouragement of certain wage and labor standards in the
Supplementary Information to the interim final rule. Some commenters
opposed this encouragement, arguing that even encouragement and
reference to PLAs and prevailing wage laws could lead to confusion
or make it more likely that recipients would apply labor standards
in ways that would discourage competition and raise project costs.
Conversely, some commenters supported the encouragement of the use
of certain standards, including giving preference to employers that
meet certain employment standards (e.g., those that maintain high
safety and training standards) because it would support the goal of
completing water, sewer, and broadband projects efficiently and
safely. As in the interim final rule, this encouragement does not
impose a legally binding restriction on recipients.
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Treasury believes that such practices will promote effective and
efficient delivery of high-quality infrastructure projects and support
the economic recovery through strong employment opportunities for
workers. Such practices will also reduce the 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 water, sewer, or broadband
infrastructure project 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 continue to seek information from recipients on their
workforce plans and water, sewer, and broadband projects undertaken
with SLFRF funds. This reporting will support transparency and
competition by enhancing available information on the services being
provided. Since publication of the interim final rule, Treasury has
provided recipients with additional guidance and instructions on the
reporting requirements.\302\
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\302\ See U.S. Department of the Treasury, Compliance and
Reporting Guidance, 21 (June 24, 2021), https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.
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Environmental and Other Generally Applicable Requirements
Treasury cautions that, as is the case with all projects engaged in
using the SLFRF funds, all projects must comply with applicable
federal, state, and local law. In the case of infrastructure projects
in particular, this includes environmental and permitting laws and
regulations. Likewise, as with all capital expenditure projects using
SLFRF funds, projects must be undertaken and completed in a manner that
is technically sound, meaning that they 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.
1. Water and Sewer Infrastructure
Sections 602(c)(1)(D) and Section 603(c)(1)(D) of the Social
Security Act provide that recipients may use the SLFRF funds ``to make
necessary investments in water [and] sewer . . . infrastructure.'' The
interim final rule permitted a broad range of necessary investments in
projects that improve access to clean drinking water and improve
wastewater and stormwater infrastructure systems. As discussed below,
after review of comments received on the interim final rule, Treasury
has made changes in the final rule to expand the scope of eligible
water and sewer projects.
Summary of Interim Final Rule and Final Rule Structure
Background: In the interim final rule, Treasury aligned eligible
uses of the SLFRF with the wide range of types or categories of
projects that would be eligible to receive financial assistance through
the Clean Water State Revolving Fund (CWSRF) or Drinking Water State
Revolving Fund (DWSRF) administered by the Environmental Protection
Agency (EPA). By referring to these existing programs, with which many
recipients are already familiar, Treasury intended to provide
flexibility to recipients to respond to the needs of their communities
while facilitating recipients' identification of eligible projects.
Furthermore, by aligning SLFRF eligible uses with these existing
programs, Treasury could ensure that projects using the SLFRF are
limited to ``necessary investments.''
Public Comment: Treasury received many comments responding to the
water and sewer infrastructure provisions of the interim final rule
from state, local, and Tribal governments, industry trade associations,
public interest groups, private individuals, and other interested
parties. Commenters requested that Treasury provide a wider set of
eligible uses for water and sewer infrastructure beyond those uses
articulated by the DWSRF and CWSRF, suggesting that Treasury expand the
definition of necessary water and sewer infrastructure.
Treasury Response: In response to commenters, Treasury is expanding
the eligible use categories for water and sewer infrastructure,
discussed in further detail below. Because the interim final rule
aligned the definition of necessary water and sewer infrastructure with
the eligible uses included in the DWSRF and CWSRF, Treasury is
reflecting in the final rule a revised standard for determining a
necessary water and sewer infrastructure investment for eligible water
and sewer uses beyond those uses that are eligible under the DWSRF and
CWSRF.
Interpretation of Necessary Investments and Water and Sewer
Infrastructure
Necessary Investments: As discussed above, Treasury considers an
investment in infrastructure to be necessary if it is (1) 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) a cost-effective means for meeting that
need, taking into account available alternatives. In addition, in the
case of investments in drinking water service infrastructure to supply
drinking water to satisfy a projected increase in population, the
project must also be projected to be sustainable over its estimated
useful life. As detailed further below, DWSRF and CWSRF eligible
projects continue to be presumed to be necessary investments under the
final
[[Page 4410]]
rule, with the exception of projects for the rehabilitation of dams and
reservoirs, which the EPA has permitted in certain circumstances under
the DWSRF and, as discussed below, are addressed separately in the
final rule.
In evaluating whether a project would respond to a need to achieve
or maintain an adequate minimum level of service, a recipient should
consider whether it would meet the needs of the population to be served
and would satisfy applicable standards. For example, a drinking water
project must be sized such that it provides an adequate volume of water
to households and other customers and must meet applicable standards
for drinking water quality under the Safe Drinking Water Act (SDWA).
Similarly, a centralized wastewater treatment project should be
designed to manage updated estimated flow rates and comply with Clean
Water Act requirements. These requirements are already reflected in the
eligibility criteria of the DWSRF and CWSRF, respectively.
In evaluating whether a project is a cost-effective means of
providing the water or sewer service, the recipient should consider the
need for the project, the costs and benefits of the project compared to
alternatives, and the effectiveness of the project in meeting the
identified need. Recipients are not required to conduct a full cost-
benefit analysis; however, they should consider and analyze relevant
factors. For example, 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. As detailed
further below, recipients are only required to assess cost-
effectiveness of projects for the creation of new drinking water
systems, dam and reservoir rehabilitation projects, or projects for the
extension of drinking water service to meet population growth needs.
Certain DWSRF eligibilities are already subject to a cost-
effectiveness test. Specifically, projects that create new drinking
water systems must be a cost-effective solution to addressing the
identified problem.\303\ The EPA also imposes a cost-effectiveness
condition on dam and reservoir rehabilitation projects undertaken
pursuant to its class deviation from the DWSRF rule. These projects are
particularly expensive and, unlike in the case of other types of
eligible projects, there are often available alternatives to conducting
these projects. Projects for the extension of drinking water service to
meet population growth needs are also often particularly expensive, and
there are often different ways to meet the needs of expanding
populations. Treasury will accordingly require that recipients engage
in a cost-effectiveness analysis when engaging in projects for the
creation of new drinking water systems, dam and reservoir
rehabilitation projects, or projects for the extension of drinking
water service to meet population growth needs. Other types of eligible
water or sewer projects will not be subject to this cost-effectiveness
test, including lead line replacement and lead remediation.\304\
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\303\ See 40 CFR 35.3520(b)(2)(vi).
\304\ In such cases, either the projects are presumptively cost-
effective (e.g., lead projects would always be considered cost-
effective given the costs imposed by lead poisoning) or a cost-
effectiveness test is less relevant given the lack of available
alternatives or the relatively low cost of the project.
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In the case of projects that expand drinking water service
infrastructure to satisfy a projected increase in population, the
project must also be sustainable, meaning that the project can continue
providing the adequate minimum level of service for its estimated
useful life, taking into account projected impacts of changes to the
climate and other expected demands on the source of water. For example,
a reservoir rehabilitation project may not be pursued if the reservoir
will no longer be able to provide an adequate source of drinking water
before the end of the estimated useful life of the improvements to the
reservoir. In areas currently impacted by drought or where drought
conditions are expected to be more frequent or more severe in the
future, sources of drinking water may be diminished more quickly than
in prior periods. In considering how much of a source of water will be
available in the future for the drinking water project, a recipient
must consider that a source of water may be drawn upon or otherwise
used for other current and expected uses, including use by fish and
other wildlife.
The final rule applies this sustainability condition to projects
that expand drinking water service infrastructure to satisfy a
projected increase in population but not to other drinking water
projects. When a new source of water is required to remedy an existing
threat to public health, as in the case of source projects eligible
under the DWSRF, sustainability should be a consideration, but in some
cases, the need to replace a contaminated source may mean that a less
sustainable choice may be made. When faced with such an issue, such as
in the case of a contaminated well system, a project to replace the
contaminated source can be said to be ``necessary'' even if the
replaced source is not sustainable over the long term. Expediency may
dictate that a shorter-term solution is pursued if it is cost-effective
and will prevent health issues while a longer-term solution can be
found. In contrast, an expansion to accommodate population growth
cannot be said to be necessary if it is not sustainable over its
estimated useful life.
Not included in the list of criteria above is the requirement in
the interim final rule that the project be unlikely to be made using
private sources of funds. Given that it may be difficult to assess in a
particular case what the probability of private investment in a project
would be, Treasury has eliminated this standard from the meaning of
necessary but nevertheless encourages recipients to apply funds to
projects that would provide the greatest public benefit.
Water and Sewer Infrastructure: As stated above, Congress provided
that SLFRF funds are available for ``necessary water, sewer, and
broadband infrastructure.'' Treasury interprets the reference to water
and sewer uses consistent with the inclusion of broadband uses. Water,
sewer, and broadband infrastructure all involve the provision of
essential services to residents, businesses, and other consumers. As
the pandemic has made clear, access to broadband has itself become
essential for individuals and businesses to participate in education,
commerce, work, and civic matters and to receive health care and social
services.
Water and sewer services provided broadly to the public as
essential services include the provision of drinking water and the
removal, management, and treatment of wastewater and stormwater.\305\
Although governments are engaged in other infrastructure related to
water, including irrigation projects, transportation projects, and
recreation projects, such projects go beyond the scope of what is
provided to all residents as an essential service. Provision of
drinking water and removal, management, and treatment of
[[Page 4411]]
wastewater and stormwater are the typical responsibilities of ``water
and sewer'' authorities throughout the country, and there is a
tremendous need for improvements to the ability of state, local, and
Tribal governments to provide such services, including to address the
consequences of deferred maintenance and additional resiliency needed
to adapt to changes to the climate.\306\
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\305\ In many jurisdictions, stormwater flows into the sewer
system rather than into a separate stormwater system. The separate
inclusion of ``water'' and ``sewer'' infrastructure also makes clear
that ``water'' in this context cannot refer to all uses relevant to
water. Given that sewer systems carry wastewater (and often
stormwater), if water infrastructure were to refer to all water-
related infrastructure in this context, it would make the inclusion
of sewer infrastructure redundant.
\306\ In addition, Treasury interprets the eligible uses of
SLFRF funds against the background of the Coronavirus Relief Fund
(CRF), for which the SLFRF funds are, in part, a successor. CRF
recipients expressed great interest in using the CRF to pursue water
infrastructure projects, including provision of drinking water and
internal plumbing on Tribal lands and in Alaskan villages, and
broadband projects throughout the country; Treasury permitted these
projects given the connection to the public health emergency (see
Coronavirus Relief Fund for States, Tribal Governments, and Certain
Eligible Local Governments, 86 FR 4182, 4190, 4192 (Jan. 15, 2021),
but the short deadline for use of funds made it difficult to use CRF
funds in this way. Congress' inclusion of the water, sewer, and
broadband clause in the ARPA, along with the SLFRF funds' longer
eligible use date, is responsive to this unmet need. As discussed
below, Congress in the Infrastructure Investment and Jobs Act
amended sections 602(c) and 603(c) of the Social Security Act to add
a new paragraph as sections 602(c)(4) and 603(c)(5), respectively,
providing that SLFRF funds may be used to meet non-federal matching
requirements of any authorized Bureau of Reclamation project. This
authority was added as a separately enumerated eligible use
regardless of whether the underlying project would be an eligible
use of SLFRF funds under the water and sewer infrastructure eligible
use category.
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Although the meaning of water and sewer infrastructure for purposes
of sections 602(c)(1)(D) and 603(c)(1)(D) of the Social Security Act
does not include all water-related uses, Treasury has made clear in
this final rule that investments to infrastructure include a wide
variety of projects. Treasury interprets the word ``infrastructure'' in
this context broadly to mean the underlying framework or system for
achieving the given public purpose, whether it be provision of drinking
water or management of wastewater or stormwater.\307\ As discussed
below, this 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.
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\307\ See, e.g., section 502 of the Federal Water Pollution
Control Act (33 U.S.C. 1362), defining ``green infrastructure'' as
``the range of measures that use plant or soil systems, permeable
pavement or other permeable surfaces or substrates, stormwater
harvest and reuse, or landscaping to store, infiltrate, or
evapotranspirate stormwater and reduce flows to sewer systems or to
surface waters.''
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Further, Treasury understands that investments in infrastructure
include improvements that increase the capacity of existing
infrastructure and extend the useful life of existing infrastructure.
Accordingly, water and sewer infrastructure investment projects include
those that conserve water, thereby reducing pressure on infrastructure
for the provision of drinking water, and that recycle wastewater and
stormwater, thereby reducing pressure on the infrastructure for
treating and managing wastewater and stormwater.
As with other infrastructure projects and capital expenditure
projects that are permitted as responses to the public health emergency
and its negative economic impacts, costs for planning and design and
associated pre-project costs are eligible uses of SLFRF funds. Costs
for the acquisition of land are also eligible, but only if needed for
the purposes of locating eligible project components. Recipients should
ensure that they have the technical, financial, and managerial
capability to ensure compliance with the requirements of the SDWA, or
that the assistance will ensure compliance and the owners or operators
of the systems will undertake feasible and appropriate changes in
operations to ensure compliance over the long-term.
Drinking Water State Revolving Fund and Clean Water State Revolving
Fund
Background: As stated above, in the interim final rule, Treasury
included eligible uses of the DWSRF and the CWSRF as eligible uses of
the SLFRF in the water and sewer infrastructure category. By providing
that projects eligible under the DWSRF and the CWSRF are also eligible
uses of SLFRF funds, the interim final rule permitted a broad range of
projects that improve drinking water infrastructure, such as building
or upgrading facilities and transmission, distribution, and storage
systems, including replacement of lead service lines. With respect to
clean water and wastewater infrastructure, the interim final rule
provided that recipients may use SLFRF funds to construct publicly
owned treatment infrastructure, manage and treat stormwater or
subsurface drainage water, and facilitate water reuse, among other
uses. Consistent with the DWSRF and the CWSRF, the interim final rule
provided that SLFRF funds may be used for cybersecurity needs to
protect water or sewer infrastructure, such as developing effective
cybersecurity practices and measures at drinking water systems and
publicly owned treatment works.
Use of DWSRF and CWSRF to Support Climate Change Adaptations. Many
of the types of projects eligible under either the DWSRF or CWSRF also
support efforts to address climate change. For example, by taking steps
to manage potential sources of pollution and preventing these sources
from reaching sources of drinking water, projects eligible under the
DWSRF and CWSRF may reduce energy required to treat drinking water.
Similarly, projects eligible under the DWSRF and CWSRF include measures
to conserve and reuse water, for example through projects to reuse or
recycle wastewater, stormwater, or subsurface drainage water. Treasury
encourages recipients to consider green infrastructure investments and
projects to improve resilience to the effects of climate change. For
example, more frequent and extreme precipitation events combined with
construction and development trends have led to increased instances of
stormwater runoff, water pollution, and flooding. Green infrastructure
projects that support stormwater system resiliency could include
bioretention basins that provide water storage and filtration benefits,
and green streets, where vegetation, soil, and engineered systems are
combined to direct and filter rainwater from impervious surfaces. In
cases of a natural disaster, recipients may also use SLFRF funds for
water infrastructure to provide relief, such as interconnecting water
systems or rehabilitating existing wells during an extended drought.
Public Comment: Many commenters expressed support for the interim
final rule's alignment of the use of funds for water and sewer
infrastructure under the SLFRF with the project categories provided
through the EPA's DWSRF and CWSRF programs.
Many commenters also provided recommendations about the specific
types of water infrastructure projects that should be eligible under
the final rule. In many of these cases, commenters recommended that
Treasury include project types that are already eligible under the
DWSRF and CWSRF and thus eligible under the interim final rule and
final rule. For example, several commenters requested that aquifer
recharge projects, or other groundwater protection and restoration
projects, be included as eligible uses of SLFRF when certain aquifer
recharge projects that (1) implement a nonpoint source pollution
management program \308\ or (2) constitute reuse of
[[Page 4412]]
wastewater, stormwater, or subsurface drainage water are in fact
eligible uses under the CWSRF. Furthermore, under the DWSRF, eligible
projects include certain aquifer storage and recovery systems for water
storage.
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\308\ Specifically, this would include desalination projects
that decrease the burden on aquifers where there is causal
relationship between aquifer withdrawals and saltwater intrusion if
the projects implement a nonpoint source pollution management
program under section 319 of the Clean Water Act. This could include
projects in which desalinated seawater is injected into the aquifer
to mitigate or prevent salt water intrusion, as well as projects in
which brackish water is removed from an aquifer, desalinated, and
returned to the aquifer.
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Treasury Response: Eligible projects articulated in the DWSRF and
CWSRF continue to be eligible uses of SLFRF funds under the final rule.
Recognizing that recipients have faced challenges interpreting eligible
use categories under the interim final rule or cross-referencing EPA
program materials to interpret eligible project types, Treasury is
including in this Supplementary Information additional information on
the types of projects eligible under the DWSRF and CWSRF. Treasury
emphasizes that this further clarification does not represent a change
in eligibility. Treasury encourages recipients to reference EPA
handbooks for the DWSRF and CWSRF, which provide further information
and detail about the types of projects eligible under those programs
and thus under the final rule.
Eligible projects under the DWSRF. Eligibilities under the DWSRF,
the interim final rule, and the final rule include projects that
address present or prevent future violations of health-based drinking
water standards. These include projects needed to maintain compliance
with existing national primary drinking water regulations for
contaminants with acute and chronic health effects. Projects to replace
aging infrastructure are also eligible uses if they are needed to
maintain compliance or further the public health protection objectives
of section 1452 of the SDWA.\309\ The following project categories are
eligible under the DWSRF, were eligible under the interim final rule,
and continue to be eligible under the final rule:
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\309\ See 42 U.S.C. 300j-12(a)(2)(B) (limiting financial
assistance used by a public water system to expenditures (including
expenditures for planning, design, siting, and associated
preconstruction activities, or for replacing or rehabilitating aging
treatment, storage, or distribution facilities of public water
systems, but not including monitoring, operation, and maintenance
expenditures of a type or category which the Administrator of the
EPA has determined, through guidance, will facilitate compliance
with national primary drinking water regulations applicable to the
system under 42 U.S.C. 300g-1 or otherwise significantly further the
health protection objectives of the SWDA); See also 40 CFR
35.3520(b).
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(i) Treatment projects, including installation or upgrade of
facilities to improve the quality of drinking water to comply with
primary or secondary standards and point of entry or central treatment
under section 1401(4)(B)(i)(III) of the SDWA.
(ii) Transmission and distribution projects, including installation
or replacement of transmission and distribution pipes to improve water
pressure to safe levels or to prevent contamination caused by leaks or
breaks in the pipes.
(iii) Source projects, including rehabilitation of wells or
development of eligible sources to replace contaminated sources.
(iv) Storage projects, including installation or upgrade of
eligible storage facilities, including finished water reservoirs, to
prevent microbiological contaminants from entering a public water
system.
(v) Consolidation projects, including projects needed to
consolidate water supplies where, for example, a supply has become
contaminated or a system is unable to maintain compliance for
technical, financial, or managerial reasons.
(vi) Creation of new systems, including those that, upon
completion, will create a community water system to address existing
public health problems with serious risks caused by unsafe drinking
water provided by individual wells or surface water sources. Eligible
projects are also those that create a new regional community water
system by consolidating existing systems that have technical,
financial, or managerial difficulties. Projects to address existing
public health problems associated with individual wells or surface
water sources must be limited in scope to the specific geographic area
affected by contamination. Projects that create new regional community
water systems by consolidating existing systems must be limited in
scope to the service area of the systems being consolidated.
Ineligible projects under the DWSRF. Federally-owned public water
systems and for-profit noncommunity water systems are not eligible to
receive DWSRF funds and therefore SLFRF funds.\310\ The acquisition of
water rights, laboratory fees for routine compliance monitoring, and
operation and maintenance expenses are not costs associated with
investments in infrastructure and thus would not be eligible under the
final rule. \311\ Projects needed primarily to serve future population
growth are also ineligible under the DWSRF; the treatment of such
projects under the final rule is discussed separately below under
``Expansion of Drinking Water Service.'' Projects eligible under the
DWSRF must be sized only to accommodate a reasonable amount of
population growth expected to occur over the useful life of the
project.
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\310\ See 40 CFR 35.3520(d)(1).
\311\ See id at Sec. 35.3520(e)(2)-(4).
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Eligible projects under the CWSRF. The final rule continues to
allow the use of SLFRF funds for projects eligible under the CWSRF,
consistent with the interim final rule. Under the CWSRF, a project must
meet the criteria of one of the following CWSRF eligibilities to be
eligible for assistance. Section 603(c) of the Clean Water Act (CWA)
\312\ provides that the CWSRF can provide assistance:
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\312\ 33 U.S.C. 1383(c).
(i) to any municipality, intermunicipal, interstate, or state
agency for construction of publicly owned treatment works (as
defined in section 212 of the CWA); \313\
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\313\ 33 U.S.C. 1292.
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(ii) for the implementation of a management program established
under section 319 of the CWA; \314\
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\314\ 33 U.S.C. 1329.
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(iii) for the development and implementation of a conservation
and management plan under section 320 of the CWA; \315\
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\315\ 33 U.S.C. 1330.
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(iv) for the construction, repair, or replacement of
decentralized wastewater treatment systems that treat municipal
wastewater or domestic sewage. Eligible projects include, but are
not limited to, the construction of new decentralized systems (e.g.,
individual onsite systems and cluster systems), as well as the
upgrade, repair, or replacement of existing systems.
(v) for measures to manage, reduce, treat, or recapture stormwater
or subsurface drainage water. Publicly and privately owned, permitted
and unpermitted projects that manage, reduce, treat, or recapture
stormwater or subsurface drainage water are eligible. For example,
projects that are specifically required by a Municipal Separate Storm
Sewer System (MS4) permit are eligible, regardless of ownership.
Projects may include, but are not limited to green roofs, bioretention
basins, roadside plantings, porous pavement, and rainwater harvesting.
(vi) to any municipality, intermunicipal, interstate, or state
agency for measures to reduce the demand for publicly owned treatment
works capacity through water conservation, efficiency, or reuse.
Eligible projects include, but are not limited to, the installation,
replacement, or upgrade of water meters; plumbing fixture retrofits or
replacement; and gray water recycling. Water audits and water
conservation plans are also eligible.
[[Page 4413]]
Equipment to reuse effluent (e.g., gray water, condensate, and
wastewater effluent reuse systems) is eligible.
(vii) for the development and implementation of watershed projects
meeting the criteria set forth in section 122 of the CWA.\316\ Projects
that develop or implement a watershed pilot project related to at least
one of the six areas identified in section 122 of the CWA are eligible:
Watershed management of wet weather discharges, stormwater best
management practices, watershed partnerships, integrated water resource
planning, municipality-wide stormwater management planning, or
increased resilience of treatment works.
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\316\ 33 U.S.C. 1274.
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(viii) to any municipality, intermunicipal, interstate, or state
agency for measures to reduce the energy consumption needs for publicly
owned treatment works. Projects may include, but are not limited to,
the installation of energy efficient lighting, HVAC, process equipment,
and electronic equipment and systems at publicly owned treatment works.
Planning activities, such as energy audits and optimization studies are
also eligible.
(ix) for reusing or recycling wastewater, stormwater, or subsurface
drainage water. Projects involving the reuse or recycling of
wastewater, stormwater, or subsurface drainage water are eligible. This
includes, as part of a reuse project, the purchase and installation of
treatment equipment sufficient to meet reuse standards. Other eligible
projects include, but are not limited to, distribution systems to
support effluent reuse, including piping the effluent on the property
of a private consumer, recharge transmission lines, injection wells,
and equipment to reuse effluent (e.g., gray water, condensate, and
wastewater effluent reuse systems).
(x) for measures to increase the security of publicly owned
treatment works. Security measures for publicly owned treatment works
might include, but are not limited to, vulnerability assessments,
contingency/emergency response plans, fencing, security cameras/
lighting, motion detectors, redundancy (systems and power), secure
chemical and fuel storage, laboratory equipment, securing large
sanitary sewers, and tamper-proof manholes. The CWSRF cannot fund
operations and maintenance activities. Therefore, maintaining a human
presence (i.e., security guards) and monitoring activities are not
eligible.
Other Clarifications of DSWRF and CWSRF Eligible Project Categories
Public Comment: Several commenters requested that Treasury provide
clarification of the requirements associated with use of SLFRF funds
for necessary investments in water and sewer infrastructure.
Treasury Response: After release of the interim final rule,
Treasury clarified in further guidance that, while recipients must
ensure that water and sewer infrastructure projects pursued are
eligible under the final rule, recipients are not required to obtain
project pre-approval from Treasury or any other federal agency when
using SLFRF funds for necessary water and sewer infrastructure projects
unless otherwise required by federal law. For projects that are being
pursued under the eligibility categories provided through the DWSRF or
CWSRF programs, project eligibilities are based on federal project
categories and definitions for the programs and not on each state's
eligibility or definitions. While reference in the final rule to the
DWSRF, CWSRF, or other federal water programs is provided to assist
recipients in understanding the types of water and sewer infrastructure
projects eligible to be funded with SLFRF, recipients do not need to
apply for funding from the applicable state programs or through any
federal water program. Similarly, besides eligible project categories,
the final rule does not incorporate other program requirements or
guidance that attach to the DWSRF, CWSRF, or other federal water
programs. However, as noted above, recipients should be aware of other
federal or state laws or regulations that may apply to construction
projects or water and sewer projects, independent of SLFRF funding
conditions, and that may require pre-approval from another federal or
state agency.
Expanded Eligible Uses for Water and Sewer Infrastructure
Summary
Public Comment: Many commenters requested broader flexibility in
the use of SLFRF funds for water and sewer infrastructure projects that
are not eligible under the DWSRF and CWSRF. These commenters argued
that localities are best situated to identify the highest-need water
and sewer projects in their communities. Several Tribal government
commenters noted that Tribes have different water and sewer
infrastructure needs than states and localities and that additional
flexibility in the use of funds would lift current barriers to
improving infrastructure on Tribal lands.
To achieve additional flexibility, commenters suggested a range of
options for broadening the eligible use of SLFRF funds for necessary
water and sewer infrastructure. For example, several commenters
suggested Treasury broaden the eligibilities provided under the interim
final rule to include project types eligible under other federal water
and sewer programs.
Treasury Response: Treasury agrees that additional flexibility for
use of SLFRF funds is warranted and is providing expanded eligibilities
as described below, several of which address specific areas of need
outlined by Tribal and rural communities.
As discussed below, Treasury has incorporated into the final rule
projects that are eligible under certain programs established by the
EPA under the Water Infrastructure Improvements for the Nation Act
(WIIN Act). Other water-related grant programs cited by commenters
include projects that are otherwise already covered by the final rule,
for example because they are covered as eligible under the DWSRF or the
CWSRF, or projects that are ineligible under the final rule because
they are beyond the scope of the meaning of water and sewer projects
for purposes of ARPA. To minimize the need for recipients of SLFRF
funds to cross reference eligibilities across multiple federal
programs, which may exacerbate current challenges to understanding
eligibility under SLFRF, Treasury is providing detailed information
related to expanded eligibilities within the text of this Supplementary
Information for the final rule.
Stormwater Infrastructure
Public Comment: Several commenters requested that additional
stormwater infrastructure projects be included as eligible uses of
SLFRF funds under the final rule. Commenters suggested that culvert
repair and resizing and replacement of storm sewers is necessary to
address increased rainfall brought about by a changing climate. Other
commenters noted that rural communities that do not manage their own
sewer systems may rely on this type of water infrastructure.
Treasury Response: The CWSRF includes a broad range of stormwater
infrastructure projects, and as such these projects were eligible under
the interim final rule and continue to be eligible under the final
rule. These projects include gray infrastructure projects, such as
traditional pipe, storage, and treatment systems. Projects
[[Page 4414]]
that manage, reduce, treat, or recapture stormwater or subsurface
drainage water are also eligible, including real-time control systems
for combined sewer overflow management, and sediment control. Culvert
infrastructure projects are eligible under the CWSRF if they (1)
implement a nonpoint source management plan, (2) implement National
Estuary Program Comprehensive Conservation and Management Plan, or (3)
implement a stormwater management plan with the goal of providing a
water quality benefit. Stormwater projects under the CWSRF also
encompass a number of eligible green infrastructure categories, such as
green roofs, green streets, and green walls, rainwater harvesting
collection, storage, management, and distribution systems, real-time
control systems for harvested rainwater, infiltration basins,
constructed wetlands, including surface flow and subsurface flow (e.g.,
gravel) wetlands, bioretention/bioswales (e.g., bioretention basins,
tree boxes), permeable pavement, wetland, riparian, or shoreline
creation, protection, and restoration, establishment or restoration of
urban tree canopy, and replacement of gray infrastructure with green
infrastructure including purchase and demolition costs.
In addition to the eligible uses under the CWSRF, Treasury is
expanding the eligible uses under the final rule to include stormwater
system infrastructure projects regardless of whether there is an
expected water quality benefit from the project. Treasury anticipates
that this eligible use will allow recipients to manage increased
volumes of stormwater as a result of changes to the climate. For
example, the final rule now permits the use of SLFRF funds for the
repair, replacement, or removal of culverts or other road-stream
crossing infrastructure to the extent the purpose of the project is to
manage stormwater. In addition, Treasury understands that the repair,
replacement, or removal of culverts may necessitate the repair or
upgrade of roads. As noted in guidance issued after the interim final
rule, recipients may use SLFRF funds for road repairs and upgrades that
interact directly with an eligible stormwater infrastructure project.
All stormwater infrastructure projects undertaken should incorporate
updated design features and current best practices.
Private Wells and Septic Systems
Public Comment: Several commenters requested that the scope of
eligible projects be expanded to allow for the expenditure of SLFRF
funds on private wells or septic systems. Commenters noted that wells
may be contaminated with dangerous substances, including arsenic, lead,
radon, and PFAS (per- and polyfluoroalkyl). Commenters also suggested
that, because rural and underserved communities are often reliant on
these infrastructure types for their drinking water or wastewater
needs, lack of appropriate funding to maintain these systems could
present health and safety issues that disproportionately affect certain
communities.
Treasury Response: Consistent with the CWSRF, the installation,
repair, or replacement of private septic units continues to be an
eligible use of SLFRF funds under the final rule. For example, eligible
projects include those that address groundwater contamination resulting
from faulty septic units and those that would connect failing septic
systems to centralized wastewater treatment. Consistent with the DWSRF,
connecting homes served by a private well to a public water system is
an eligible use of SLFRF funds.
In addition, Treasury has provided in the final rule that
recipients may use SLFRF funds for an expanded set of infrastructure
projects that improve access to and provision of safe drinking water
for individuals served by residential wells. Eligible projects under
this category include rehabilitation of private wells, testing
initiatives to identify contaminants in wells, and treatment activities
and remediation strategies that address contamination.
Remediating Lead in Water
Public Comment: Several commenters emphasized the need to fully
remediate lead contamination, especially in structures that serve the
public or populations like children that are particularly vulnerable to
the effects of lead exposure, such as schools and daycares. Many
American households and an estimated 400,000 schools and childcare
centers currently lack safe drinking water.\317\
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\317\ The White House, Updated Fact Sheet: Bipartisan
Infrastructure Investment and Jobs Act (August 2, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/08/02/updated-fact-sheet-bipartisan-infrastructure-investment-and-jobs-act/.
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Treasury Response: The replacement of lead service lines, up to
premise plumbing, is an eligible use under the DWSRF and continues to
be an eligible use of SLFRF funds. Such projects are eligible
regardless of the pipe material of the replacement lines and ownership
of the property on which the service line is located. Lead service line
replacement projects can serve households, schools, or any other
entities. Given the lifelong impacts of lead exposure for children and
the widespread prevalence of lead service lines, Treasury encourages
recipients to consider projects to replace lead service lines.
In addition, Treasury is providing in the final rule that for lead
service line replacement projects, recipients must replace the full
length of the service line, and not just a partial portion of the
service line. Some water utilities, when replacing service lines, will
only replace the ``public portion'' of the service line and physically
slice through the lead service line at the public/private line. This
action can result in elevated drinking water lead levels for some
period of time after replacement, suggesting the potential for harm,
rather than benefit during that time period.\318\ Requiring replacement
of the full length of the service line is also consistent with the
requirements of the EPA's Lead and Copper Rule Revisions for water
systems that have an action level exceedance for lead \319\ and certain
other water systems.\320\
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\318\ See EPA Science Advisory Board, Evaluation of the
Effectiveness of Partial Lead Service Line Replacements, (September
2011), https://www.epa.gov/sdwa/science-advisory-board-evaluation-effectiveness-partial-lead-service-line-replacements (advising
against partial lead service line replacement).
\319\ Environmental Protection Agency, supra note 188.
\320\ Environmental Protection Agency, National Primary Drinking
Water Regulations: Lead and Copper Rule Revisions, 86 FR 4198. 40
CFR 141.84, and preamble at 4215, January 15, 2021, https://www.federalregister.gov/d/2020-28691; scheduled to become effective
December 16, 2021, Environmental Protection Agency, 86 FR 31939,
https://www.federalregister.gov/d/2021-12600.
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Treasury is expanding eligible uses of SLFRF funds to include
infrastructure projects eligible under EPA grant programs authorized by
the WIIN Act.\321\ Eligible projects under these programs include the
installation or re-optimization of corrosion control treatment,
replacing lead service lines, replacing galvanized pipes downstream of
a lead service line (other than lead pipes within a home as discussed
below), and maintaining an inventory of the drinking water system's
service lines. Water quality testing, compliance monitoring, and
remediation activities in schools and other childcare facilities, as
well as activities necessary to respond to a contaminant, are eligible
uses of SLFRF funds.\322\ Remediation
[[Page 4415]]
activities such as replacement of faucets, internal plumbing, and
fixtures in schools and childcare facilities are also an eligible use
of SLFRF funds.
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\321\ Eligible uses of funds include those eligible under the
Small, Underserved, and Disadvantaged Communities Grant (Section
2104), Reduction in Lead Exposure via Drinking Water Grant Program
(Section 2105) and Lead Testing in School and Child Care Program
Drinking Water Grant Program (Section 2107).
\322\ Such testing and remediation programs would be an eligible
use of SLFRF funds given that they would help a recipient determine
whether an infrastructure project, such as a lead line replacement,
is necessary. In contrast, as mentioned above, the costs of
continual testing that is part of a drinking water or wastewater
facilities' operating costs would not be considered part of an
infrastructure project.
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Consistent with the EPA programs, replacement of lead pipes within
a home is not eligible under the final rule because the vast majority
of lead contamination cases can be solved by replacing lead service
lines (including on public and private property) and faucets and
fixtures themselves. As such, replacement of lead pipes within a home
would not be considered a cost-effective means for achieving the
desired level of service and thus would not be a ``necessary''
investment. The provision of bottled water is also not an eligible use
of SLFRF funds under this eligible use category, as it is not an
investment in infrastructure. However, bottled water in areas with an
action level exceedance for lead in water may be an eligible use of
SLFRF funds under a separate eligible use category for ``remediation of
lead paint and other lead hazards;'' see Assistance to Households in
Public Health and Negative Economic Impacts.
Water filtration systems are eligible under the EPA grant programs
and the final rule as long as they are installed as a permanent part of
a facility's system and not intended for temporary use. Conducting
remediation, follow-up monitoring, and conducting public education and
outreach about the availability of infrastructure programs, such as
water testing and fixture replacement programs funded with SLFRF funds
or otherwise, are also eligible projects. Finally, recipients should
note that ``remediation of lead paint and other lead hazards'' is a
separate eligible use category and a broader range of programs and
services may be eligible under that section, including investments that
are not infrastructure; see the eligible use for ``remediation of lead
paint and other lead hazards'' in section Assistance to Households in
Public Health and Negative Economic Impacts.
Dams and Reservoirs
Public Comment: Many commenters requested that Treasury broaden
eligibilities to include dams and reservoirs, infrastructure that
commenters noted may in its current state be unsafe and could put
surrounding communities at risk. Some commenters argued that dams and
reservoirs play an important role in providing municipal water supply
and water to irrigate farmland, including in areas impacted by recent
droughts. Other commenters noted that a large number of dams are
currently classified as high-hazard structures, the failure of which
would have severe consequences for public safety and the local
environment. With respect to reservoirs, commenters articulated that
changing climate conditions have necessitated upgrades to reservoir
infrastructure to ensure existing facilities can meet the local water
needs of a community. Commenters noted that communities facing drought
may also need to adjust or enhance reservoirs to maintain adequate
water supply.
In contrast, several commenters suggested that infrastructure
projects related to dams and reservoirs should not be considered
eligible uses of SLFRF funds. These commenters noted that alternate
sources of funding exist for dam and reservoir projects and that dams
and reservoir infrastructure could result in negative impacts to Tribal
communities and negative environmental impacts, including harm to
wildlife habitats.
Treasury Response: Treasury understands that many dams and
reservoirs in need of rehabilitation are dams and reservoirs whose
primary purpose is to provide drinking water. As discussed above, SLFRF
funds are available for projects related to the provision of drinking
water. Moreover, since issuance of the interim final rule, the EPA has
adopted a class deviation from the DWSRF regulations that permits such
dam and reservoir rehabilitation projects in certain
circumstances.\323\ In approving this class deviation, the EPA
recognized that many dams used for drinking water are aging and
deteriorating and pose a public health risk to communities; that
current dam conditions do not meet state safety standards; and that
reservoir capacity has diminished and requires dredging to meet
drinking water needs of the existing population.
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\323\ See EPA, Approval of Class Exception from the Regulatory
Prohibitions on the Use of Drinking Water State Revolving Fund for
Rehabilitation of Dams and Reservoirs (July 14, 2021), available at
https://www.epa.gov/system/files/documents/2021-07/dwsrf-class-deviation-dam-reservoir-rehab-2021_0.pdf.
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Treasury's final rule provides that funds may be used for
rehabilitation of dams and reservoirs if the primary purpose of the dam
or reservoir is for drinking water supply and the rehabilitation
project is necessary for continued provision of drinking water supply.
In considering whether a dam or reservoir project is necessary for the
provision of drinking water supply, a recipient may take into
consideration future population growth in certain circumstances, as
discussed under ``Expansion of Drinking Water Service Infrastructure''
below, but the project must in any case be designed to support no more
than a reasonable level of projected increased need. The recipient must
also determine that the project is cost-effective, i.e., that there are
not significantly superior alternatives that are available, taking into
consideration the relative costs and benefits of the project as
compared to those alternatives.
This change to the final rule would permit a wide variety of
projects.\324\ The limitation in the final rule to rehabilitation of
existing dams and reservoirs reflects the scope of the EPA class
deviation referenced above and Treasury's understanding of the
significant need for investments in rehabilitation to address
deterioration of dams and the diminished capacity of reservoirs.
Further, Treasury expects that in many cases it would be considerably
more difficult to demonstrate that construction of a new dam or
reservoir would be necessary for the purpose of the provision of
drinking water than is the case for rehabilitation of dams and
reservoirs already serving that purpose for a particular population,
particularly given opportunities to meet drinking water needs through
water reuse and conversation efforts. For these reasons, and given that
the relatively short period of availability of the funds makes new dam
and reservoir construction with these funds less likely, Treasury has
limited the scope of the final rule to dam and reservoir rehabilitation
projects.
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\324\ As noted in the EPA's class deviation, examples of dam
rehabilitation projects include spillway reconstruction or repair;
dam resurfacing, patching, or other structural repairs, including
minimal height increases if needed to maintain the structural
integrity of the dam; grouting for seepage control or liquefaction
remediation (e.g., epoxy resin, asphalt, or rock); repair or
replacement of drainage systems; and seismic stability efforts
(e.g., anchors). Examples of reservoir rehabilitation projects
include sedimentation dredging and reservoir lining.
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As discussed above, Treasury has determined that ARPA does not
authorize the use of SLFRF funds for uses other than the provision of
drinking water and the management of wastewater and storm water. As
such, the final rule does not include infrastructure projects related
to dams and reservoirs as eligible uses of SLFRF funds unless they meet
the conditions discussed above.
[[Page 4416]]
Public Comment: Several commenters requested that the removal of
dams and associated habitat restoration should be eligible uses of
SLFRF funds, noting that in some cases, dam removal will improve water
quality while removing long-term operational expenses for the
recipient.
Treasury Response: Dam removal projects and associated stream and
habitat restoration projects are eligible uses of the CWSRF and
continue to be eligible under the final rule when the removal
implements either a nonpoint source management program plan or a
National Estuary Program Comprehensive Conservation and Management Plan
or when the removal will provide a water quality benefit. Habitat
restoration projects more generally may also be eligible under the
CWSRF and the final rule if they constitute a form of stormwater
infrastructure.
Expansion of Drinking Water Service Infrastructure
Public Comment: Commenters asked for the ability to use funds for
drinking water projects for the purpose of meeting needs arising from
future growth, which, given the restrictions applicable to the DWSRF,
was not permitted under the interim final rule.
Treasury Response: As provided for in the SDWA, the DWSRF is meant
to serve the public health needs of the existing population. The EPA
regulation implementing the DWSRF program provides that projects needed
primarily to serve future population growth are not eligible uses of
the DWSRF. A project that is intended primarily to address public
health or regulatory compliance issues for the existing service
population may be sized for a ``reasonable'' amount of population
growth over the useful life of the project.\325\
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\325\ See 40 CFR 35.3520(e)(5).
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ARPA does not include the same limitation as the SDWA. Accordingly,
the final rule provides that recipients may use SLFRF funds for
projects that are needed to support increased population in certain
cases. ARPA limits projects to those investments that are
``necessary.'' As discussed above, Treasury interprets this to mean
that the investments must be (1) 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) a
cost-effective means for meeting that need, taking into account
available alternatives. For this eligible use category, expansion of
drinking water service infrastructure, the project must also be
projected to be sustainable over its estimated useful life.
Investments must be determined to be necessary when they are
initiated. Accordingly, Treasury is clarifying in the final rule that
the need identified for a water or sewer project may include a need
arising from reasonable expectations of future population growth,
provided that it is necessary at the time the investment is initiated
for the recipient to make the investment to meet this growth. For
example, a recipient expecting increased population during the period
of performance may install a drinking water treatment plant to meet
that growth. In addition, a recipient expecting increased population
growth outside the period of performance may install the treatment
plant if the planning and construction timeline for the project would
require work to begin during the performance period in order to meet
the expected population growth. A recipient may install transmission
lines as part of the development of new housing occurring during the
period of performance. In this case, the housing development must be in
progress; a recipient may not use the SLFRF funds to install a water
main, for example, to an undeveloped tract in the expectation that in
the future that tract will be developed with housing, because there
would be no need for that investment to be made at the time it is
initiated.
For the reasons discussed above, if a project is undertaken to
address expected growth in population, the project must also be
sustainable, meaning that the project can continue providing the
adequate minimum level of service for its estimated useful life, taking
into account projected impacts of changes to the climate and other
expected demands on the source of water. In considering how much of a
source of water will be available in the future for the drinking water
project, a recipient must consider that a source of water may be drawn
upon or otherwise used for other current and expected uses, including
use by fish and other wildlife. A drinking water project that is
designed to address a growing population cannot be considered a
necessary investment if the source of drinking water will cease to be
available to meet the population's needs before the end of the
estimated useful life of the project. In such a case, a recipient
should consider alternative sources for drinking water. See
``Interpretation of Necessary Investments and Water and Sewer
Infrastructure'' above for more information.
Non-Federal Matching Requirements for Authorized Bureau of Reclamation
Projects
The Infrastructure Investment and Jobs Act amends sections 602(c)
and 603(c) of the Social Security Act to add an additional eligible use
of SLFRF funds, providing that SLFRF funds ``may be used for purposes
of satisfying any non-Federal matching requirement required for [an
authorized Bureau of Reclamation project].'' \326\
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\326\ See Public Law 117-58, 40909(a)-(b) (Nov. 15, 2021).
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This amendment permits the use of SLFRF funds to meet non-federal
matching requirements of any authorized Bureau of Reclamation project,
regardless of whether the underlying project would be an eligible use
of SLFRF funds under the water and sewer infrastructure eligible use
category. These amendments are effective as of March 11, 2021, as if
included in the ARPA at the time of its enactment.\327\ Treasury will
provide further guidance to recipients on the scope of Bureau of
Reclamation water projects and expenses covered by this provision.
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\327\ See Public Law 117-58 Sec. 40909(c).
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Floodplain Management and Flood Mitigation Projects
Public Comment: Several commenters requested that projects to
address floodwater, including floodplain management and flood
mitigation projects, be included as an eligible use of SLFRF funds.
Within this category of floodplain management and flood mitigation
infrastructure, several commenters requested that the installation of
levees, flood walls, sea walls, elevation projects, dredging, or
nature-based flood mitigation projects be included as eligible
projects.
Treasury Response: Treasury notes that some floodplain management
and flood mitigation infrastructure projects, including green
infrastructure designed to protect treatment works from flood waters
and flood impact are currently eligible under the CWSRF and therefore
continue to be eligible under the final rule.
Treasury has not included floodplain management and flood
mitigation projects more generally as eligible under the final rule.
Although floodplain management and flood mitigation are functions of
many state and local governments, they are not the sort of generally-
provided essential services included within the meaning of water
[[Page 4417]]
and sewer projects under the ARPA, as discussed above.
Irrigation
Public Comment: Some commenters requested that irrigation projects
be an eligible use because they consider such projects to be critical
infrastructure. Several commenters supported this request by noting
that irrigation systems may be used to replenish aquifers and recharge
wells, in addition to delivering water for irrigation. One commenter
also noted that the national irrigation system is antiquated and in
need of repair.
Treasury Response: Some irrigation projects were eligible under the
interim final rule and continue to be eligible under the final rule as
a result of their inclusion as eligible projects under the CWSRF. For
example, water efficient irrigation equipment that reduces the runoff
of nutrients and implements a management program established under
section 319 of the CWA and/or a conservation and management plan under
section 320 of the CWA are eligible uses under the CWSRF and therefore
continue to be an eligible use of SLFRF funds under the final rule.
Likewise, projects to receive and distribute reclaimed water for
irrigation systems or other agricultural use are eligible under the
CWSRF and therefore continue to be an eligible use under the final
rule. Unlike projects for the improvement of irrigation systems
generally, these reclaimed water projects are related to wastewater
treatment and stormwater management, which are within the scope of the
meaning of water and sewer infrastructure for purposes of ARPA.
Treasury considered commenter requests for inclusion of additional
irrigation infrastructure and determined that irrigation projects more
generally are not permitted under the final rule. Although these types
of projects may be water-related infrastructure, they are not the sort
of generally-provided essential services included within the meaning of
water and sewer projects under ARPA, as discussed above.
Consumer Incentive Programs
Public Comment: One commenter requested that consumer incentive
programs in the areas of water use efficiency, conservation, green
infrastructure, reuse, and other distributed solutions be an allowable
use of SLFRF.
Treasury Response: The DWSRF and CWSRF eligibilities include the
development and implementation of incentive and educational programs
that address and promote water conservation, source water protection,
and efficiency related to infrastructure improvements, e.g., incentives
such as rebates to install green infrastructure such as rain barrels or
promote other water conservation activities. Treasury clarifies that
such project types were eligible under the interim final rule and
continue to be eligible under the final rule.
2. Broadband Infrastructure
Under the ARPA, recipient governments may use SLFRF funds to make
``necessary investments in . . . broadband infrastructure.'' In the
Supplementary Information to the interim final rule, Treasury
interpreted necessary investments in infrastructure as investments
``designed to provide an adequate minimum level of service and [that]
are unlikely to be made using private sources of funds.'' Treasury
explained that, with respect to broadband specifically, such necessary
investments include projects that ``establish [ ] or improve [ ]
broadband service to underserved populations to reach an adequate level
to permit a household to work or attend school, and that are unlikely
to be met with private sources of funds.''
Summary of Interim Final Rule, Public Comments, and Treasury Response
Summary of Interim Final Rule: In implementing the ARPA, the
interim final rule provided that eligible broadband infrastructure
investments are limited to those that are designed to provide service
to unserved or underserved households or businesses, defined as those
that lack access to a wireline connection capable of reliably
delivering at least minimum speeds of 25 Mbps download and 3 Mbps
upload. The interim final rule also provided that eligible projects
under the SLFRF are limited to those that are designed to deliver, upon
project completion, service that reliably meets or exceeds symmetrical
upload and download speeds of 100 Mbps. In instances where it would not
be practicable for a project to deliver such service speeds because of
the geography, topography, or excessive costs associated with such a
project, the interim final rule provided that the project would be
required to be designed to deliver, upon project completion, service
that reliably meets or exceeds 100 Mbps download speed and between at
least 20 Mbps and 100 Mbps upload speeds and be scalable to a minimum
of 100 Mbps symmetrical for download and upload speeds.
In addition, Treasury, in the Supplementary Information to the
interim final rule, encouraged recipients to pursue a number of other
objectives. First, Treasury encouraged recipients to prioritize
investments in fiber-optic infrastructure wherever feasible and focus
on projects that deliver a physical broadband connection by
prioritizing projects that achieve last-mile connections. Second,
Treasury encouraged recipients to integrate affordability options into
their program design. Third, Treasury encouraged recipients to
prioritize support for local networks owned, operated, or affiliated
with local governments, nonprofits, and cooperatives. Fourth, Treasury
encouraged recipients to avoid investing in locations with existing
agreements to build reliable wireline service with minimum speeds of
100 Mbps download and 20 Mbps upload by December 31, 2024, in order to
avoid duplication of efforts and resources. Finally, following release
of the interim final rule, Treasury provided further guidance
clarifying some aspects of broadband infrastructure eligibility,
specifically on flexibility for recipients to determine eligible areas
to be served,\328\ middle-mile projects,\329\ pre-project development
costs,\330\ broadband connections to schools or libraries,\331\ and the
applicability of the National Environmental Policy Act (NEPA) and the
Davis-Bacon Act.\332\
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\328\ See FAQ 6.8, 6.9, 6.11. Coronavirus State and Local Fiscal
Recovery Funds, Frequently Asked Questions, as of July 19, 2021;
https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
\329\ See FAQ 6.10. Id.
\330\ See FAQ 6.12. Id.
\331\ See FAQ 6.16. Id.
\332\ See FAQ 6.4, 6.17. Id.
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Summary of Public Comments: Treasury received several comments on
the interim final rule's requirements regarding eligible areas for
investment and build-to speed standards, as well as Treasury's
encouragements in the Supplementary Information of the interim final
rule. Many commenters found the interim final rule's requirement to
limit projects to those designed to provide service to unserved or
underserved households or businesses to be appropriately focused on
hard-to-reach areas. In contrast, other commenters argued that this
requirement was too restrictive and that it would limit the ability for
some recipients, particularly local governments, to invest in broadband
infrastructure.
Separately, some commenters supported the interim final rule's
requirement that eligible projects be built to reliable speeds of 100
Mbps symmetrical, with an exception for areas where it was
impracticable, and encouragement that projects be built with fiber-
optic infrastructure, while a
[[Page 4418]]
few others argued that the interim final rule should remain technology-
neutral and that lower speed standards would be more appropriate for
today's usage needs.
Summary of Treasury Response: In response to the comments, the
final rule expands eligible areas for investment by requiring
recipients to invest in projects designed to provide service to
households and businesses with an identified need for additional
broadband infrastructure investment, which would include but not be
limited to a lack of broadband service reliably delivering certain
speeds. In addition, as discussed further below, the final rule further
supports the expansion of affordable access to broadband service for
households by requiring that recipients use a provider that
participates in a qualifying affordability plan. Treasury encourages
recipients to prioritize projects that are designed to provide service
to locations not currently served by a wireline connection that
reliably delivers at least 100 Mbps of download speed and 20 Mbps of
upload speed.
The final rule maintains the interim final rule's requirement that
eligible projects be designed to, upon completion, reliably meet or
exceed symmetrical 100 Mbps download and upload speeds. As was the case
under the interim final rule, in cases where it is not practicable,
because of the excessive cost of the project or geography or topography
of the area to be served by the project, eligible projects may be
designed to reliably meet or exceed 100 Mbps download speed and between
at least 20 Mbps and 100 Mbps upload speed and be scalable to a minimum
of 100 Mbps download speed and 100 Mbps upload speed. Treasury
continues to encourage recipients to prioritize investments in fiber-
optic infrastructure wherever feasible and to focus on projects that
will achieve last-mile connections, whether by focusing directly on
funding last-mile projects or by ensuring that funded middle-mile
projects have commitments in place to support new and/or improved last-
mile service.
The final rule requires recipients to address the affordability
needs of low-income consumers in accessing broadband networks funded by
SLFRF, given that such a project cannot be considered a necessary
investment in broadband infrastructure if it is not affordable to the
population the project would serve. Recipients must require the service
provider for a completed broadband infrastructure investment project
that provides service to households to either participate in the
Federal Communications Commission's (FCC) Affordable Connectivity
Program (ACP), or otherwise provide access to a broad-based
affordability program to low-income consumers in the proposed service
area of the broadband infrastructure that provides benefits to
households commensurate with those provided under the ACP.
Treasury also recognizes the importance of affordable broadband
access for all consumers beyond those that are low-income. As part of
their project selection process, recipients are encouraged to consult
with the community on the general affordability needs of the target
markets in the proposed service area. Additionally, recipients are
encouraged to require that services provided by a broadband
infrastructure project include at least one low-cost option offered
without data usage caps and at speeds that are sufficient for a
household with multiple users to simultaneously telework and engage in
remote learning. Recipients will be required to report speed, pricing,
and any data allowance information as part of mandatory reporting to
Treasury.
The final rule also clarifies that subsidies to households and
communities impacted by the pandemic to access the internet, broadband
adoption programs, digital literacy programs, and device programs are
eligible programs to respond to the public health and negative economic
impacts of the pandemic under sections 602(c)(1)(A) and 603(c)(1)(A).
See section Assistance to Households in Negative Economic Impacts.
Treasury continues to encourage recipients to prioritize support
for broadband networks owned, operated by, or affiliated with local
governments, nonprofits, and cooperatives. In addition, to the extent
recipients are considering deploying broadband to locations where there
are existing enforceable federal or state funding commitments for
reliable service at speeds of at least 100 Mbps download speed and 20
Mbps upload speed, recipients must ensure that SLFRF funds are designed
to address an identified need for additional broadband investment that
is not met by existing federal or state funding commitments. Recipients
must also ensure that SLFRF funds will not be used for costs that will
be reimbursed by the other federal or state funding streams. Further,
Treasury highlights that recipients are subject to the prohibition on
use of grant funds to procure or obtain certain telecommunications and
video surveillance services or equipment as outlined in 2 CFR 200.216
and 2 CFR 200.471 and clarifies that modernization of cybersecurity for
existing and new broadband networks are eligible uses of funds under
sections 602(c)(1)(D) and 603(c)(1)(D).
Finally, this Supplementary Information to the final rule
incorporates and confirms guidance issued by Treasury following the
interim final rule regarding middle-mile projects,\333\ pre-project
development costs,\334\ broadband connections to schools or
libraries,\335\ and applicability of the National Environmental Policy
Act (NEPA) and Davis-Bacon Act.\336\
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\333\ See FAQ 6.10. Coronavirus State and Local Fiscal Recovery
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
\334\ See FAQ 6.12. Id.
\335\ See FAQ 6.16. Id.
\336\ See FAQ 6.4, 6.17. Id.
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The remainder of this section provides additional details on the
final rule. Specifically, these sections address: (1) Eligible areas
for investment; (2) build-to speed standards; (3) affordability; (4)
public networks; (5) duplication of efforts and resources; (6)
cybersecurity; and (7) use of funds to meet non-federal match under the
Infrastructure Investment and Jobs Act.
Eligible Areas for Investment
The interim final rule limited eligible broadband investments to
projects focused on delivering service to unserved or underserved
locations, defined as households or businesses that lack access to a
wireline connection capable of reliably delivering at least minimum
speeds of 25 Mbps download and 3 Mbps upload. This targeted approach
was generally consistent with certain speed thresholds used in other
federal programs to identify eligible areas for federal investment in
broadband infrastructure, such as the FCC's Rural Digital Opportunity
Fund (RDOF) program and the National Telecommunication and Information
Administration's (NTIA's) Broadband Infrastructure Program, and
generally aligns with the FCC's benchmark for an ``advanced
telecommunications capability'' for wireline broadband services.
Public Comment: Many commenters discussed the disadvantages of such
an approach. Some commenters, including several local government
recipients, argued that limiting investments to locations without
access to reliable wireline 25/3 Mbps \337\ was too
[[Page 4419]]
restrictive because some urban jurisdictions are already mostly or
entirely covered by a network with at least 25/3 Mbps speeds yet lack
widespread broadband adoption for various reasons. Commenters suggested
that recipients would benefit from greater flexibility to provide
necessary investments in broadband access in areas that are nominally
covered by speeds of at least 25/3 Mbps, such as to provide affordable
broadband access in low-income areas or to address service quality and
reliability issues. Further, commenters argued that Treasury's
requirement that new projects meet minimum reliable speeds of 100 Mbps
symmetrical was inconsistent with the requirement that broadband
infrastructure projects focus on those with access to significantly
lower speeds, and further noted that several states have already
expanded the focus of their broadband programs beyond those without
reliable access to speeds of 25/3 Mbps. Commenters argued that if the
limitation to unserved and underserved households and businesses were
maintained, the definition of unserved and underserved households and
businesses should be revised to include households and businesses
currently served by higher standards. Commenters proposed a number of
alternative cutoff speeds, including 25/25 Mbps, 50/10 Mbps, and 100
Mbps symmetrical. Others expressed support for providing flexibility
for recipients to make their own determination on eligible areas for
investment. These commenters referenced studies indicating that 25/3
Mbps is inadequate for today's modern household or business needs.
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\337\ In the remainder of this Supplementary Information, ``25/3
Mbps'' refers to broadband infrastructure that is designed to
reliably meet or exceed at least 25 Mbps download speeds and 3 Mbps
upload speeds. ``100 Mbps'' symmetrical refers to broadband
infrastructure that is designed to reliably meet or exceed at least
100 Mbps download speeds and 100 Mbps upload speeds.
---------------------------------------------------------------------------
Some commenters advocated for unserved and underserved areas to be
prioritized while providing flexibility for recipients to serve areas
beyond those designated as unserved or underserved. Reflecting the
perceived restrictiveness of the interim final rule approach, some
commenters asked for assurance that projects conducted under other
categories of SLFRF eligible uses, specifically to respond to the
public health and negative economic impacts of the pandemic under
sections 602(c)(1)(A)-(C) and 603(c)(1)(A)-(C), were not barred by the
presence of 25/3 Mbps service, including ``gap networks,'' which are
networks designed to offer low-cost or no-cost internet access for
lower-income households with low broadband adoption rates.
Commenters suggested additional factors to be incorporated in the
consideration of locations that are eligible to be served. Many
commenters suggested that affordability should be considered a key
factor when determining whether a community has access to broadband, as
the presence of 25/3 Mbps service does not necessarily mean the service
is financially accessible to the area's residents. Commenters noted
that surveys indicate that affordability, not lack of coverage, is the
most significant barrier for most Americans who do not have robust
broadband service in their households. Some advocated that the final
rule allow for investments in areas with existing reliable wireline
access at or above 25/3 Mbps as long as existing broadband service has
been unaffordable for a certain segment of the population; others
advocated that Treasury presume eligibility when investments are made
in certain areas, such as Qualified Census Tracts or neighborhoods with
persistent poverty, or are made by Tribal governments. Separately, some
commenters noted that Treasury should provide more clarification on
what constitutes a ``reliabl[e]'' connection, including providing
details as to latency, jitter, and other technical specifications that
would meet that standard, and what it means for certain technologies,
such as copper and other outdated technologies, to be deemed
presumptively unreliable.
Other commenters supported the interim final rule's approach on
eligible areas for investment or suggested tightening eligibility even
further. They argued that higher speed thresholds beyond 25/3 Mbps
would likely lead to investments in or building of new broadband
infrastructure in areas already served by broadband at speeds these
commenters considered sufficient; these areas, commenters suggested,
are less in need of federal assistance and permitting investments here
could divert funding away from rural areas to more densely populated
areas.
Treasury Response: The final rule expands eligible areas for
investment by requiring recipients to invest in projects designed to
provide service to households and businesses with an identified need
for additional broadband infrastructure investment. Recipients have
flexibility to identify a need for additional broadband infrastructure
investment: Examples 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. Recipients are encouraged to prioritize
projects that are designed to provide service to locations not
currently served by a wireline connection that reliably delivers at
least 100 Mbps of download speed and 20 Mbps of upload speed, as many
commenters indicated that those without such service constitute hard-
to-reach areas in need of subsidized broadband deployment.
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.
Consistent with further guidance issued by Treasury,\338\ in
determining areas for investment, recipients may choose to consider any
available data, including but not limited to documentation of existing
broadband internet service performance, federal and/or state collected
broadband data, user speed test results, interviews with community
members and business owners, reports from community organizations, and
any other information they deem relevant.
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\338\ See FAQ 6.11. 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 evaluating such data, recipients may take into account a variety
of factors, including whether users actually receive internet service
at or above the speed thresholds at all hours of the day, whether
factors other than speed such as latency, jitter, or deterioration of
the existing connections make their user experience unreliable, and
whether the existing service is being delivered by legacy technologies,
such as copper telephone lines (typically using Digital Subscriber Line
technology) or early versions of cable system technology (DOCSIS 2.0 or
earlier),\339\ and other factors related to
[[Page 4420]]
the services to be provided by the project. In addition, recipients may
consider the actual experience of current broadband customers when
making their determinations; whether there is a provider serving the
area that advertises or otherwise claims to offer broadband at a given
speed is not dispositive.
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\339\ Legacy technologies such as copper telephone lines
(typically using Digital Subscriber Line technology) and early
versions of cable system technology (DOCSIS 2.0 or earlier)
typically lag on speeds, latency, and other factors, as compared to
more modern technologies like fiber-optic. See, e.g., https://www.fcc.gov/sites/default/files/tech_transitions_network_upgrades_that_may_affect_your_service.pdf
(comparing copper to fiber and noting that copper wire networks have
``limited speeds,'' are ``susceptible to signal interference/loss,''
and have a ``relatively short life''); https://data.fcc.gov/download/measuring-broadband-america/2020/2020-Fixed-Measuring-Broadband-America-Report.pdf (comparing fiber with DSL and cable
technologies on a number of dimensions); https://www.eff.org/wp/case-fiber-home-today-why-fiber-superior-medium-21st-century-broadband (providing a technical background comparing fiber
technology to other legacy technologies).
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Build-To Speed Standards
The interim final rule provided that a recipient may use funds to
make investments in broadband infrastructure that is designed to, upon
completion, reliably meet or exceed symmetrical 100 Mbps download and
upload speeds. In cases where it is not practicable, because of the
excessive cost of the project or the geography or topography of the
area to be served by the project, eligible projects may be designed to
reliably meet or exceed 100 Mbps download speed and between at least 20
Mbps and 100 Mbps upload speed, so long as it is scalable to a minimum
of 100 Mbps download speed and 100 Mbps upload speed. Relatedly,
Treasury in the Supplementary Information to the interim final rule
encouraged recipients to prioritize investments in fiber-optic
infrastructure wherever feasible and to prioritize projects that
achieve last-mile connections.
Public Comment: Many commenters discussed the advantages of setting
minimum symmetrical download and upload speeds of reliable 100 Mbps as
the speed threshold for new projects. Some commenters indicated support
for the interim final rule's standard as it takes into account growing
demands on internet use resulting from pandemic broadband usage and
suggested that such a standard will help to ensure that networks built
with SLFRF funds remain valuable for years to come, even as demands
continue to accelerate, particularly on upload speeds. Some also
indicated that the interim final rule standard has the effect of
prioritizing the use of fiber-optic infrastructure to deliver such
speeds, which some noted was a ``gold standard'' future-proof
technology, although some commenters noted that other technologies like
fixed wireless have been shown to deliver such speeds in certain
circumstances.
Other commenters suggested that 100 Mbps symmetrical speeds were
unnecessary given current broadband usage needs and that such high
standards may have the potential to slow down expansion to unserved or
underserved rural areas. Some argued that setting this symmetrical
threshold may limit the type of technologies that can be used, thereby
decreasing competition and limiting flexibility to recipients whose
communities might be better served by technologies such as wireless
solutions or inexpensive gap networks. Commenters suggested alternate
minimum speeds, ranging from 25/3 Mbps (which some argued best balances
reaching all communities and maximizing the impact of federal funds) to
100/20 Mbps (which some argued best serves the typical broadband usage
patterns of households and businesses, including new pandemic-driven
needs). A few commenters suggested a higher minimum speed, such as
gigabit speeds, advocating that such speeds were necessary for a
network to last at least a decade.
Many commenters supported the interim final rule's lower speed
standards for projects where it is impracticable to meet minimum
reliable speeds of 100 Mbps symmetrical, as it provides flexibility for
recipients to invest in hard-to-reach areas, such as those in
mountainous regions. A few commenters indicated that Treasury should
more clearly define the characteristics of a location eligible for this
exception. Some indicated that the minimum standard for all new
projects should be 100 Mbps symmetrical. In contrast, others argued
that scalability to 100 Mbps symmetrical should not be a requirement to
meet today's demands, particularly in hard-to-reach areas.
Some commenters requested that Treasury clarify eligibility for
middle-mile projects as these projects potentially provide connectivity
to far-reaching areas, while other commenters suggested that last-mile
projects generally require more capital investment and are therefore
most in need of government support.
Treasury Response: The final rule maintains the interim final
rule's requirement that eligible projects be designed to, upon
completion, reliably meet or exceed symmetrical 100 Mbps download and
upload speeds, with the interim final rule's exception for projects
where it is impracticable to build to such speeds due to excessive
cost, geography, or topography of the area to be served by the project.
Given the build time associated with broadband infrastructure projects,
these standards will enable SLFRF funds to fund lasting infrastructure
that will be able to accommodate increased network demand once the
network is complete,\340\ while providing flexibility for certain
locations to meet lower speed standards where 100 Mbps symmetrical
speeds are impracticable.
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\340\ Using the Federal Communications Commission (FCC)
Broadband Speed Guide, a household with two telecommuters and two to
three remote learners today is estimated to need 100 Mbps download
to work simultaneously. See Federal Communications Commission,
Broadband Speed Guide, available at https://www.fcc.gov/consumers/guides/broadband-speed-guide (last visited October 28, 2021).
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To illustrate the accelerating need for higher upload speeds, by
one measure, mean upload speeds as of October 2021 increased to 75.21
Mbps as compared to 62.11 Mbps a year earlier.\341\ Jurisdictions are
increasingly responding to the growing demands of their communities for
high speeds; for example, Illinois requires 100 Mbps symmetrical
service as the construction standard for their state broadband grant
programs. The 100 Mbps symmetrical standard accounts for increased
pandemic internet usage and provides adequate upload speeds for
individuals and businesses to accommodate interactive applications such
as virtual learning and videoconferencing, while also helping ensure
that funding is responsibly used to provide a true and lasting benefit
for years to come. Treasury continues to encourage recipients to
prioritize investments in fiber-optic infrastructure wherever feasible,
as such advanced technology enables the next generation of application
solutions for all communities and is capable of delivering superior,
reliable performance and is generally most efficiently scalable to meet
future needs.\342\ In designing these projects, recipients should
ensure that the broadband infrastructure provides ``reliable'' service
at required speeds and are not required to rely on providers'
advertised speeds in their assessments.
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\341\ United States' Mobile and Broadband Internet Speeds--
Speedtest Global Index, available at https://www.speedtest.net/global-index/united-states#fixed.
\342\ Bennett Cyphers, The Case for Fiber to the Home, Today:
Why Fiber is a Superior Medium for 21st Century Broadband,
Electronic Frontier Foundation (October 16, 2019), https://www.eff.org/wp/case-fiber-home-today-why-fiber-superior-medium-21st-century-broadband.
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Consistent with further guidance issued by Treasury,\343\ while
recipients are permitted to make investments in ``middle-mile''
connections that otherwise satisfy the requirements of the final rule,
Treasury continues to encourage recipients to focus on
[[Page 4421]]
projects that will achieve last-mile connections--whether by focusing
directly on funding last-mile projects or by ensuring that funded
middle-mile projects have commitments in place to support new and/or
improved last-mile service.
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\343\ See FAQ 6.10, Coronavirus State and Local Fiscal Recovery
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
---------------------------------------------------------------------------
Affordability
The interim final rule encouraged recipients to consider ways to
integrate affordability options into their program design but did not
require recipients to take particular actions. The interim final rule
also provided that assisting households with internet access and
digital literacy is an eligible use of SLFRF funds under sections
602(c)(1)(A) and 603(c)(1)(A) to respond to the negative economic
impacts of COVID-19.
Public Comment: Many commenters suggested that Treasury provide
recipients with a broader set of tools to tackle what the commenters
characterized as an affordability crisis in the broadband sector. As
noted above, some commenters proposed that Treasury consider
affordability when determining whether an area is unserved or
underserved by broadband. Some commenters indicated that the final rule
should allow for the construction of broadband networks in low-income
neighborhoods including low-cost or no-cost gap networks, even in areas
with existing service at the speeds required under the interim final
rule. Other commenters voiced support for direct subsidies to low-
income communities to afford broadband service, which would provide
additional incentives for providers to serve these communities.
Treasury Response: In response to many commenters that highlighted
the importance of affordability in providing meaningful access to
necessary broadband infrastructure, the final rule provides additional
requirements to address the affordability needs of low-income consumers
in accessing broadband networks funded by SLFRF. Recipients must
require the service provider for a completed broadband infrastructure
investment project that provides service to households to:
Participate in the Federal Communications Commission's
(FCC) Affordable Connectivity Program (ACP); or
Otherwise provide access to a broad-based affordability
program to low-income consumers in the proposed service area of the
broadband infrastructure that provides benefits to households
commensurate with those provided under the ACP.
Recipients must require providers to participate in or provide
access to these programs through the life of the ACP. This requirement
will no longer apply once the SLFRF-funded broadband infrastructure is
no longer in use.
Furthermore, Treasury also recognizes the importance of affordable
broadband access for all consumers beyond those that are low income. As
part of their project selection process, recipients are encouraged to
consult with the community on the general affordability needs of the
target markets in the proposed service area. Additionally, recipients
are encouraged to require that services provided by a broadband
infrastructure project include at least one low-cost option offered
without data usage caps at speeds that are sufficient for a household
with multiple users to simultaneously telework and engage in remote
learning. Treasury will require recipients to report speed, pricing,
and any data allowance information as part of their mandatory reporting
to Treasury.
Further, Treasury is clarifying that, as a response to the public
health and negative economic impacts of the pandemic, recipients may
provide households and communities impacted by the pandemic with
subsidies to help pay for internet service, digital literacy programs,
broadband adoption programs, and device programs that provide
discounted or no-cost devices for low-income households to access the
internet. For further discussion of this eligible use category, see the
section internet Assistance in Assistance to Households in Public
Health and Negative Economic Impacts.
Public Networks
The interim final rule encouraged recipients to prioritize support
for local networks owned, operated, or affiliated with local
governments, nonprofits, and cooperatives.
Public Comment: Many commenters voiced their support for Treasury's
encouragement that recipients work with governmental or community
entities to establish local networks, arguing that they have been shown
to effectively provide broadband access to areas that would otherwise
be left with unaffordable or insufficient service. These commenters
suggested that, since these entities are less driven by financial
returns to investment than private providers, in some circumstances
they may be able to provide robust service at a lower price as compared
to private providers, along with potentially increasing local
competition in a service area.
Other commenters argued against Treasury's encouragement, remarking
that private businesses have a robust track record of serving hard-to-
reach customers. These commenters argued that commercial providers have
greater technical and operational expertise in deploying and operating
broadband networks and may be able to construct broadband networks with
greater efficiency. Additionally, some commenters argued that providing
what they considered an unfair competitive advantage for government- or
community-owned or operated networks may hurt consumers over time.
Treasury Response: The final rule maintains the interim final
rule's encouragement for recipients to prioritize support for broadband
networks owned, operated by, or affiliated with local governments,
nonprofits, and cooperatives, given that these networks have less
pressure to generate profits and a commitment to serve entire
communities.\344\ This encouragement provides flexibility for
recipients to select providers that best fit their needs, while noting
the critical role that networks owned, operated, or affiliated with
local governments and community organizations can play in providing
sufficient coverage, affordable access, or increased competition in the
broadband sector.
---------------------------------------------------------------------------
\344\ The Executive Office of the President, Community-Based
Broadband Solutions (January 2015), https://obamawhitehouse.archives.gov/sites/default/files/docs/community-based_broadband_report_by_executive_office_of_the_president.pdf.
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Duplication of Efforts and Resources
Public Comment: Some commenters raised concerns that Treasury's
encouragement in the interim final rule that recipients avoid funding
projects in locations with an existing agreement to provide service
that reliably delivers 100/20 Mbps by December 31, 2024 was too
restrictive. Commenters noted that many plans do not always lead to a
successful and complete deployment, as issues may arise that prevent
such infrastructure from deploying on time or at all, and that several
existing federal grants were designed and awarded before the onset of
the COVID-19 pandemic and do not meet the critical broadband needs
highlighted by the pandemic. Other commenters argued that Treasury's
encouragement to avoid duplication of resources should be strengthened,
as investing in areas with existing agreements would be an inefficient
duplication of efforts.
Treasury Response: Given the final rule's revised requirements on
eligible areas for investment, this
[[Page 4422]]
Supplementary Information to the final rule also modifies the interim
final rule's requirements around duplication of resources. Since
recipients must ensure that the objective of the broadband projects is
to serve locations with an identified need for additional broadband
investment, the final rule provides that, to the extent recipients are
considering deploying broadband to locations where there are existing
enforceable federal or state funding commitments for reliable service
at speeds of at least 100 Mbps download speed and 20 Mbps upload speed,
recipients must ensure that SLFRF funds are designed to address an
identified need for additional broadband investment that is not met by
existing federal or state funding commitments. Recipients must also
ensure that SLFRF funds will not be used for costs that will be
reimbursed by the other federal or state funding streams.
Cybersecurity
Public Comment: Several commenters expressed concern about the
cybersecurity of new broadband projects funded with SLFRF funds and
urged Treasury to prohibit recipients from utilizing SLFRF funds to
procure equipment from certain providers from the People's Republic of
China that may pose a national security risk. These commenters pointed
out that the 2019 National Defense Authorization Act (NDAA) and the
FCC's Universal Service Fund have similar prohibitions. Further,
several commenters requested that Treasury explicitly include
cybersecurity costs as an eligible use for broadband infrastructure
investment given the growing threat of cyber-attacks and cyber-
intrusions into the nation's infrastructure.
Treasury Response: Treasury highlights that investments in
broadband infrastructure must be carried out in ways that comply with
applicable federal laws, including the 2019 NDAA. Among other
requirements contained in 2 CFR part 200, 2 CFR 200.216 implements
certain provisions of the NDAA and contains prohibitions on the use of
federal financial assistance to procure or obtain certain
telecommunications and video surveillance services or equipment
provided or produced by designated entities, including certain entities
owned or controlled by the People's Republic of China. In addition, 2
CFR 200.471 provides that certain telecommunications and video
surveillance costs associated with 2 CFR 200.216 are unallowable.
Further, the final rule allows for modernization of cybersecurity
for existing and new broadband infrastructure as an eligible use under
sections 602(c)(1)(D) and 603(c)(1)(D) as such investments are
necessary for the reliability and resiliency of broadband
infrastructure.\345\ Recipients may provide necessary investments in
cybersecurity, including modernization of hardware and software, for
existing and new broadband infrastructure regardless of their speed
delivery standards. The final rule maintains the interim final rule's
provision that allows for broader modernization of cybersecurity,
including hardware, software, and protection of critical infrastructure
as an eligible provision of government services, to the extent of
revenue loss due to the pandemic, under sections 602(c)(1)(C) and
603(c)(1)(C).
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\345\ For more on the importance of cybersecurity to the
reliability and resiliency of broadband networks, see: Federal
Communications Commission, https://docs.fcc.gov/public/attachments/FCC-10-63A1.doc; Brookings Institute, Protecting the Cybersecurity
of America's Networks (February 11, 2021), https://www.brookings.edu/blog/techtank/2021/02/11/protecting-the-cybersecurity-of-americas-networks/.
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Use of Funds To Meet Non-Federal Match Under the Infrastructure
Investment and Jobs Act
The Infrastructure Investment and Jobs Act specifies that, except
as otherwise provided, an entity using funding under section 60102 of
the law for broadband deployment ``shall provide, or require a
subgrantee to provide, a contribution, derived from non-Federal funds
(or funds from a Federal regional commission or authority) . . . of not
less than 25 percent of project costs.'' \346\ It further states that
the matching contribution may include funds provided to an eligible
entity or subgrantee under the American Rescue Plan Act for the purpose
of deployment of broadband service, which includes funds provided under
the SLFRF program.
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\346\ See Infrastructure Investment and Jobs Act, Public Law
117-58 (2021).
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SLFRF and the program established under section 60102 of the
Infrastructure Investment and Jobs Act are separate programs with
separate requirements. While section 60102 allows states and other
eligible entities to use SLFRF funds as the source of matching funds
for broadband deployment, the requirements of the SLFRF program still
apply. As such, recipients that use SLFRF funds to meet the section
60102 matching requirement will continue to be subject to the
requirements of the SLFRF program.
III. Restrictions on Use
While recipients have considerable flexibility to use funds to
address the diverse needs of their communities, some restrictions on
use of funds apply. The ARPA includes two statutory provisions that
further define the boundaries of the statute's eligible uses. First,
section 602(c)(2)(A) of the Social Security Act provides that states
and territories may not ``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.'' Second, sections 602(c)(2)(B)
and 603(c)(2) prohibit all recipients, except Tribal governments, from
using funds for deposit into any pension fund. These restrictions
support use of funds only for the congressionally permitted purposes
described in the Eligible Uses section by providing a backstop against
the use of funds for purposes outside of the eligible use categories
provided for in the statute.
In addition to the restrictions on use of funds provided for in the
ARPA statute, the interim final rule noted that several uses of funds
would be ineligible under any eligible use category, including as a
response to the public health and negative economic impacts of the
pandemic or as a ``government service'' under the revenue loss eligible
use category. Specifically, use of funds for debt service, to replenish
financial reserves, or to satisfy an obligation arising from a judicial
settlement or judgment were ineligible uses of funds under the eligible
use categories for public health and negative economic impacts and
revenue loss. These restrictions apply to all recipients.
Recipients should note that restrictions on use of funds for debt
service, to replenish financial reserves, or to satisfy an obligation
arising from a judicial settlement or judgment apply to all eligible
use categories, not just the eligible use categories in which they were
discussed in the interim final rule.
Recipients are also subject to other restrictions on use of funds
in the ARPA, the Award Terms and Conditions, and other federal laws. As
discussed further below, uses of funds may not conflict with the
overall statutory purpose of the ARPA to reduce the spread of COVID-19.
Per the Award Terms and Conditions, recipients must adopt and abide by
policies to prevent conflicts of interest. Finally, recipients are
reminded that other federal laws
[[Page 4423]]
also apply to uses of funds, including environmental and civil rights
laws.
To enhance clarity, this Supplementary Information for the final
rule consolidates these restrictions on use of funds into one section
and makes clear that they apply to all eligible use categories and any
use of funds under the program by recipients to whom each specific
restriction applies.
This section discusses the aforementioned restrictions, public
comments received, and Treasury's response to these comments. For
clarity, Treasury has divided the following discussion into (A)
statutory restrictions under the ARPA, which include (1) offsetting a
reduction in net tax revenue, and (2) deposits into pension funds, and
(B) other restrictions on use, which include (1) debt service and
replenishing reserves, (2) settlements and judgments, and (3) general
restrictions.
A. Ineligible Uses of Funds Under the ARPA Statute
1. Offset a Reduction in Net Tax Revenue
For states and territories (recipient governments \347\), section
602(c)(2)(A)--the offset provision--prohibits the use of SLFRF funds to
directly or indirectly offset a reduction in net tax revenue resulting
from a change in law, regulation, or administrative interpretation
\348\ during the covered period. If a state or territory uses SLFRF
funds to offset a reduction in net tax revenue resulting from a change
in law, regulation, or interpretation, the ARPA provides that the state
or territory must repay to Treasury an amount equal to the lesser of
(i) the amount of the applicable reduction attributable to the
impermissible offset and (ii) the amount of SLFRF funds received by the
state or territory. A state or territory that uses SLFRF funds to
offset a reduction in net tax revenue does not forfeit its entire
allocation of SLFRF funds (unless it misused the full allocation to
offset a reduction in net tax revenue) or any non-SLFRF funding.
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\347\ In this sub-section, ``recipient governments'' refers only
to states and territories. In other sections, ``recipient
governments'' refers more broadly to eligible governments receiving
funding from the SLFRF.
\348\ For brevity, this phrase is referred to as ``changes in
law, regulation, or interpretation'' for the remainder of this
Supplementary Information.
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The interim final rule implements these conditions by establishing
a framework for states and territories to determine the cost of changes
in law, regulation, or interpretation that reduce tax revenue and to
identify and value the sources of funds that will offset--i.e., cover
the cost of--any reduction in net tax revenue resulting from such
changes. The interim final rule recognizes three sources of funds that
may offset a reduction in net tax revenue other than SLFRF funds:
Organic revenue growth, increases in revenue due to policy changes
(e.g., an increase in a tax rate), and certain cuts in spending.
Specifically, the interim final rule establishes a step-by-step
process for determining whether, and the extent to which, SLFRF funds
have been used to offset a reduction in net tax revenue, based on
information reported by the recipient government:
First, each year, each recipient government will identify
and value the changes in law, regulation, or interpretation that would
result in a reduction in net tax revenue, as it would in the ordinary
course of its budgeting process. The sum of these values in the year
for which the government is reporting is the amount it needs to ``pay
for'' with sources other than SLFRF funds (total value of revenue
reducing changes).
Second, the interim final rule recognizes that it may be
difficult to predict how a change would affect net tax revenue in
future years and, accordingly, provides that if the total value of the
changes in the year for which the recipient government is reporting is
below a de minimis level, as discussed below, the recipient government
need not identify any sources of funding to pay for revenue reducing
changes and will not be subject to recoupment.
Third, a recipient government will consider the amount of
actual tax revenue recorded in the year for which it is reporting. If
the recipient government's actual tax revenue is greater than the
amount of tax revenue received by the recipient for the fiscal year
ending 2019, adjusted annually for inflation, the recipient government
will not be considered to have violated the offset provision because
there will not have been a reduction in net tax revenue.
Fourth, if the recipient government's actual tax revenue
is less than the amount of tax revenue received by the recipient
government for the fiscal year ending 2019, adjusted annually for
inflation, in the reporting year the recipient government will identify
any sources of funds that have been used to permissibly offset the
total value of covered tax changes other than SLFRF funds. These are:
[cir] State or territory tax changes that would increase any source
of general fund revenue, such as a change that would increase a tax
rate; and
[cir] Spending cuts in areas not being replaced by SLFRF funds.
The recipient government will calculate the value of revenue
reduction remaining after applying these sources of offsetting funding
to the total value of revenue reducing changes--that is, how much of
the tax change has not been paid for. The recipient government will
then compare that value to the difference between the baseline and
actual tax revenue. A recipient government will not be required to
repay to Treasury an amount that is greater than the recipient
government's actual tax revenue shortfall relative to the baseline
(i.e., fiscal year 2019 tax revenue adjusted for inflation). This
``revenue reduction cap,'' together with Step 3, ensures that recipient
governments can use organic revenue growth to offset the cost of
revenue reductions.
Finally, if there are any amounts that could be subject to
recoupment, Treasury will provide notice to the recipient government of
such amounts along with an explanation of such amounts. This process is
discussed in greater detail in section Remediation and Recoupment of
this Supplementary Information.
Together, these steps allow Treasury to identify the amount of
reduction in net tax revenue that both is attributable to covered
changes and has been directly or indirectly offset with SLFRF funds.
Overview of Comments: Many commenters supported the framework
established under the interim final rule. These commenters argued that
the offset provision, and the interim final rule's implementation of
the offset provision, was essential to ensuring SLFRF funds are used in
a manner consistent with the statute's defined eligible uses and, in
particular, to support the use of SLFRF funds to build public sector
capacity. Several commenters argued that the framework should be made
more restrictive; for example, some comments advocated that the offset
provision be applied to local governments.
Other commenters argued that the offset provision and the interim
final rule's implementation of the offset provision is too restrictive,
with some asserting that the offset provision prohibits states from
making changes to reduce taxes. Many of these commenters argued that
the offset provision presents constitutional concerns. These commenters
asserted that the offset provision is ambiguous and the restriction is
unrelated to the purpose of the ARPA. These commenters also
[[Page 4424]]
argued that the generous amount of SLFRF funds provided to those
governments gave recipient governments little choice as to whether to
accept the SLFRF funds and, as a result, the offset provision is
coercive. In describing these concerns and arguments, several of these
commenters referenced litigation regarding the offset provision.\349\
Many of these commenters also expressed concern regarding the interim
final rule's implementation of the offset provision. Some of these
commenters argued that Treasury lacked the authority to implement the
provision, asserting that the significance of the provision required
Congress to make an explicit delegation of rulemaking authority and
provide clearer principles by which Treasury should implement the
provision. Finally, one commenter argued that the offset provision
should only apply if the recipient expressly and intentionally uses
SLFRF funds to offset a reduction in revenue, arguing that the term
``offset'' implies a deliberate use SLFRF funds to ``pay for'' a tax
cut.
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\349\ See, e.g., State of West Virginia v. U.S. Department of
the Treasury, No. 7:21-cv-00465-LSC, 2021 WL 2952863 (N.D. Ala. Jul.
14, 2021); State of Ohio v. Yellen, No. 1:21-cv-181, 2021 WL 2712220
(S.D. Ohio Jul. 1, 2021).
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As discussed in the interim final rule, the offset provision does
not prevent a recipient government from enacting a broad variety of tax
changes. Rather, the offset provision prevents a recipient government
from using SLFRF funds to offset a revenue reduction resulting from a
tax cut. A recipient government would only be considered to have used
SLFRF funds to offset a reduction in net tax revenue resulting from
changes in law, regulation, or interpretation if, and to the extent
that, the recipient government could not identify sufficient funds from
sources other than SLFRF funds to offset the reduction in net tax
revenue. Only if sufficient funds from other sources cannot be
identified to cover the full cost of the reduction in net tax revenue
resulting from changes in law, regulation, or interpretation, will the
remaining amount not covered by these sources be considered to have
been offset by SLFRF funds, in contravention of the offset provision.
Consistent with the statutory text, the approach taken in the interim
final rule recognizes that, because money is fungible, even if SLFRF
funds are not explicitly or directly used to cover the costs of changes
that reduce net tax revenue, those funds may be used in a manner
inconsistent with the statute by indirectly being used to substitute
for the state's or territory's funds that would otherwise have been
needed to cover the costs of the reduction. As discussed below, the
scope of changes in law, regulation, or interpretation is further
limited to those that the recipient government voluntarily enacted
during the covered period.
Congress has the authority under the Spending Clause in Article I,
section 8 of the Constitution to specify the permissible and
impermissible uses of federal grants. The Supreme Court has repeatedly
``upheld Congress's authority to condition the receipt of funds on the
States' complying with restrictions on the use of those funds, because
that is the means by which Congress ensures that the funds are spent
according to its view of the `general Welfare.' '' \350\ ``The power to
keep a watchful eye on expenditures . . . is bound up with
congressional authority to spend in the first place.'' \351\ Assertions
that the amount of SLFRF funds are sufficiently large to be coercive
are inconsistent with the Supreme Court's reasoning in NFIB, which
distinguished between conditions placed on new federal funds and
conditions placed on existing federal funds and not based on the size
of funds.\352\ Further, the conditions placed on the use of SLFRF funds
under the ARPA--both the eligible uses and additional limitations on
deposits into pension funds and the offset provision--were well known
to recipient governments prior to recipient governments requesting to
receive SLFRF funds. Finally, the ARPA provides Treasury with the
express authority ``to issue such regulations as may be necessary or
appropriate to carry out'' section 602, which includes the offset
provision.
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\350\ National Fed'n of Indep. Bus. v. Sebelius (NFIB), 567 U.S.
519, 580 (2012) (plurality opinion); see, e.g., South Dakota v.
Dole, 483 U.S. 203, 206-208 (1987); Gruver v. Louisiana Bd. of
Supervisors for Louisiana State Univ. Agric. & Mech. Coll., 959 F.3d
178, 183 (5th Cir.), cert. denied, 141 S. Ct. 901 (2020). For
additional discussion of these issues, see, e.g., Brief Reply for
Appellants, Ohio v. Yellen, No. 21-3787 (6th Cir. Oct. 26, 2021).
\351\ Sabri v. United States, 541 U.S. 600, 608 (2004).
\352\ The new federal funds offered by the Affordable Care Act
totaled $100 billion per year. Even the dissenting Justices agreed
that ``Congress could have made just the new funding provided under
the ACA contingent on acceptance of the terms of the Medicaid
Expansion,'' although they disagreed with the majority about whether
that funding condition was severable. NFIB at 687-688 (joint
dissent).
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A number of commenters expressed concern regarding the burden
associated with complying with the offset provision and the interim
final rule. Similarly, other commenters argued that the framework
provided in the interim final rule complicated implementation of the
offset provision. Treasury took several steps to minimize burden for
recipient governments in the interim final rule. For example, the
interim final rule incorporates the types of information and modeling
already used by states and territories in their own fiscal and
budgeting processes. By incorporating existing budgeting processes and
capabilities, states and territories will be able to assess and
evaluate the relationship of tax and budget decisions to uses of SLFRF
funds based on information they likely have or can readily obtain. This
approach ensures that recipient governments have the information they
need to understand the implications of their decisions regarding the
use of SLFRF funds--and, in particular, whether they are using the
funds to directly or indirectly offset a reduction in net tax revenue
resulting from a change in law, regulation, or interpretation, making
the funds potentially subject to recoupment. To further reduce burden,
Treasury is considering whether the scope of reporting requirements can
be further tailored.
As described in greater detail below, Treasury is finalizing its
implementation of the offset provision largely without change. This
approach is consistent with the text of the ARPA. The remainder of this
section discusses and responds to comments on specific aspects of the
framework.
1. Definitions
Covered change. The offset provision is triggered by a reduction in
net tax revenue resulting from ``a change in law, regulation, or
administrative interpretation.'' Consistent with this language, the
interim final rule defines a ``covered change'' to include any final
legislative or regulatory action, a new or changed administrative
interpretation, and the phase-in or taking effect of any statute or
rule where the phase-in or taking effect was not prescribed prior to
the start of the covered period. Thus, the offset provision applies
only to actions for which the change in policy occurs during the
covered period; it excludes regulations or other actions that implement
a change or law substantively enacted prior to March 3, 2021. For
example, covered changes do not include a change in rate that is
triggered automatically and based on statutory or regulatory criteria
in effect prior to the covered period.\353\ Changed
[[Page 4425]]
administrative interpretations would not include corrections to replace
prior inaccurate interpretations; such corrections would instead be
treated as changes implementing legislation enacted or regulations
issued prior to the covered period. The operative change in those
circumstances is the underlying legislation or regulation that occurred
prior to the covered period. Moreover, only changes within the control
of the state or territory are considered covered changes. Finally,
covered changes do not include changes that simply conform with recent
changes in federal law (including those to conform to recent changes in
federal taxation of unemployment insurance benefits and taxation of
loan forgiveness under the Paycheck Protection Program).
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\353\ For example, a state law that sets its earned income tax
credit (EITC) at a fixed percentage of the federal EITC will see its
EITC payments automatically increase--and thus its tax revenue
reduced--because of the federal government's expansion of the EITC
in the ARPA See, e.g., Tax Policy Center, How do state earned income
tax credits work?, https://www.taxpolicycenter.org/briefing-book/how-do-state-earned-income-tax-credits-work/ (last visited May 9,
2021).
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Scope of Covered Changes
Public Comment: Several commenters argued that the definition of
covered change, and thus the limitations of the offset provision,
should apply to subsidies for businesses. Similarly, other commenters
requested that Treasury clarify that the offset provision applies to
tax abatements and reductions in corporate taxes, even if administered
by a sub-unit of the recipient government. Citing to empirical research
and other evidence, these commenters argued that these types of
economic development policies were poorly administered, reduced public
sector capacity, and were ineffective at achieving stated objectives of
creating jobs, increasing income, and increasing economic growth. On
the other hand, some commenters argued that, because subsidies were
economically similar to some tax cuts, neither action should be
considered a covered change and subject to the offset provision.
Finally, other commenters requested that Treasury clarify whether
covered changes must be broad-based policies or whether administrative
decisions applicable to individuals would be considered covered
changes.
Treasury Response: Section 602(c)(2)(A) applies to any change that
``reduces any tax (by providing for a reduction in a rate, a rebate, a
deduction, a credit, or otherwise or delays the imposition of any tax
or tax increase.'' Accordingly, and consistent with this statutory
text, the final rule applies to covered changes that reduce any tax,
which can include tax abatements, but does not apply to loans, grants,
or other types of interventions that do not reduce tax revenue.\354\ In
addition, by including changes in regulation or administrative
interpretation, in addition to changes in law, within the scope of the
offset provision, the ARPA recognizes that a recipient government may
make a covered change through its legislature or may delegate the
authority to make a covered change including, but not limited to, to a
sub-unit of government. Treasury has revised the definition of
``covered change'' in the final rule using the statutory language above
to make clear that the offset provision only applies to such changes in
law, regulation, or administrative interpretation. With respect to the
question of whether covered changes could include administrative
decisions applicable to individuals, as discussed above, a covered
change includes a change in law, regulation, or administrative
interpretation that reduces any tax. Such changes may apply to one or
more individuals or entities, provided that--consistent with the
statutory text--they result from a change in law, regulation, or
administrative interpretation.
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\354\ Assistance must be consistent with eligible uses of SLFRF
funds. See section Eligible Uses of this Supplementary Information.
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Prior Enactment and Phase-In
Public Comment: A number of commenters expressed concern, or
requested clarification, regarding changes that were enacted prior to
the covered period but take effect or phase-in during the covered
period. Several commenters argued that the definition of covered change
should include changes that were made prior to the covered period but
that phase-in during the covered period.
Treasury Response: As discussed above, the offset provision is
triggered by a reduction in net tax revenue resulting from ``a change
in law, regulation, or administrative interpretation'' made during the
covered period. Consistent with the statutory text, ``covered change''
is defined to include any final legislative or regulatory action, a new
or changed administrative interpretation, and the phase-in or taking
effect of any statute or rule where the phase-in or taking effect was
not prescribed prior to the start of the covered period.
Conformity
Public Comment: A number of commenters requested clarification on
the scope of covered changes. Specifically, several commenters
requested clarification on the scope of changes that would be
considered as conforming to recent changes in federal law. These
commenters requested that Treasury clarify whether actions to
selectively conform with federal law would be considered covered
changes and requested clarification regarding the extent to which
changes would be considered ``recent.'' For example, these commenters
requested clarification regarding conformance with the Global
Intangible Low-Taxed Income provision of the 2017 Tax Cuts and Jobs
Act. Some commenters further argued that changes that selectively
conform or decouple from the Internal Revenue Code should be included
within scope of covered changes and thus subject to the offset
provision.
Treasury Response: The final rule maintains the treatment of
changes that simply conform with recent changes in federal law, such as
those to conform to recent changes in federal taxation of unemployment
insurance benefits and taxation of loan forgiveness under the Paycheck
Protection Program \355\ and including other changes over the past
several years. Regardless of the particular method of conformity and
the effect on net tax revenue, Treasury views such changes as
permissible under the offset provision.
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\355\ See Statement on State Fiscal Recovery Funds and Tax
Conformity, April 7, 2021, available at https://home.treasury.gov/news/press-releases/jy0113.
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Accordingly, and for the reasons discussed above, Treasury is
maintaining the definition of covered change without change.
Tax revenue. The interim final rule's definition of ``tax revenue''
is based on the Census Bureau's definition of taxes, used for its
Annual Survey of State Government Finances.\356\ It provides a
consistent, well-established definition with which states and
territories will be familiar and is consistent with the approach taken
in section Revenue Loss of this Supplementary Information describing
the implementation of sections 602(c)(1)(C) and 603(c)(1)(C) of the
Social Security Act regarding revenue loss. A number of commenters
expressed concern and requested clarification regarding the definition
of ``tax revenue.'' These comments and responses are discussed in
section Revenue Loss of this Supplemental Information and, for the
reasons discussed above, Treasury is finalizing the definition of tax
revenue without
[[Page 4426]]
change and maintaining a consistent definition of ``tax revenue.''
\357\
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\356\ U.S. Census Bureau, Annual Survey of State and Local
Government Finances Glossary, https://www.census.gov/programs-surveys/state/about/glossary.html (last visited Apr. 30, 2021).
\357\ As discussed in section Revenue Loss of this Supplementary
Information, for purposes of measuring revenue lost due to the
pandemic under sections 602(c)(1)(C) and 603(c)(1)(C), recipients
must adjust the amount of revenue lost to reflect changes that
resulted from a tax increase or decrease. These adjustments do not
apply to or affect the definition of tax revenue.
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Baseline. For purposes of measuring a reduction in net tax revenue,
the interim final rule measures actual changes in tax revenue relative
to a revenue baseline (baseline). The baseline is calculated as fiscal
year 2019 (FY 2019) tax revenue indexed for inflation in each year of
the covered period, with inflation calculated using the Bureau of
Economic Analysis's Implicit Price Deflator.\358\
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\358\ U.S. Department of Commerce, Bureau of Economic Analysis,
GDP Price Deflator, https://www.bea.gov/data/prices-inflation/gdp-price-deflator (last visited Apr. 30, 2021). The FY 2019 baseline
revenue is adjusted annually for inflation to allow for direct
comparison of actual tax revenue in each year (reported in nominal
terms) to baseline revenue in common units of measurement; without
inflation adjustment, each dollar of reported actual tax revenue
would be worth less than each dollar of baseline revenue expressed
in 2019 terms.
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Public Comment: Some commenters expressed concern regarding the
choice of FY 2019 as the baseline, arguing that the choice lacked
justification and would make the offset provision more restrictive as
applied to recipient governments that experienced a decline in revenue
independent of making any covered changes.
Treasury Response: Measuring a ``reduction'' in net tax revenue
requires identification of a baseline. In other words, a ``reduction''
can be assessed only by comparing two amounts. The Act defines
``covered period'' to begin on March 3, 2021, and thus the baseline
year must end prior to March 3, 2021. As discussed in the interim final
rule, FY 2019 is the last full fiscal year prior to the COVID-19 public
health emergency, and thus is consistent with the statutory definition
and does not include the extraordinary effects of the pandemic that
began in 2020. Further, as discussed above, the interim final rule
recognizes three potential ways that a recipient government may offset
or ``pay for'' a reduction in net tax revenue due to a covered change:
Increases in taxes, decreases in spending, and organic revenue growth.
U.S. gross domestic product rebounded to exceed its pre-pandemic level
in 2021,\359\ suggesting that an FY 2019 pre-pandemic baseline is a
reasonable comparator for future revenue levels and provides recipients
with flexibility to identify organic growth as a permissible offset.
Finally, this baseline year is consistent with the approach directed by
sections 602(c)(1)(C) and 603(c)(1)(C), which identify the ``most
recent full fiscal year of the [state, territory, or Tribal government]
prior to the emergency'' as the comparator for measuring revenue loss.
For these reasons, Treasury is finalizing the definition of
``baseline'' without change.
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\359\ Economy Statement by Catherine Wolfram, Acting Assistant
Secretary for Economy Policy, for the Treasury Borrowing Advisory
Committee November 1, 2021 (Nov. 1, 2021), available at https://home.treasury.gov/news/press-releases/jy0453.
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The interim final rule includes several other definitions that are
applicable to the implementation of the offset provision, such as the
term ``reporting year.'' \360\ Commenters did not express concern
regarding other definitions in the interim final rule.
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\360\ One commenter requested clarification that references to
fiscal year refer to the fiscal year of the recipient. ``Reporting
year'' is defined in the interim final rule and final rule to mean
``a single year or partial year within the covered period, aligned
to the current fiscal year of the State or Territory during the
covered period.''
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2. Framework
The interim final rule provides a step-by-step framework, to be
used in each reporting year, to determine whether a state or territory
used SLFRF funds to offset a reduction in net tax revenue. Consistent
with section 602(c)(2) and the interim final rule, the final rule
applies to states and territories:
(1) Covered changes that reduce tax revenue. Under the interim
final rule, a recipient government identifies and values covered
changes that the recipient government predicts will have the effect of
reducing tax revenue in a given reporting year, similar to the way it
would in the ordinary course of its budgeting process. The interim
final rule states that the value of these covered changes may be
reported based on estimated values produced by a budget model,
incorporating reasonable assumptions, that aligns with the recipient
government's existing approach for measuring the effects of fiscal
policies, and that measures these effects relative to a current law
baseline. If the recipient would prefer, the covered changes may also
be reported based on actual values using a statistical methodology to
isolate the change in year-over-year revenue attributable to the
covered change(s), relative to the current law baseline prior to the
change(s).\361\ Further, estimation approaches may not use dynamic
methodologies that incorporate the projected effects of macroeconomic
growth because macroeconomic growth is accounted for separately in the
framework.
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\361\ By permitting recipient governments to use actual or
estimated values, the interim final rule and final rule provide
flexibility to recipients and thus minimizes burden.
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Estimation
Public Comment: A number of commenters expressed concern that
estimating the value of covered changes required a number of
assumptions and that the actual effects of covered changes on tax
revenue would be difficult to predict. Several commenters expressed
support for the interim final rule's approach to dynamic scoring
methodologies, and one commenter argued that the final rule should
prohibit the use of prior cash balances in calculations of permissible
tax cuts.
Treasury Response: Treasury recognizes that estimating the effects
of covered changes requires assumptions and that many other factors
influence the amount of tax revenue received. The interim final rule
addresses these concerns in several ways. First, in general and where
possible, reporting should be produced by the agency of the recipient
government responsible for estimating the costs and effects of fiscal
policy changes. This approach offers recipient governments the
flexibility to determine their reporting methodology based on their
existing budget scoring practices and capabilities. In addition, by
relying on scoring methodologies that do not incorporate projected
effects of macroeconomic growth, the estimation of the value of covered
changes relies on fewer assumptions and thus provide greater
consistency among states and territories. Finally, as discussed below,
the interim final rule includes a de minimis threshold, below which the
sum of covered changes will be deemed not to have any revenue-reducing
effects.
Timing of the Impact of Covered Changes
Public Comment: Several commenters expressed concern that recipient
governments, to evade the offset provision, may backload the costs of
certain covered changes outside of the covered period, and advocated
that covered changes be instead evaluated as the net present value in
the year that the covered change is enacted. These commenters argued
that some tax cuts could have effects on tax revenue for many decades
or could be structured to take effect after the end of the covered
period.
Treasury Response: As discussed in section Timeline for Use of
SLFRF Funds, SLFRF funds must be used to cover costs incurred prior to
December 31, 2024. Accordingly, SLFRF funds
[[Page 4427]]
generally would not be able to offset a reduction in net tax revenue
occurring after December 31, 2024.
For these reasons, Treasury is maintaining this element of the
interim final rule without change.
(2) In excess of the de minimis. Under the framework established in
the interim final rule, after establishing that a covered change
occurred, the recipient government next calculates the total value of
all covered changes in the reporting year resulting in revenue
reductions, identified in Step 1. If the total value of the revenue
reductions resulting from these changes is below the de minimis level,
the recipient government is deemed not to have any revenue-reducing
changes for the purpose of determining the recognized net reduction. If
the total is above the de minimis level, the recipient government must
identify sources of in-year revenue to cover the full costs of changes
that reduce tax revenue. Under the interim final rule, the de minimis
level is calculated as 1 percent of the reporting year's baseline.
Public Comment: Many commenters supported the inclusion of the de
minimis, noting that the de minimis protects recipients from penalty
resulting from minor or incidental changes, minimizes administrative
burden, and enhances predictability of the application of the offset
provision. Some commenters expressed concern that the fixed threshold
could result in cliff effects.
Treasury Response: A clear de minimis threshold supports recipient
governments' compliance with the offset provision. A de minimis level
recognizes the inherent challenges and uncertainties that recipient
governments face, and thus allows relatively small reductions in tax
revenue without consequence. In other words, states and territories may
make many small changes to alter the composition of their tax revenues
or implement other policies with marginal effects on tax revenues. They
may also make changes based on projected revenue effects that turn out
to differ from actual effects, unintentionally resulting in minor
revenue changes that are not fairly described as ``resulting from'' tax
law changes. However, a de minimis does not automatically result in
consequences under the offset provision, since a recipient government
could demonstrate that other, non-SLFRF funds to offset a net reduction
in tax revenue. Accordingly, any cliff effects associated with a clear
de minimis threshold are mitigated by other aspects of the framework.
Public Comment: Commenters expressed a range of views regarding the
amount of the de minimis. Some commenters argued that the de minimis
was too generous, noting that the choice of 1 percent could, in some
cases, permit reductions in net tax revenue of hundreds of millions of
dollars. These commenters advocated that the de minimis be lowered
(e.g., to 25 basis points) or be tied to a fixed amount. Other
commenters argued that the choice of de minimis was not well supported
by the statute, advocated for a larger de minimis and suggested that
the amount be tied to the recipient government's total expenditures in
the prior fiscal year.
Treasury Response: Treasury adopted a de minimis threshold as an
administrative accommodation for the reasons discussed above. As
discussed in the interim final rule, Treasury determined that the 1
percent de minimis level reflects the historical reductions in revenue
due to minor changes in state fiscal policies and was determined by
assessing the historical effects of state-level tax policy changes in
state EITCs implemented to effect policy goals other than reducing net
tax revenues.\362\
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\362\ Data provided by the Urban-Brookings Tax Policy Center for
state-level EITC changes for 2004-2017.
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For these reasons, Treasury is adopting the 1 percent de minimis
without change.
(3) Safe harbor. Next, under the interim final rule, if the revenue
reduction caused by the covered changes exceeds the 1 percent de
minimis threshold, the recipient government compares the reporting
year's actual tax revenue to the baseline. If actual tax revenue is
greater than the baseline, Treasury will deem the recipient government
not to have any recognized net reduction for the reporting year, and
therefore to be in a safe harbor and outside the ambit of the offset
provision. This approach is consistent with the ARPA, which
contemplates recoupment of SLFRF funds only in the event that such
funds are used to offset a reduction in net tax revenue. If net tax
revenue has not been reduced, the offset provision does not apply. In
the event that actual tax revenue is above the baseline, the organic
revenue growth that has occurred, plus any other revenue-raising
changes, by definition must have been enough to offset the in-year
costs of any covered changes. One commenter argued that the offset for
organic growth be adjusted to reflect population growth. To minimize
administrative burden, and for the reasons discussed above, Treasury is
maintaining the measurement of actual tax revenue without adjustment
for population growth.
(4) Consideration of other sources of funding. The recipient
government will then identify and calculate the total value of changes
that could pay for revenue reduction due to covered changes and sum
these items. This amount can be used to pay for up to the total value
of revenue-reducing changes in the reporting year. These changes
consist of two categories:
(a) Tax and other increases in revenue. The recipient government
must identify and consider covered changes in policy that the recipient
government predicts will have the effect of increasing general revenue
in a given reporting year. Recipient governments should use the same
approach to identify and value covered changes that increase tax
revenue as applied to covered changes that reduce tax revenue. For the
reasons discussed above, Treasury is adopting these aspects of
identifying and valuing covered changes without change.
(b) Covered spending cuts. A recipient government also may cut
spending in certain areas to pay for covered changes that reduce tax
revenue, up to the amount of the recipient government's net reduction
in total spending as described below. These changes must be reductions
in government outlays in an area where the recipient government has not
spent SLFRF funds. To better align with existing reporting and
accounting, the interim final rule considers the department, agency, or
authority from which spending has been cut and whether the recipient
government has spent SLFRF funds on that same department, agency, or
authority. If the recipient government has not spent SLFRF funds in a
department, agency, or authority, the full amount of the reduction in
spending counts as a covered spending cut, up to the recipient
government's net reduction in total spending. If they have spent SLFRF
funds in such department, agency, or authority, the SLFRF funds
generally would be deemed to have replaced the amount of spending cut
and only reductions in spending above the amount of SLFRF funds spent
on the department, agency, or authority would count. This approach--
allowing only spending reductions in areas where the recipient
government has not spent SLFRF funds to be used as an offset for a
reduction in net tax revenue--aims to prevent recipient governments
from using SLFRF funds to supplant state or territory funding in the
eligible use
[[Page 4428]]
areas, and then using those state or territory funds to offset tax
cuts. Such an approach helps ensure that SLFRF funds are not used to
``indirectly'' offset revenue reductions due to covered changes.
Department, Agency, or Authority
Public Comment: Several commenters supported the interim final
rule's approach to considering spending cuts at the department, agency,
or authority level, on the basis that this approach is supported by the
statutory language prohibiting SLFRF funds from being used to
``directly or indirectly'' offset a reduction in net tax revenue. On
the other hand, some commenters argued that the methodology for
identifying offsetting spending cuts was too restrictive; specifically,
that measurement at the agency or department-level may not adequately
account for the size and various programs that could occur in one
agency or department. One commenter argued that recipient governments
should instead be permitted to consider spending cuts on a more
granular sub-unit of a department but noted that this additional
flexibility would come at the cost of transparency and clarity.
Treasury Comment: Treasury recognizes that some recipients may vary
in their budgeting processes, with some budgeting on a department level
and others budgeting at more or less granular sub-units of government.
Relying on spending at a department, agency, or authority level allows
recipient governments to report how SLFRF funds have been spent using
reporting units already incorporated into their budgeting process.
Spending Cuts Baseline
Under the interim final rule, to calculate the amount of spending
cuts that are available to offset a reduction in tax revenue, the
recipient government must first consider whether there has been a
reduction in total net spending, excluding SLFRF funds (net reduction
in total spending). This approach ensures that reported spending cuts
actually create fiscal space, rather than simply offset other spending
increases. A net reduction in total spending is measured as the
difference between total spending in each reporting year, excluding
SLFRF funds spent, relative to total spending for the recipient's
fiscal year ending in 2019, adjusted for inflation. Measuring
reductions in spending relative to 2019 reflects the fact that the
fiscal space created by a spending cut persists so long as spending
remains below its original level, even if it does not decline further,
relative to the same amount of revenue.
Public Comment: Several commenters expressed concern regarding the
measurement of spending cuts relative to the recipient's FY 2019, for
example arguing that the choice did not take into account increases in
spending in 2020. As one commenter noted, the fiscal year 2020 required
extraordinary intervention by recipient governments and the ongoing
public health emergency continues to require extraordinary
intervention.
Treasury Response: FY 2019 provides a reasonable and relatively
generous baseline for considering spending because it is the last full
fiscal year prior to the COVID-19 public health emergency and
governments' extraordinary efforts to address the impact of the
pandemic. This approach also aligns with the FY 2019 baseline for
measuring revenue loss. Measuring spending cuts from year to year
would, by contrast, not recognize any available funds to offset revenue
reductions unless spending continued to decline, failing to reflect the
actual availability of funds created by a persistent change and
limiting the discretion of states and territories.
For the reasons discussed above, Treasury is adopting the approach
taken in the interim final rule without change.
(5) Identification of amounts subject to recoupment. If a recipient
government (i) reports covered changes that reduce tax revenue (Step
1); (ii) to a degree greater than the de minimis (Step 2); (iii) has
experienced a reduction in net tax revenue (Step 3); and (iv) lacks
sufficient revenue from other, permissible sources to pay for the
entirety of the reduction (Step 4), then the recipient government will
be considered to have used SLFRF funds to offset a reduction in net tax
revenue, up to the amount that revenue has actually declined. That is,
the maximum value of the reduction revenue due to covered changes that
a recipient government must cover is capped at the difference between
the baseline and actual tax revenue.\363\ In the event that the
baseline is above actual tax revenue but the difference between them is
less than the sum of revenue reducing changes that are not paid for
with other, permissible sources, organic revenue growth has implicitly
offset a portion of the reduction. The revenue reduction cap implements
this approach for permitting organic revenue growth to cover the cost
of tax cuts.
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\363\ This cap is applied in section 35.8(c) of the final rule,
calculating the amount of funds used in violation of the tax offset
provision.
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Finally, a recipient government may request reconsideration of any
amounts identified in a notice from Treasury as subject to recoupment
under this framework. Comments and responses to the recoupment process
are discussed in section Remediation and Recoupment of this
Supplemental Information.
3. Reporting
To facilitate the implementation of the framework above, and in
addition to reporting required on eligible uses, recipient governments
are required to report certain information. The interim final rule
indicated that Treasury would provide additional guidance at a later
date and that, on an annual basis, it expected each recipient
government would be required to provide the following information:
Actual net tax revenue for the reporting year;
Each revenue-reducing change made to date during the
covered period and the in-year value of each change;
Each revenue-raising change made to date during the
covered period and the in-year value of each change; and
Each covered spending cut made to date during the covered
period, the in-year value of each cut, and documentation demonstrating
that each spending cut is covered as prescribed under the interim final
rule.
Since the adoption of the interim final rule, Treasury has provided
guidance on reporting regarding eligible uses and has required
recipient governments to indicate whether they have made covered
changes and the value of such changes.\364\
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\364\ See Reporting Guidance, Section C.11, available at https://home.treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-Guidance.pdf.
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Reporting Burden
Public Comment: Some commenters argued that the framework for
identifying and reporting impermissible offsets was burdensome and that
the burdens should be accounted for under Executive Order 13132
(Federalism, August 4, 1999).
Treasury Response: Taking into consideration comments received
regarding burden, Treasury is considering a tiered approach to
reporting on the offset provision. Specifically, under this approach, a
recipient would only be required to report information to the extent
needed to determine whether SLFRF funds had been used to offset a
reduction in net tax revenue. For example, a recipient government would
be required to report
[[Page 4429]]
information regarding permissible offsets only if it had also reported
covered changes that were in excess of the de minimis and had reported
a net reduction in tax revenue. Treasury will provide additional
guidance and instructions on the reporting requirements at a later
date.
As discussed in section Regulatory Analyses of this Supplemental
Information, Treasury maintains that the final rule does not have
federalism implications within the meaning of Executive Order 13132
(Federalism, August 4, 1999). In the ARPA, Congress requires states and
territories to repay the Secretary for amounts used in violation of the
prohibition on using SLFRF funds to offset reductions in net tax
revenue, and it authorizes the Secretary to issue regulations to carry
out this limitation and other requirements of the statute. Section 6(b)
of Executive Order 13132 contemplates that certain regulations will be
required by statute, as is the case with the interim final rule and the
final rule, in which case section 6(b)(2)(B)'s requirement to include a
federalism summary impact statement in the Supplementary Information to
the regulation does not apply. Notwithstanding the above, Treasury has
engaged in efforts to consult and work cooperatively with affected
state, local, and Tribal government officials and associations in the
process of developing the interim final rule.
Reporting Transparency
Public Comment: Several commenters argued that information
supporting the net tax offset calculation should be publicly available.
Some of these commenters requested that reporting be made available in
a machine-readable format, and others advocated that recipient
governments disclose this information on their local budget agency's
website. These commenters argued that making information regarding tax
changes publicly available would increase transparency and
accountability. Further, several commenters suggested that Treasury
provide a mechanism for citizens to register their concerns about
particular tax actions.
Treasury Response: As discussed in other sections, reporting
requirements promote transparency and accountability for the general
public and constituents of recipient governments to understand how
state, local, and Tribal governments have used SLFRF funds. Since the
publication of the interim final rule, Treasury issued supplementary
reporting guidance in the Compliance and Reporting Guidance and in the
User Guide: Treasury's Portal for Recipient Reporting (User Guide),
which addresses the particular content and form of required reporting.
Treasury will continue to issue updated guidance prior to each
reporting period clarifying any modifications to requested report
content and will continue to consider how reporting can best support
transparency and accountability while minimizing recipient
administrative burden. Further, as discussed in the section Remediation
and Recoupment, Treasury may address potential violations of this final
rule based on both information submitted from recipients, either
through quarterly reports or self-reporting, and from other sources of
information (e.g., information submitted from the public).
2. Deposit Into Pension Funds
Background: Subsection 602(c)(2)(B) of the Social Security Act
provides that ``[n]o State or territory may use funds made available
under this section for deposit into any pension fund.'' Similarly,
subsection 603(c)(2) of the Social Security Act provides that ``[n]o
metropolitan city, nonentitlement unit of local government, or county
may use funds made available under this section for deposit into any
pension fund.''
For purposes of this restriction on pension deposits, the interim
final rule defined deposit to mean ``an extraordinary payment of an
accrued, unfunded liability.'' The interim final rule also specified
that a deposit does not include routine contributions made as part of a
payroll obligation, such as the normal cost component of a pension
contribution or the component that consists of amortization of unfunded
liabilities calculated by reference to the employer's payroll costs.
The interim final rule applied the restriction on pension deposits to
all recipients.
Public Comment: Several commenters observed that the statutory
restriction on deposits into pension funds does not apply to Tribal
governments.
Treasury Response: In response, Treasury is clarifying in the final
rule that the pension restriction does not apply to Tribal governments.
Public Comment: Treasury also received a comment expressing concern
that the interim final rule permitted recipients to make a larger than
usual pension contribution, so long as the timing of that contribution
aligns with the historical timing of contributions.
Treasury Response: The interim final rule prohibited the use of
SLFRF funds from the ARPA to make extraordinary payments, and the
Supplementary Information to the interim final rule said that a payment
would be an extraordinary payment if it reduces a liability incurred
prior to the start of the COVID-19 public health emergency and occurs
outside the recipient's regular timing for making the payment. At the
same time, however, as suggested by the comment Treasury received, a
payment made at the regular time for pension contributions may very
well be an extraordinary payment, for example, if it is larger than a
regular payment would have been. Such a payment would be a restricted
use.
Public Comment: Other commenters asked which pension contributions
are permitted.
Treasury Response: To be an eligible use of SLFRF funds, a use must
(1) be eligible under one of the eligible use categories and (2) not
contravene any of the applicable restrictions on uses of funds. Some
pension contributions may be eligible because they both fit within an
eligible use category and do not contravene the restriction on deposits
into pension funds (i.e., they are not an extraordinary payment of an
accrued, unfunded liability). For example, payroll and covered benefits
for public health and safety staff responding to COVID-19 are an
eligible use of funds to respond to the public health and negative
economic impacts of the pandemic; routine pension contributions as part
of an employee's regular covered benefits are permissible under that
eligible use category.
B. Other Restrictions on Use of Funds
1. Debt Service and Replenishing Financial Reserves
The Supplementary Information to the interim final rule provided
that debt service is not an eligible use of funds either to respond to
the public health emergency or its negative economic impacts or as a
provision of government services to the extent of revenue loss.\365\
The interim final rule also provided that replenishing financial
reserves (e.g., rainy day funds) is not an eligible use of funds either
to respond to the public health emergency or its negative economic
impacts or as a provision of
[[Page 4430]]
government services to the extent of revenue loss.\366\
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\365\ ``[G]overnment services would not include interest or
principal on any outstanding debt instrument, including, for
example, short-term revenue or tax anticipation notes, or fees or
issuance costs associated with the issuance of new debt. For the
same reasons, government services would not include satisfaction of
any obligation arising under or pursuant to a settlement agreement,
judgment, consent decree, or judicially confirmed debt restructuring
in a judicial, administrative, or regulatory proceeding, except if
the judgment or settlement required the provision of government
services.'' 86 FR 26796-97 (May 17, 2021).
\366\ ``In addition, replenishing financial reserves (e.g.,
rainy day or other reserve funds) would not be considered provision
of a government service, since such expenses do not directly relate
to the provision of government services.''
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As explained in greater detail below, Treasury, in the final rule,
has retained these restrictions and is clarifying that these
restrictions on the use of SLFRF funds apply to all eligible use
categories.
Public Comments
Several commenters suggested that debt service and reserve
replenishment should qualify as the provision of a government service
and be an eligible use of funds, up to the amount of revenue loss due
to the pandemic. Many commenters indicated that they had been forced to
borrow money or dip into reserve funds to continue providing government
services during the public health emergency and that using SLFRF funds
for resulting debt service or reserve replenishment costs should
therefore be considered a government service.
Many comments from Tribal governments noted that their governments
depend on revenue from Tribal enterprises to pay government debts and
provide services. The comments suggest that it should be an eligible
use of SLFRF to replace lost revenue from these enterprises that would
typically be used to pay debt service costs. Other commenters argued
that paying the interest or principal on debt should in some cases be
considered provision of government services and an eligible use of
funds as such expenditures facilitate the provision of government
services.
Some commenters argued that debt costs or reserve drawdowns during
the public health emergency constitute a negative economic impact to
recipient governments, and thus debt service or reserve replenishment
should be an eligible use to respond to that negative economic impact.
For example, several commenters suggested that there should be a
specific carve-out allowing the use of SLFRF funds for debt service on
debt incurred for government services after January 27, 2020, the start
of the public health emergency, or short-term debt incurred for this
purpose. Others suggested that recipient governments should be able to
service debt, up to the amount of debt incurred in direct response to
the pandemic. These commenters generally reasoned that the cost of
responding to the public health emergency and its negative economic
impacts prior to APRA's passage constitutes a negative economic impact
of the pandemic.
Some commenters argued that the specific impacts of the pandemic on
the travel, tourism, and hospitality sector had affected their ability
to meet debt service costs. For example, some commenters explained that
specific tax streams (e.g., hotel room taxes) or revenue sources (e.g.,
hospitality generally) are tied to specific debt instruments and that
these revenue sources had declined during the public health emergency;
commenters argued that this constitutes a negative economic impact that
SLFRF funds should be permitted to address.
Finally, some commenters questioned why servicing debt incurred
after March 3, 2021 for an otherwise eligible project (e.g., a
broadband infrastructure project) would not be an eligible use of
funds.
On the other hand, many commenters expressed support for the
interim final rule's prohibition on use of funds for debt service and
reserve replenishment. These commenters largely argued that SLFRF funds
should be used to provide current services to communities in response
to the public health emergency and that use of funds for debt service
or reserve replenishment represented, respectively, payment for past
costs or savings for potential future costs. In addition to the
prohibition on debt service and reserve replenishment, some commentors
suggested that the final rule should also prevent funds from being used
for state UI trust fund replenishment or for paying off debt owed
through UI trust funds. One commenter argued that Treasury should
further restrict recipient governments, for example by preventing
recipients from making cuts to an allowable budget item, filling the
budget gap with SLFRF funds, and then using the savings from the
initial cut for debt service or reserve replenishment.
Treasury Response
The final rule maintains the restriction on the use of funds for
debt service or reserve replenishment for the reasons described below
and clarifies that this restriction applies to all eligible use
categories.
First, debt service and reserve replenishment costs do not
constitute the provision of services to constituents. As noted in the
interim final rule, financing expenses--such as issuance of debt or
payment of debt service--do not provide services or aid to citizens.
Similarly, contributions to rainy day funds and similar financial
reserves constitute savings for future spending needs. As such, these
expenses do not respond to the current and ongoing public health and
negative economic impacts of the pandemic, nor do they provide a
government service.
Second, payments from the SLFRF are intended to be used
prospectively (see section Timeline for Use of SLFRF Funds). The
interim final rule provided that funds may be used for costs incurred
beginning on March 3, 2021, which Treasury has maintained in the final
rule. Use of funds for debt service on indebtedness issued prior to
March 3, 2021 necessarily entails using funds for costs incurred during
prior time periods, rather than the present response to the public
health emergency and its negative economic impacts or to provide
government services.
Third, SLFRF funds provide recipients with substantial latitude to
use funds to support the diverse needs in their communities. With SLFRF
resources available, recipients have less need to incur debt for
otherwise-eligible SLFRF uses.
Finally, given the strong performance of overall revenues and low
municipal bond yields, state and local governments generally do not
face high levels of fiscal stress. Limits on debt service or
replenishment of reserves would not have a substantial impact on
recipients' ability to provide services. The ratio of state and local
debt-to-GDP, which spiked briefly during the pandemic, has recovered to
its pre-pandemic level and remains well below levels seen during the
Great Recession.\367\
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\367\ Table Z.1 of the Financial Accounts of the United States,
Board of Governors of the Federal Reserve System, and Table 1.1.5 of
National Income and Product Accounts, Bureau of Economic Analysis.
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2. Settlements and Judgments
The interim final rule also provided that satisfaction of any
obligation arising under or pursuant to a settlement agreement,
judgment, consent decree, or judicially confirmed debt restructuring in
a judicial, administrative, or regulatory proceeding would not be an
eligible use of funds to respond to the public health and negative
economic impacts of the pandemic or as a government service provided
under the revenue loss eligible use category. However, if the judgment
or settlement requires the recipient to provide services that are
otherwise eligible under an SLFRF eligible use category, specifically
if the settlement or judgment requires the recipient to provide
services to respond to the COVID-19 public health emergency or its
negative economic impacts or to provide government services, then those
costs are eligible uses of SLFRF funds.
[[Page 4431]]
In other words, satisfaction of a settlement or judgment itself is not
itself an eligible use of funds, unless the settlement requires the
recipient to provide services or incur other costs that are eligible
uses of SLFRF funds.
In the final rule, Treasury is maintaining the interim final rule
approach and clarifying that it applies to all eligible use categories
and any use of funds under the SLFRF program.
3. General Restrictions
In addition to the above restrictions, there are three general
restrictions that apply to SLFRF funds. These restrictions, which
reflect existing laws and regulations, the Award Terms and Conditions,
and application of the ARPA statute, applied under the interim final
rule, and they continue to apply under the final rule.
A primary purpose of the SLFRF in the ARPA is to support efforts to
stop the spread of COVID-19.\368\ As discussed above, recipients of
SLFRF funds are required to comply with the Award Terms and Conditions
established for the use of such funds. The interim final rule and final
rule implement this objective by, in part, providing that recipients
may use SLFRF funds for COVID-19 mitigation and prevention.\369\ See
section Public Health in Public Health and Negative Economic Impacts.
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\368\ See Sec. 602(a)(1); 603(a)(1); 602(c)(1); 603(c)(1).
\369\ See 35.6(b); Coronavirus State and Local Fiscal Recovery
Funds, 86 FR at 26786.
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The CDC has provided recommendations and guidelines to help
mitigate and prevent COVID-19 and has identified vaccines and masks as
two of the best tools to prevent the spread of COVID-19. The interim
final rule and final rule help support recipients in stopping the
spread of COVID-19 through these recommendations and guidelines.
Consistent with the purpose of the ARPA and as implemented through the
interim final rule and final rule, a recipient may not use SLFRF funds
for a program, service, or capital expenditure that includes a term or
condition that undermines efforts to stop the spread of COVID-19. A
program or service that imposes conditions on participation or
acceptance of the service that would undermine efforts to stop the
spread of COVID-19 or discourage compliance with recommendations and
guidelines in CDC guidance for stopping the spread of COVID-19 is not a
permissible use of SLFRF funds.
In other words, recipients may not use funds for a program that
undermines practices included in the CDC's guidelines and
recommendations for stopping the spread of COVID-19. This includes
programs that impose a condition to discourage compliance with
practices in line with CDC guidance (e.g., paying off fines to
businesses incurred for violation of COVID-19 vaccination or safety
requirements), as well as programs that require households, businesses,
nonprofits, or other entities not to use practices in line with CDC
guidance as a condition of receiving funds (e.g., requiring that
businesses abstain from requiring mask use or employee vaccination as a
condition of receiving SLFRF funds).
Second, a recipient may not use SLFRF funds in violation of the
conflict of interest requirements contained in the Award Terms and
Conditions or the Office of Management and Budget's Uniform Guidance,
including any self-dealing or violation of ethics rules. Recipients are
required to establish policies and procedures to manage potential
conflicts of interest.\370\ Treasury may provide further guidance on
the types of activities or conflicts that the recipient's policies and
procedures must cover.
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\370\ Specifically, the Award Terms and Conditions provide that
``[r]ecipient understands and agrees it must maintain a conflict of
interest policy consistent with 2 CFR 200.318(c), and that such
conflict-of-interest policy is applicable to each activity funded
under this award. Recipients and subrecipients must disclose in
writing to Treasury or the pass-through agency, as appropriate, any
potential conflict of interest affecting the awarded funds in
accordance with 2 CFR 200.112.''
---------------------------------------------------------------------------
Lastly, recipients should also be cognizant that federal, state,
and local laws and regulations, outside of SLFRF program requirements,
may apply. Recipients may not use revenue loss funds, for instance, to
violate other background laws that limit the scope of activities that
may be conducted as ``government services,'' including other state and
federal laws. State and local procurement, contracting, and conflicts-
of-interest laws and regulations may include applicable requirements,
including, for example, required procurement processes for contractor
selection or competitive price setting. Furthermore, recipients are
also required to comply with other federal, state, and local background
laws, including environmental laws \371\ and federal civil rights and
nondiscrimination requirements, which include prohibitions on
discrimination on the basis of race, color, national origin, sex,
(including sexual orientation and gender identity), religion,
disability, or age, or familial status (having children under the age
of 18).
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\371\ An exception is statutes that do not apply unless
explicitly stated, including, e.g., the National Environmental
Policy Act and the Davis-Bacon Act.
---------------------------------------------------------------------------
IV. Program Administration Provisions
The interim final rule included several sections that described the
processes and requirements for administering the program on an ongoing
basis, specifically: Distribution of funds, transfer of funds, use of
funds for program administration, reporting on the use of funds, and
remediation and recoupment of funds used for ineligible purposes.
To enhance clarity, this Supplementary Information for the final
rule organizes these issues into one section on Program Administration
Provisions. Recipients should also consult Treasury's Compliance and
Reporting Guidance for additional information on program administration
processes and requirements, including the applicability of the Uniform
Guidance.
A. Payments in Tranches to Local Governments and Certain States
Section 602(b)(6)(A)(ii) of the Social Security Act authorizes the
Secretary to withhold payment of up to 50 percent of the amount
allocated to each state and territory for a period of up to 12 months
from the date on which the state or territory provides its statutorily-
required certification to the Secretary. The Social Security Act
requires any such withholding be based on the unemployment rate in the
state or territory as of the date of the certification.
Under the interim final rule, Treasury provided that it would
withhold 50 percent of the amount allocated from any state that had an
unemployment rate less than two percentage points above its
unemployment rate in February 2020 as of the date the state submitted
its initial certification for payment of funds pursuant to section
602(d)(1) of the Social Security Act. Based on data available at the
time of the issuance of the interim final rule, this threshold was
expected to result in a majority of states being paid in two tranches.
Treasury did not split the payments of any territories.
Public Comment: One commenter asked Treasury to allow a state to
request release of the portion of the state's second tranche payment
after the state could demonstrate that it had allocated the entirety of
the first tranche, a need to continue ongoing programs, and a desire to
avoid borrowing costs. Another commenter asked Treasury to clarify
whether states that received half their funding in the
[[Page 4432]]
first payment would receive their second half payment within 12 months.
Similarly, some recipients requested clarification on whether they
could obligate second tranche funds before receipt or use second
tranche funds for costs incurred prior to receipt.
Treasury Response: The final rule maintains the approach in the
interim final rule with two modifications. As described in the interim
final rule, splitting payments for most states provides consistency
with payments to local governments and encourages states to adapt their
use of funds to developments that arise in the course of the economic
recovery. Moreover, SLFRF funds may be used for costs incurred during
the period of performance. Recipients may use their jurisdiction's
budgeting and procurement practices and laws to determine how and when
second tranche funds may be obligated.
The final rule makes two adjustments for operational purposes.
First, the final rule provides that Treasury expects to make all second
tranche payments to states available beginning 12 months from the date
that funding was first made available by Treasury (May 10, 2021)
regardless of when each individual state submitted its initial
certification. This should increase clarity and consistency on the
timing of second tranche payments for both states and Treasury. Second,
also to ease recipient states' administrative burden, the final rule
strikes a requirement from the interim final rule that states must
certify for their second tranche payments and file all required reports
at least 30 days prior to the date on which their second payment is
made available. The final rule simply requires that states certify for
their second tranche payment and file all required reports before
receiving their second tranche payment, with no 30 day wait period
required.
B. Payments to Nonentitlement Units of Local Government (NEUs) and
Units of Local Government (UGLGs) Within Non-UGLG Counties
The interim final rule established requirements related to
distributions of SLFRF funds by states and territories to NEUs and
UGLGs within non-UGLG counties. Specifically, the interim final rule
provided that the total distribution to an NEU cannot exceed 75 percent
of the most recent budget for the NEU (the 75 percent budget cap); a
requirement set forth in section 603(b)(2)(C)(iii) of the Social
Security Act. The interim final rule Supplementary Information defined
the NEU's budget for purposes of calculating the 75 percent budget cap
as the NEU's ``most recent annual total operating budget, including its
general fund and other funds, as of January 27, 2020.'' The interim
final rule further provided that states and territories must permit
NEUs without formal budgets as of January 27, 2020 to self-certify
their most recent annual expenditures as of January 27, 2020 for the
purpose of calculating the 75 percent budget cap. Further, the interim
final rule prohibited states and territories from placing additional
conditions or requirements on distributions to NEUs beyond those
required by the statute, the interim final rule, or Treasury's guidance
and from offsetting any debt owed by such NEUs against such
distributions.
Commenters predominantly focused on the definition of an NEU's
budget for purposes of calculating the 75 percent budget cap, NEU
allocations and eligibility, and the prohibition on states and
territories imposing additional conditions or requirements in the NEU
distribution process.
Definition of NEU Budget
Public Comment: Commenters suggested that Treasury provide greater
clarification on the definition of an NEU's ``most recent budget'' for
purposes of the 75 percent budget cap calculation. Treasury provided
updated guidance on its interpretation of the 75 percent budget cap on
June 30, 2021, and a commenter suggested that Treasury incorporate such
updated interpretation into the Supplementary Information of the final
rule.
Treasury Response: Consistent with the Update on Interpretation for
the 75 Percent Budget Cap Calculation published on June 30, 2021,\372\
the Supplementary Information of the final rule defines an NEU's budget
for purposes of calculating the 75 percent budget cap as its total
annual budget, including both operating and capital expenditure
budgets, in effect as of January 27, 2020. The guidance also gives
states and territories flexibility to provide further guidance to their
NEUs to operationalize the 75 percent budget cap. Given the variance in
local financial accounting, this updated definition will better
facilitate states' and territories' distribution of SLFRF funds to
NEUs.
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\372\ Treasury's Update on Interpretation for the 75 Percent
Budget Cap Calculation can be found at: https://home.treasury.gov/system/files/136/NEU-Update-75-Percent-Budget-Cap.pdf.
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Allocations and Eligibility
Public Comment: Many commenters provided feedback on specific
allocation calculations and eligibility of local governments for NEU
funding. Commenters addressed how a locality was classified as an NEU
or metropolitan city, deviations between Treasury's allocation
calculations and earlier estimates from other sources, treatment of
unincorporated areas, sources for population data, and Treasury's
allocation of NEU funding to states and territories based on the
population of a state and territory outside of its metropolitan cities.
Two commenters proposed that Treasury provide an appeal process for
localities that were not identified on the List of Local Governments
used by states and territories as part of the process in which a state
or territory determines the eligibility of an NEU in accordance with
Treasury guidance, or for Minor Civil Divisions (MCDs) that were denied
funding as part of a facts-and-circumstances test undertaken by a weak-
MCD state.
Treasury Response: Neither the interim final rule nor the final
rule addresses eligibility or allocations issues, and comments on these
topics are outside the scope of this rulemaking. These questions are
addressed in other Treasury guidance, including the Guidance on
Distribution of Funds to Non-entitlement Units of Local Government and
Non-entitlement Unit of Local Government Definitional and Data
Methodology guidance documents available on Treasury's website.\373\
Because Treasury interpreted the definition of an NEU \374\ in
accordance with the statute and established an NEU distribution process
in May 2021, the final rule does not incorporate an appeals process
regarding the definitions or the facts-and-circumstances test used for
eligibility determinations.
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\373\ The Guidance on Distribution of Funds to Nonentitlement
Units of Local Government can be found at this link: https://home.treasury.gov/system/files/136/NEU_Guidance.pdf. The
Nonentitlement Unit of Local Government Definitional and Data
Methodology can be found at this link: https://home.treasury.gov/system/files/136/NEU_Methodology.pdf.
\374\ Treasury has interpreted NEU to generally include both
incorporated places and MCDs with active functioning governments,
subject to the state determining, in the case of weak-MCD States,
that a weak MCD has the legal and operational capacity to accept
SLFRF funds and provides a broad range of services that would
constitute eligible uses under ARPA. More details can be found in
the Nonentitlement Unit of Local Government Definitional and Data
Methodology, available at https://home.treasury.gov/system/files/136/NEU_Methodology.pdf.
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Prohibition on Additional Conditions or Requirements in the NEU
Distribution Process
Public Comment: One commenter expressed support for Treasury's
prohibition on states and territories
[[Page 4433]]
placing additional conditions or requirements on distributions to NEUs.
This prohibition restricts states and territories from imposing
limitations on NEUs' use of SLFRF funds based on an NEU's proposed
spending plan or other policies, offsetting any debt owed by an NEU
against the NEU's distribution, or providing funding on a reimbursement
model. In particular, the commenter noted that a reimbursement model
would lead to inequities in accessing SLFRF funds.
Treasury Response: The final rule maintains and finalizes the
prohibition on states and territories placing additional conditions or
requirements on distributions to NEUs as well as to any UGLGs within
counties that are non-UGLGs. Such conditions or requirements may
contravene the statutory requirement that states and territories make
distributions based on population and within the statutorily defined
timeframe.
Other Provisions
Treasury did not receive substantive comments on the requirement
that states and territories permit NEUs without formal budgets as of
January 27, 2020 to self-certify their most recent annual expenditures
as of January 27, 2020 for the purpose of calculating the 75 percent
budget cap, or Treasury's interpretation of the 75 percent budget cap
applying only to a consolidated government's NEU allocation under
section 603(b)(2) but not to a consolidated government's county
allocation under section 603(b)(3). Further, Treasury did not receive
substantive comments on the interim final rule's allowance that states
and territories be able to use SLFRF funds under section 602(c)(1)(A)
to fund expenses related to administering payments to NEUs and units of
general local government. As such, the final rule maintains these
provisions as written in the interim final rule without modification.
Treasury received some comments that are not addressed because they
are beyond the scope of the NEU provision of the interim final rule or
not authorized by the statute, including comments related to state
accounting practices, re-allocations of NEU allocations that exceed the
75 percent budget cap, and concerns around eligible uses under SLFRF
that small local governments may find particularly salient.
C. Timeline for Use of SLFRF Funds
The interim final rule provided that ``[a] recipient may only use
funds to cover costs incurred during the period beginning March 3, 2021
and ending December 31, 2024.'' The interim final rule also provides
that the period of performance will run until December 31, 2026, which
will provide recipients an additional two years during which they may
expend funds for costs incurred (i.e., obligated).
As explained in more detail below, in the final rule Treasury is
maintaining these time periods. Treasury will retain March 3, 2021 as
the first date when costs may be incurred, to provide for forward-
looking or prospective use of funds and to align with the start date of
the ``covered period'' as such term is used in section 602(c)(2)(A).
The deadline for costs to be incurred--which the final rule clarifies
means obligated--December 31, 2024, is specified in the ARPA statute,
and Treasury will retain December 31, 2026 as the end of the period of
performance to provide a reasonable amount of time for recipients to
liquidate obligations incurred by the statutory deadline.
Public Comments. Some commenters expressed concerns about costs
incurred before March 3, 2021 not being covered and recommended the
``start date'' be changed to January 2020 to coincide with the
declaration of the public health emergency. These commenters argued
that recipient governments began incurring costs to respond to COVID-19
and its economic impacts in January 2020 and that prior federal fiscal
relief, such as relief provided in the Coronavirus Aid, Relief, and
Economic Security Act, did not fully compensate recipient governments
for these costs. These commenters recommended that costs incurred
before March 3, 2021 that otherwise fit within eligible use categories
for SLFRF should be permissible uses of funds.
Some commenters asked Treasury to clarify whether local governments
are subject to the same covered period as states and territories
beginning March 3, 2021. Commenters noted that section 603(g) of the
Social Security Act does not contain the same definition of ``covered
period'' as section 602(g)(1) of the Social Security Act, which
references a statutory provision that only applies to states and
territories.
Many commenters requested that the deadline for costs to be
incurred and the period of performance be extended due to the longer
timeline for completing water and sewer projects. One commenter
requested that recipients be able to split projects into different
phases so that funds could be expended on larger, longer term projects
(e.g., by obligating funds on one portion of the project by the
statutory deadline). One commenter recommended that the period of
performance be extended for at least two additional years beyond the
expenditure deadline set forth in the interim final rule, i.e., until
December 31, 2028. One commenter wrote that the final rule should allow
for extended projects (e.g., over a time horizon of more than ten
years) for recipients working to develop long-term water supplies to
prepare for extreme drought.
Treasury Response. In the final rule, Treasury is maintaining March
3, 2021 as the date when recipients may begin to incur costs using
SLFRF funds. As described in the interim final rule, use of SLFRF funds
is forward looking and the eligible use categories provided by statute
are all prospective in nature. While recipients may identify and
respond to negative economic impacts that occurred during 2020, the
costs incurred to respond to these impacts remain prospective. Further,
Treasury considers the beginning of the covered period for purposes of
determining compliance with section 602(c)(2)(A) to be a relevant
reference point for this purpose that provides some flexibility for
recipients that began incurring costs in the anticipation of enactment
of the ARPA or in advance of the issuance of the interim final rule and
receipt of payment.
Finally, establishing an earlier start date would permit
governments to use funds received in 2021 to satisfy obligations
incurred in 2020. This use raises a substantial risk of SLFRF funds
being used to supplant other recipient funds previously used to pay for
such 2020 obligations, freeing funds for recipients to use for any
purpose rather than eligible uses of SLFRF funds under the ARPA.
Permitting such usage would undermine the provisions setting forth
permissible and impermissible uses in the statute. Therefore, a reading
of the statute permitting use of funds prior to March 3, 2021 would be
inconsistent with the statutory structure.
In the final rule, Treasury is also maintaining the deadlines by
which funds must be obligated (i.e., December 31, 2024) and by which
such obligations must be liquidated (i.e., December 31, 2026). The
December 31, 2024 deadline by which eligible costs must be incurred is
established by statute. Treasury is finalizing its interpretation of
``incurred'' to be equivalent to the definition of ``obligation,''
based on the definition used for purposes of the Uniform Guidance.
Treasury is also maintaining the period of performance, which will run
through December 31, 2026, and provides the deadline by which
recipients must expend obligated funds. Most recipients received SLFRF
funds in the spring and summer of 2021,
[[Page 4434]]
meaning that they have over three years to obligate and over five years
to expend funds. This provides a sufficient amount of time for
recipients to plan and execute projects.
D. Transfers of Funds
Under section 602(c)(3) of the Social Security Act, a state,
territory, or Tribal government may transfer SLFRF funds to a ``private
nonprofit organization . . . a Tribal organization . . . a public
benefit corporation involved in the transportation of passengers or
cargo, or a special-purpose unit of state or local government.''
Similarly, section 603(c)(3) authorizes a local government to transfer
SLFRF funds to the same entities (other than Tribal organizations).
Separately, section 603(c)(4) authorizes a local government to transfer
SLFRF funds to the state in which it is located.
Entities Eligible for a Transfer Under Sections 602(c)(3) and 603(c)(3)
Regarding transfers permitted under sections 602(c)(3) and
603(c)(3) of the Act, the interim final rule Supplementary Information
clarified that the lists of transferees in these sections are not
exclusive and that state, local, territorial, and Tribal governments
may transfer funds to other constituent units of government or private
entities beyond those specified in the statute.
Public Comment: Several commenters supported Treasury's
interpretation of eligible transferees in sections 602(c)(3) and
603(c)(3) as nonexclusive. However, many commenters asked for greater
clarity as to whether specific entities not listed in Treasury's
examples of eligible subrecipients, such as nonprofits and Tribal
governments, were eligible transferees. One commenter also asked
whether a recipient may transfer SLFRF funds to a higher level of
government, such as a locality to the county in which it is located.
Treasury Response: The final rule clarifies that, in addition to
the entities enumerated in sections 602(c)(3) and 603(c)(3), recipients
may transfer SLFRF funds to any entity to carry out as a subrecipient
an eligible use of funds by the transferor, as long as they comply with
the Award Terms and Conditions and other applicable requirements,
including the Uniform Guidance at 2 CFR 200.331-200.333. Eligible
subrecipients include, but are not limited to, other units of
government (including Tribal governments), nonprofits and other civil
society organizations, and private entities. Further, the final rule
clarifies that transfers may be made to both constituent or non-
constituent units of government. For example, county A may transfer
SLFRF funds to county B as long as county B abides by the use
restrictions applicable to county A and the transfer would constitute
an eligible use of the funds by county A. County A must receive a
benefit proportionate to the amount transferred.
As detailed in the interim final rule Supplementary Information,
once transfers are received, the transferee must abide by the
restrictions on use applicable to the transferor under the ARPA and
other applicable law, regulations, and program guidance. Further, the
transferor remains 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 Award Terms and Conditions. Recipients
also remain responsible for reporting to Treasury on their
subrecipients' use of payments from the SLFRF for the duration of the
award.
Pooling Funds
Public Comment: Several commenters asked for clarification about
whether they may pool SLFRF funds for a project with other recipients,
including when doing so involves a transfer to another entity, such as
a regional organization or government that undertakes projects on
behalf of a number of local governments. Commenters also asked for
clarification on the oversight and reporting obligations that would
result from such transfers.
Treasury Response: Consistent with guidance issued following the
interim final rule,\375\ the final rule clarifies that recipients may
pool SLFRF funds for projects, provided that the project is itself an
eligible use of SLFRF funds for each recipient that is contributing to
the pool of funds and that recipients are able to track the use of
funds in line with the reporting and compliance requirements of the
SLFRF. In general, when pooling funds for regional projects, recipients
may expend funds directly on the project or transfer funds to another
government or other entity that is undertaking the project on behalf of
multiple recipients. To the extent recipients undertake regional
projects via transfer to another organization or government, recipients
would need to comply with the rules on transfers specified in the final
rule Supplementary Information. A recipient may transfer funds to a
government outside its boundaries (e.g., county transfers to a
neighboring county), provided that the transferor can document that the
transfer constitutes an eligible expense of the transferor government
and that its jurisdiction receives a benefit proportionate to the
amount transferred.
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\375\ Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
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Blending and Braiding of Funds
Treasury is clarifying in the final rule that, consistent with
further guidance issued by Treasury following the interim final
rule,\376\ recipients may fund a project with both SLFRF funds and
other sources of funding, provided that the costs are eligible costs
under each source program and are compliant with all other related
statutory and regulatory requirements and policies. The recipient must
comply with applicable reporting requirements for all sources of funds
supporting the SLFRF projects and with any requirements and
restrictions on the use of funds from the supplemental funding sources
and the SLFRF program. Specifically,
---------------------------------------------------------------------------
\376\ See FAQ 4.10. Id.
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All funds provided under the SLFRF program must be used
for projects, investments, or services that are eligible under the
SLFRF program. SLFRF funds may not be used to fund an activity that is
not, in its entirety, an eligible use under the SLFRF program. For
example:
[cir] SLFRF funds may be used in conjunction with other sources of
funds to make an investment in water infrastructure that is eligible
under section 602 or 603 of the Social Security Act and the final rule.
[cir] SLFRF funds could not be used to fund the entirety of a water
infrastructure project that was partially, although not entirely, an
eligible use under Treasury's final rule. However, the recipient could
use SLFRF funds only for a smaller component project that does
constitute an eligible use, while using other funds for the remaining
portions of the larger planned water infrastructure project that do not
constitute an eligible use. In this case, the ``project'' for SLFRF
purposes under this program would be only the eligible use component of
the larger project.
In addition, because SLFRF funds must be obligated by
December 31, 2024, and recipients must expend all funds under the award
no later than December 31, 2026, recipients must be able to, at a
minimum, determine and report to Treasury on the amount of SLFRF funds
obligated and expended and when such funds were obligated and expended.
[[Page 4435]]
Scope of a 603(c)(4) Transfer
Unlike in the case of a transfer under sections 602(c)(3) or
603(c)(3), the interim final rule Supplementary Information specified
that transfers from a local government to the state under section
603(c)(4) will result in a cancellation or termination of the award on
the part of the transferor local government and a modification of the
award to the transferee state.
Public Comment: Two commenters suggested that Treasury expand
section 603(c)(4) beyond transfers from localities to the state to
include transfers from counties to their constituent local governments,
which would incentivize counties to augment funds to address the needs
of local governments. These commenters noted that counties are
disincentivized to make transfers under section 603(c)(3), as is
currently allowed, as such transfers would require that counties
provide oversight and monitoring over its subrecipients.
Treasury Response: Section 603(c)(4), by its terms, applies only to
transfers from local governments to states. Accordingly, the final rule
must maintain the interim final rule's limitation of section 603(c)(4)
transfers as applicable only to transfers from local governments to
states. Expansions of section 603(c)(4) transfer authority beyond
transfers from local governments to states were not explicitly
authorized by Congress. As such, transfers under section 603(c)(4) may
only be made by local governments to the state in which they are
located.
Congress enumerated two separate transfer provisions for local
governments--section 603(c)(3) and section 603(c)(4)--that use
different language and were intended to operate differently. Section
603(c)(4) contains prefatory language (``Notwithstanding paragraph
(1)''--a reference to the eligible SLFRF uses) that section 603(c)(3)
does not. In other words, section 603(c)(4) transfers are not required
to constitute an eligible use of the funds from the perspective of the
transferor local government, but section 603(c)(3) transfers are
required to constitute an eligible use. A transfer to accomplish an
eligible use fits within the recipient-subrecipient framework.
Further, treating section 603(c)(3) transfers as leading to a
cancellation of the award for the transferor local government would
result in scenarios that are inconsistent with the statutory language.
An award cancellation pursuant to a section 603(c)(3) transfer would
result in either (1) non-governmental entities becoming award
recipients under the program, which would contravene the purpose of
SLFRF or (2) transfers to governmental and non-governmental entities
being treated in a distinct and inconsistent manner. That is, section
603(c)(3) transfers to governmental entities would lead to award
cancellation but section 603(c)(3) transfers to non-governmental
entities would lead to a recipient-subrecipient relationship.
Therefore, in the final rule, Treasury maintains its distinct treatment
of a section 603(c)(3) transfer and section 603(c)(4) transfer.
The final rule clarifies that a transfer under section 603(c)(4)
will result in a modification, termination, or cancellation of the
award on the part of the transferor local government and a modification
of the award to the transferee state or territory. As detailed in the
Supplementary Information to the interim final rule, the transferor
must provide notice of the transfer to Treasury in a format specified
by Treasury. Until the local government provides such notice and
Treasury provides confirmation of its acceptance of the notice, the
local government will remain responsible for ensuring that the SLFRF
award is being used in accordance with the Award Terms and Conditions,
section 602 or 603 of the Social Security Act, the final rule, and
program guidance including reporting on such uses of the award funds to
Treasury.
A state that receives a transfer from a local government under
section 603(c)(4) will be bound, by statute, by all of the use
restrictions set forth in section 602(c) with respect to the use of
those SLFRF funds, including the prohibitions on use of such SLFRF
funds to offset certain reductions in taxes or to make deposits into
pension funds. The state will be responsible as the prime recipient for
the use and reporting on any funds transferred under section 603(c)(4)
by the local government. Such transferred funds will be subject to the
Award Terms and Conditions previously accepted by the state in
connection with its SLFRF award.
Subrecipient Transfers
Public Comment: Commenters sought clarification as to how funds may
be transferred from a recipient to another entity. For instance, one
commenter requested that recipients be able to advance funds to
subrecipients as opposed to reimbursing subrecipients for expenses
incurred.
Treasury Response: Treasury did not specify in the interim final
rule whether recipients may advance funds to subrecipients. This
omission was not intended to prevent recipients from advancing funds to
subrecipients, consistent with the various methods permitted under the
Uniform Guidance. Given the broad flexibility that recipients have in
selecting eligible uses and the broad variety of potential
subrecipients, Treasury believes that specifying a single method of
advancement or reimbursement would add unnecessary administrative
difficulty to program administration. Recipients may determine the
optimal payment structure for the transfer of funds (e.g., advance
payments, reimbursement basis, etc.) from recipients to subrecipients.
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.
E. Administrative Expenses
The interim final rule permitted, under the heading ``[e]xpenses to
improve efficacy of public health or economic relief programs,'' use of
funds for ``[a]dministrative 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.''
Following release of the interim final rule, Treasury issued
Compliance and Reporting Guidance that provided that ``recipients may
use funds for administering the SLFRF program, including costs of
consultants to support effective management and oversight, including
consultation for ensuring compliance with legal, regulatory, and other
requirements. Further, costs must be reasonable and allocable as
outlined in 2 CFR 200.404 and 2 CFR 200.405. Pursuant to the SLFRF
Award Terms and Conditions, recipients are permitted to charge both
direct and indirect costs to their SLFRF award as administrative costs.
Direct costs are those that are identified specifically as costs of
implementing the SLFRF program objectives, such as contract support,
materials, and supplies for a project. Indirect costs are general
overhead costs of an organization where a portion of such costs are
[sic] allocable to the SLFRF award such as the cost of facilities or
administrative functions like a director's office.'' \377\ Several
commenters
[[Page 4436]]
requested clarity on which administrative expenses are permissible uses
of funds and how recipients should structure administrative costs.
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\377\ 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.
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In the final rule, Treasury is clarifying that direct and indirect
administrative expenses are permissible uses of SLFRF funds and are a
separate eligible use category from ``[e]xpenses to improve efficacy of
public health or economic relief programs,'' which refers to efforts to
improve the effectiveness of public health and economic programs
through use of data, evidence, and targeted consumer outreach. For
details on permissible direct and indirect administrative costs,
recipients should refer to Treasury's Compliance and Reporting
Guidance.\378\ Costs incurred for the same purpose in like
circumstances must be treated consistently as either direct or indirect
costs.
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\378\ Id.
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F. Treatment of Loans
The interim final rule allowed recipients to use SLFRF funds to
make loans for uses that are otherwise eligible (for example, for small
business assistance). Subsequent guidance clarified how recipients must
track and dispose of program income from loans, consistent with the
statutory requirements for the timing of SLFRF expenditures.
SLFRF funds must be used to cover ``costs incurred'' by the
recipient between March 3, 2021 and December 31, 2024. The interim
final rule provided that SLFRF funds must be obligated by December 31,
2024 and expended by December 31, 2026. In using SLFRF funds to make
loans, recipients must be able to determine the amount of funds used to
make a loan and must comply with restrictions on the timing of the use
of funds and with restrictions in the Uniform Guidance.
When SLFRF funds are used as the principal for loans, there is an
expectation that a significant share of the loaned funds will be
repaid. Thus, recipients may not simply consider the full amount of
loaned funds to be permanently expended and must appropriately account
for the return of loaned funds.
For loans that mature or are forgiven on or before December 31,
2026, the recipient must account for the use of funds on a cash flow
basis, consistent with Treasury's guidance regarding loans made by
recipients using payments from the Coronavirus Relief Fund.\379\
Recipients may use SLFRF funds to fund the principal of the loan and in
that case must track repayment of principal and interest (i.e.,
``program income,'' as defined under 2 CFR 200). When the loan is made,
recipients must report the principal of the loan as an expense.
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\379\ Coronavirus Relief Fund for States, Tribal Governments,
and Certain Eligible Local Governments, 86 FR at 4192.
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Repayment of principal may be re-used only for eligible uses and is
subject to restrictions on the timing of the use of funds. Interest
payments received prior to the end of the period of performance will be
considered an addition to the total award and may be used for any
purpose that is an eligible use of funds under the statute and final
rule. Recipients are not subject to restrictions under 2 CFR
200.307(e)(1) with respect to such payments.
For loans with maturities longer than December 31, 2026, the
recipient must estimate the cost to the recipient of extending the loan
over the life of the loan. In other words, at origination, the
recipient must measure the projected cost of the loan and may use SLFRF
funds for the projected cost of the loan. Recipients have two options
for estimating this amount: They may estimate the subsidy cost (i.e.,
net present value of estimated cash flows) or the discounted cash flow
under current expected credit losses (i.e., CECL method). See further
guidance issued by Treasury for further explanation.\380\
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\380\ See FAQ 4.11. Coronavirus State and Local Fiscal Recovery
Funds, Frequently Asked Questions, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
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Public Comment: Many commenters asked for further clarification on
the treatment of loans and the calculation of ``costs incurred.'' Some
commenters requested that grants made for eligible activities prior to
December 31, 2024 to a revolving loan fund, an economic development
corporation, a land bank, or a similar facility should be considered
obligated and expended at the time of the grant. This would allow funds
to be expended by the grantee beyond the covered period and for funds
returned to the grantee to be re-invested in further uses outside of
the covered period.
Treasury Response: The final rule maintains the treatment of loans
from the interim final rule and subsequent guidance, as discussed
above. This approach is consistent with the statutory requirement that
funds be used for costs incurred for eligible purposes by December 31,
2024 and is consistent with standard accounting practices and the
Uniform Guidance.
G. Use of Funds for Match or Cost-Share Requirements
As a general matter and as referenced in the Supplementary
Information to the interim final rule, funds provided under one federal
program may not be used by a recipient to meet the non-federal match or
cost-share requirements of another federal program.
However, Treasury has since determined that, consistent with this
general principle and the requirements of the Uniform Guidance at 2 CFR
200.306(b)(5), the funds available under sections 602(c)(1)(C) and
603(c)(1)(C) of the Social Security Act for the provision of government
services, up to the amount of the recipient's reduction in revenue due
to the public health emergency, generally may be used to meet the non-
federal cost-share or matching requirements of other federal programs.
Federal funds that constitute revenue sharing to state and local
governments may generally be used to meet non-federal match
requirements.\381\ The broad eligible uses of the SLFRF funds available
under sections 602(c)(1)(C) and 603(c)(1)(C) of the Social Security
Act, combined with the purpose of these provisions (which is to provide
general fiscal assistance to governments facing revenue losses due to
the public health emergency), demonstrate that these funds are revenue
sharing. They thus should generally be permitted to be used to meet the
non-federal match and cost-share requirements of other federal
programs. As such, the SLFRF funds available for the provision of
government services, up to the amount of the recipient's reduction in
revenue due to the public health emergency, may be used to meet the
non-federal match requirements of the Drinking Water State Revolving
Fund and Clean Water State Revolving Fund programs administered by the
EPA, for example.
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\381\ See U.S. Government Accountability Office, Principles of
Federal Appropriations Law, Third Edition, Volume II, p. 10-99, GAO-
06-382SP (February 2006), https://www.gao.gov/assets/gao-06-382sp.pdf.
---------------------------------------------------------------------------
Pursuant to 2 CFR 200.306(b) of the Uniform Guidance, if funds are
legally available to meet the match or cost-share requirements of an
agency's federal program, such awarding agency is required to accept
such funds for the purpose of that program's match or cost-share
requirements except in the circumstances enumerated in that section.
The Office of Management and Budget has authority under 2 CFR
[[Page 4437]]
200.102 of the Uniform Guidance to issue waivers of this requirement on
request of the relevant awarding agency. Analogous requirements and
waiver authorities may be present in other regulations. If a recipient
seeks to use SLFRF funds to satisfy match or cost-share requirements
for a federal grant program, it should first confirm with the relevant
awarding agency that no waiver has been granted for that program, that
no other circumstances enumerated under 2 CFR 200.306(b) would limit
the use of SLFRF funds to meet the match or cost-share requirement, and
that there is no other statutory or regulatory impediment to using the
SLFRF funds for the match or cost-share requirement. Note that SLFRF
funds may not be used as the non-federal share for purposes of a
state's Medicaid and CHIP programs because the Office of Management and
Budget has approved a waiver as requested by the Centers for Medicare &
Medicaid Services pursuant to 2 CFR 200.102 of the Uniform Guidance and
related regulations.
SLFRF funds beyond those that are available under sections
602(c)(1)(C) or 603(c)(1)(C) of the Social Security Act for the
provision of government services may not be used to meet the non-
federal match or cost-share requirements of other federal programs
other than as specifically provided for by statute. For example, as
discussed in other sections of this final rule, section 40909 of the
Infrastructure Investment and Jobs Act provides that SLFRF funds may be
used to meet the non-federal match requirements of any authorized
Bureau of Reclamation project, and section 60102 of the Infrastructure
Investment and Jobs Act provides that the SLFRF may be used to meet the
non-federal match requirements of the broadband infrastructure program
authorized under that section (see sections Water and Sewer
Infrastructure and Broadband Infrastructure).
H. Reporting
The interim final rule established Treasury's authority to collect
information from recipients through requested reports and any
additional requests for information. The interim final rule also
provided Treasury flexibility to extend or accelerate reporting
deadlines and to modify requested content for the Interim Report,
Project and Expenditure reports, and Recovery Plan Performance reports.
The Supplementary Information of the interim final rule provided
initial guidance on the reporting requirements for the SLFRF funds.
States (defined to include the District of Columbia), territories,
metropolitan cities, counties, and Tribal governments were required to
submit one interim report and quarterly Project and Expenditure reports
thereafter. Non-entitlement units of local government were not required
to submit an interim report. States, territories, and metropolitan
cities and counties with a population greater than 250,000 residents
were also required to submit an annual Recovery Plan Performance report
to Treasury. The Supplementary Information of the interim final rule
provided guidance on the deadlines and content required for each type
of report.
Public Comment: Treasury received many comments on the content and
specific data elements required of program reporting. Some commenters
expressed enthusiasm for including particular details in reporting to
promote transparency. Other commenters requested that Treasury
streamline reporting requirements to avoid imposing undue
administrative burdens and compliance costs. Many commenters requested
further clarification on or amendments to particular elements of
reporting content. Some commenters requested that reports and specific
reporting elements be public, including a request for a public website
with a number of programmatic data metrics about the use of SLFRF
funds. Some commenters sought clarification and guidance for using the
reporting portal, which allows recipients to upload the required
information, or requested user modifications to the portal. Finally,
some commenters requested that Treasury provide example materials and
reporting metrics to aid recipient understanding.
Treasury Response: Since the publication of the interim final rule,
Treasury issued supplementary reporting guidance in the Compliance and
Reporting Guidance and in the User Guide: Treasury's Portal for
Recipient Reporting (User Guide).\382\ Treasury has addressed many of
these comments in the Compliance and Reporting Guidance and User Guide
and will continue to issue updated guidance prior to each reporting
period clarifying any modifications to requested report content.
Treasury notes that the interim final rule did not address the specific
content and data elements required in reporting, the reporting portal
or submission process, and the specific form of reporting (e.g.,
example templates, machine readability); comments on these topics are
outside the scope of the final rule and, as noted, are addressed
instead in Compliance and Reporting Guidance.
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\382\ 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.
---------------------------------------------------------------------------
Reporting Deadlines
Public Comment: Treasury received comments requesting various
changes to reporting deadlines to ease compliance burdens. For example,
Treasury received several comments requesting that Treasury delay early
reporting deadlines for various reasons, including to align with the
timeline for issuing a final rule and to allow for more time for
recipients to determine SLFRF allocations. Commenters also requested
changes to the immediacy of reporting, for example requesting that
Treasury allow expenses to be reported with a lag instead of the
quarter in which they were accrued or that reports be due 90 days after
period close instead of 30 days after the close of a reporting period.
Some commenters requested changes to the reporting frequency, for
example to report biannually rather than quarterly.
Treasury Response: Treasury has clarified reporting deadlines in
the Compliance and Reporting guidance.\383\ Treasury is retaining the
reporting deadline of 30 days after the close of the reporting period
to ensure timely accounting of the use of SLFRF funds; this timeline
also aligns with practices in many other federal programs. The final
rule maintains Treasury's discretion to extend or delay reporting
deadlines.
---------------------------------------------------------------------------
\383\ Id.
---------------------------------------------------------------------------
Administrative Costs for Reporting and Compliance
Public Comment: Many commenters sought clarification about whether
various administrative costs related to reporting and compliance were
eligible uses of funds and asked for clarification on the limits of
such use.
Treasury Response: Treasury notes that administrative costs are
generally allowable uses of SLFRF funds, including for reporting. For
additional information on administrative expenses, please see section
Administrative Expenses under Program Administration Provisions.
Uniform Guidance
Public Comment: The Supplementary Information of the interim final
rule clarified that SLFRF funds were generally subject to the
provisions of the Uniform Administrative Requirements, Cost Principles,
and Audit
[[Page 4438]]
Requirements for Federal Awards (2 CFR part 200) (the Uniform
Guidance), including the cost principles and restrictions on general
provisions for selected items of cost. Treasury received many comments
requesting clarification about or modifications to the applicability of
the Uniform Guidance on various issues.
For example, one commenter requested that Treasury remove
requirements that expenditures of funds be made in conformance with the
Uniform Guidance, particularly in case of expenditures made during
period from March 3, 2021 to the release of the interim final rule,
while other comments requested that Treasury raise the single-audit
threshold from $750,000 to $5 million. Commenters sought clarification
on items such as: The applicability of the Uniform Guidance for funds
that are used for the provision of government services, the
applicability of particular sections of the cost principles provided in
subpart E of the Uniform Guidance, the applicability of the procurement
provisions of the Uniform Guidance, and requirements for subrecipient
reporting.
Treasury Response: Recipients of SLFRF funds are subject to the
provisions of the Uniform Guidance (2 CFR part 200) from the date of
award to the end of the period of performance on December 31, 2026
unless otherwise specified in this rule or program-specific guidance.
Costs must follow the requirements in 2 CFR 200 Subpart E, Cost
Principles, including procurement standards. Recipients that receive an
aggregate amount of federal financial assistance in a given fiscal year
that exceeds the Single Audit threshold are subject to the requirements
in 2 CFR 200 Subpart F, Audit Requirements, unless otherwise specified
in program-specific guidance.
SLFRF funds transferred to subrecipients are also subject to
reporting and Uniform Guidance requirements. Additional information
about the definition of subrecipients is available in the section
Distinguishing Subrecipients versus Beneficiaries.
Recipients should refer to the Assistance Listing for details on
the specific provisions of the Uniform Guidance that do not apply to
this program. The Assistance Listing is available on SAM.gov.
Additional changes to compliance and reporting guidelines, including
any clarifications on Uniform Guidance requirements, will be addressed
in Compliance and Reporting Guidance and the User Guide.\384\
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\384\ Id.
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I. Remediation and Recoupment
Sections 602(e) and 603(e) of the Social Security Act provide the
Secretary with the power to recoup ``funds used in violation'' of the
Social Security Act. The interim final rule implemented these
provisions by establishing a process for recoupment. Treasury may
identify funds used in violation of the Social Security Act based on
information submitted by recipients, including as part of reporting
requirements, as well as information from other sources.\385\ If a
potential violation is identified, Treasury will provide the recipient
an initial written notice of the amount subject to recoupment along
with an explanation of such amounts. A recipient then has 60 calendar
days following receipt of a recoupment notice to submit a request for
reconsideration containing any information it believes supports its use
of funds. Within 60 calendar days of receipt of the request for
reconsideration, the interim final rule provided that a recipient will
receive a final notice of the Secretary's decision to affirm, withdraw,
or modify the recoupment notice. If the recipient did not submit a
request for reconsideration, the initial notice of recoupment would be
deemed a final notice. A recipient would then be required to repay any
amounts subject to recoupment within 120 calendar days of either the
initial recoupment notice, if the recipient does not request
reconsideration, or the final recoupment notice, if the recipient does
request reconsideration.
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\385\ Treasury will also consider the tax offset provision on an
annual basis.
---------------------------------------------------------------------------
Public Comments
Treasury received several comments on the process for recoupment.
For instance, some commenters, including many Tribal governments,
requested additional time to file a request for reconsideration and
submit repayment to ensure that small entities have the time necessary
to carry out any logistical steps and consult with counsel. Treasury
was also asked to align its recoupment process with that of the Office
of the Inspector General and other departmental administrative
processes to resolve findings, agency decisions, and related timelines.
One commenter asked if the 120-calendar-day time limit for repayment
was based on the initial notice, rather than a final decision issued by
the Secretary. Several commenters expressed concern regarding the
recoupment process, arguing that consideration of ``all relevant facts
and circumstances'' provided Treasury with too much authority and
created ambiguity. Other commenters urged Treasury to establish a
robust enforcement and compliance program and process and advocated for
the creation of a whistleblower mechanism or public complaint process
to allow public and private entities to report suspected misuses of
funds. Finally, some commenters requested clarification regarding the
process after a violation is identified and becomes final. One
commenter also asked to allow recipients to amend reports deemed to
contain ineligible expenses and inform recipients how the agency
intends to resolve instances where a use was later deemed unacceptable.
Another commenter asked if recouped funds could be released back to the
recipient.
Commenters also expressed concern about Treasury's authority to
recoup funds used in violation of the tax offset provision. Some
commenters requested additional clarity around when tax cuts would
trigger Treasury's recoupment authority and the duration of Treasury's
authority to seek recoupment of such funds.
Treasury Response
The final rule largely preserves the process established in the
interim final rule but includes several adjustments to clarify certain
elements.
Like the interim final rule, the final rule provides that, after an
initial determination is made that a recipient has used SLFRF funds in
violation of the law, a recipient may submit a request for
reconsideration concerning any amounts identified in a notice provided
by Treasury. If a recipient chooses to seek reconsideration of the
initial notice, the recipient must submit a request for reconsideration
as provided under the final rule. If a recipient does not request
reconsideration, the initial notice that the recipient received will be
deemed the final notice.\386\ Treasury has clarified that a recipient
must invoke and exhaust the procedures available under section 35.10 of
the final rule prior to seeking judicial review of a recoupment
decision. Consistent with Section 602(b)(6)(A)(ii)(III) of the Social
Security Act, if a state or territory is required to repay funds
pursuant to the Secretary's recoupment authority, the Secretary may
reduce the amount payable to the state or territory in a second tranche
payment by the amount that the state or territory would be required to
repay as recoupment.
---------------------------------------------------------------------------
\386\ Funds subject to recoupment cannot later be returned.
---------------------------------------------------------------------------
In the final rule, Treasury has clarified that, if it identifies a
potential
[[Page 4439]]
violation,\387\ it may request additional information from a recipient
before initiating the recoupment process and, where necessary, provide
written notice to the recipient along with an explanation of such
amounts potentially subject to recoupment. Furthermore, Treasury has
also made clear that it retains the ability to expedite or extend
timelines in any adjudication or pre-adjudication process pursuant to
section 35.4(b) of the final rule, although the general timelines set
forth in the interim final rule are maintained in the final rule.
This process is intended to provide the recipient with an adequate
opportunity to present additional information regarding its uses of
funds and provides flexibility for recipients to determine the
information relevant to the particular facts and circumstances. It is
also flexible enough to align with other adjudication procedures in
other ARPA recovery programs administered by the Office of Recovery
Programs at Treasury. As discussed above, the initial notice will
provide recipients with an explanation of the identified potential
violation in order to provide recipients with a meaningful opportunity
to respond. Such initial notice will generally include information
regarding the specific use of SLFRF funds and the source of such
information.\388\ This process also will allow the Secretary to take
into consideration the information provided by recipients, along with
other relevant information, to ensure SLFRF funds are used in a manner
consistent with the Social Security Act.
---------------------------------------------------------------------------
\388\ Treasury may address potential violations based on
information submitted from recipients, either through quarterly
reports or self-reported information, and from other sources of
information as Treasury deems necessary and appropriate (e.g.,
press, information submitted from the public).
---------------------------------------------------------------------------
Finally, Treasury expects to work with recipients to support the
use of SLFRF funds consistent with the law. For example, Treasury may
request additional information from a recipient before initiating the
recoupment process. In addition, Treasury may pursue other forms of
remediation and monitoring in conjunction with, or as an alternative
to, recoupment.\389\ These efforts may include working with recipients
to identify and substitute permissible uses of SLFRF funds or amending
uses of SLFRF funds to comply with applicable restrictions.
---------------------------------------------------------------------------
\389\ Treasury intends to work with recipients to support the
use of SLFRF funds consistent with the law.
---------------------------------------------------------------------------
In response to comments regarding the amount of time provided to
respond to an initial notice, the final rule clarifies that Treasury
retains the ability to expedite or extend timelines in any adjudication
or pre-adjudication process pursuant to section 35.4(b) of the final
rule, although the general timelines set forth in the interim final
rule are maintained in the final rule.
V. Regulatory Analyses
Executive Orders 12866 and 13563
Regulatory Impact Assessment
This final rule is a ``significant regulatory action'' under
section 3(f) of Executive Order 12866 for the purposes of Executive
Orders 12866 and 13563 because it is likely to have an annual effect on
the economy of $100 million or more.
As explained below, this regulation meets a substantial need:
ensuring that recipients--states, territories, Tribal governments, and
local governments--of SLFRF funds fully understand the requirements and
parameters of the program as set forth in the statute and deploy funds
in a manner that best reflects Congress' intent to provide necessary
relief to recipient governments adversely impacted by the COVID-19
public health emergency. Furthermore, as required by Executive Orders
12866 and 13563, Treasury has weighed the costs and benefits of this
final rule and varying alternatives and has reasonably determined that
the benefits of the final rule to recipients and their communities far
outweigh any costs.
The rule has been reviewed by the Office of Management and Budget
(OMB) in accordance with Executive Order 12866.
Executive Orders 12866 and 13563
Under Executive Order 12866, OMB must determine whether this
regulatory action is ``significant,'' and therefore, subject to the
requirements of the Executive Order and subject to review by OMB.
Section 3(f) of Executive Order 12866 defines a significant regulatory
action as an action likely to result in a rule that may, among other
things, have an annual effect on the economy of $100 million or more.
This rule is likely to have an annual effect on the economy of $100
million or more, and therefore, it is subject to review by OMB under
section 3(f) of Executive Order 12866.
Treasury has also reviewed these regulations under Executive Order
13563, which supplements and explicitly reaffirms the principles,
structures, and definitions governing regulatory review established in
Executive Order 12866. To the extent permitted by law, section 1(b) of
Executive Order 13563 requires that an agency: (1) Propose or adopt
regulations only upon a reasoned determination that their benefits
justify their costs (recognizing that some benefits and costs are
difficult to quantify); (2) tailor its regulations to impose the least
burden on society, consistent with obtaining regulatory objectives
taking into account, among other things, and to the extent practicable,
the costs of cumulative regulations; (3) select, in choosing among
alternative regulatory approaches, those approaches that maximize net
benefits (including potential economic, environmental, public health
and safety, and other advantages; distributive impacts; and equity);
(4) to the extent feasible, specify performance objectives, rather than
the behavior or manner of compliance a regulated entity must adopt; and
(5) identify and assess available alternatives to direct regulation,
including providing economic incentives--such as user fees or
marketable permits--to encourage the desired behavior, or providing
information that enables the public to make choices. Executive Order
13563 also requires an agency ``to use the best available techniques to
quantify anticipated present and future benefits and costs as
accurately as possible.'' OMB's Office of Information and Regulatory
Affairs (OIRA) has emphasized that these techniques may include
``identifying changing future compliance costs that might result from
technological innovation or anticipated behavioral changes.''
Based on the analysis that follows and the reasons stated elsewhere
in this document, Treasury believes that this final rule is consistent
with the principles set forth in Executive Orders 12866 and 13563. This
Regulatory Impact Analysis discusses the need for regulatory action,
the potential benefits, and the potential costs. Treasury has assessed
the potential costs and benefits, both quantitative and qualitative, of
this regulatory action, and is issuing this final rule only on a
reasoned determination that the benefits exceed the costs. In choosing
among alternative regulatory approaches, Treasury selected those
approaches that would maximize net benefits.
Need for Regulatory Action
This final rule implements the $350 billion SLFRF program of the
ARPA, which Congress passed to help states, territories, Tribal
governments, and localities respond to the ongoing COVID-19 public
health emergency and its economic impacts. As the agency charged with
execution of these programs, Treasury has concluded that this final
rule is needed to ensure that recipients of SLFRF funds fully
[[Page 4440]]
understand the requirements and parameters of the program as set forth
in the statute and deploy funds in a manner that best reflects
Congress' mandate for targeted fiscal relief. This final rule governs
the use of $350 billion in grant funds from the federal government to
states, territories, Tribal governments, and localities, generating a
significant macroeconomic effect on the U.S. economy. Treasury has
sought to implement the program in ways that maximize its potential
benefits while minimizing its costs. It has done so by: aiming to
target relief in key areas according to the congressional mandate;
offering clarity to states, territories, Tribal governments, and
localities while maintaining their flexibility to respond to local
needs; and limiting administrative burdens.
Analysis of Benefits
Relative to a pre-statutory baseline, the SLFRF funds provide a
combined $350 billion to state, local, and Tribal governments for
fiscal relief and support for costs incurred responding to the COVID-19
pandemic. Treasury believes that this transfer will generate
substantial additional economic activity, although given the
flexibility accorded to recipients in the use of funds, it is not
possible to precisely estimate the extent to which this will occur and
the timing with which it will occur. Economic research has demonstrated
that state fiscal relief is an efficient and effective way to mitigate
declines in jobs and output during an economic downturn.\390\ Absent
such fiscal relief, fiscal austerity among state, local, and Tribal
governments could exert a prolonged drag on the overall economic
recovery, as occurred following the 2007-2009 recession.\391\
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\390\ See, e.g., Gabriel Chodorow-Reich et al., Does state
Fiscal Relief During Recessions Increase Employment? Evidence from
the American Recovery and Reinvestment Act, 4 American Economic
Journal 118-145 (2012) http://dx.doi.org/10.1257/pol.4.3.118.
\391\ See, e.g., Fitzpatrick, supra note 278.
---------------------------------------------------------------------------
This final rule provides benefits across several areas by
implementing the four eligible use categories, as defined in statute:
strengthening the response to the COVID-19 public health emergency and
its negative economic impacts; replacing lost revenue to ease fiscal
pressure on state, local, and Tribal governments that might otherwise
lead to harmful cutbacks in employment or government services;
providing premium pay to essential workers; and making necessary
investments in water, sewer, and broadband infrastructure.
These benefits are achieved in the final rule through a broadly
flexible approach that sets clear guidelines on eligible uses of SLFRF
funds and provides state, local, and Tribal government officials
discretion within those eligible uses to direct SLFRF funds to areas of
greatest need within their jurisdiction. While preserving recipients'
overall flexibility, the final rule includes several provisions that
implement statutory requirements and will help support use of SLFRF
funds to achieve the intended benefits. Preserving flexibility for
recipients not only serves an important public policy goal by allowing
them to meet particularized and diverse needs of their local
communities but also enhances the economic benefits of the final rule
by allowing recipients to choose eligible uses of funds that provide
the highest utility in their jurisdictions.
In implementing the ARPA, Treasury has also prioritized supporting
underserved communities that have been disproportionately impacted by
the pandemic. The SLFRF program as implemented by the final rule
provides even greater flexibility to recipients for uses of funds in
underserved communities, recognizing that pre-existing health and
economic disparities in these communities amplified the impact of the
pandemic there. In general, investments in improving health outcomes
and economic opportunities provide high economic returns, so this
approach is likely to achieve substantial near-term economic and public
health benefits, in addition to the longer-term benefits arising from
the allowable investments in water, sewer, and broadband
infrastructure.
The remainder of this section clarifies how Treasury's approach to
key provisions in the final rule will contribute to greater realization
of benefits from the program.
Public Health and Negative Economic Impacts
The eligible use category for responding to the public health and
negative economic impacts of the pandemic covers a wide range of
eligible uses of funds. Treasury addresses several key uses of funds in
this analysis, as well as ways that Treasury has structured this
eligible use to minimize recipient administrative burden while also
maintaining targeting of the funding to entities that experienced
negative impacts from the pandemic.
Government Employment: In order to bolster the government's ability
to effectively administer services, the final rule allows for a broader
set of eligible uses to restore and support public sector employment
relative to the interim final rule. In particular, eligible uses
include hiring up to a pre-pandemic baseline that is adjusted for
historic underinvestment in the public sector by allowing funds to be
used to pay for payroll and covered benefits associated with the
recipient increasing its number of employees up to 7.5 percent above
its pre-pandemic baseline. Eligible uses also include 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.
Treasury believes this expanded approach, relative to the interim
final rule, provides useful flexibility to recipients, which may
increase a state or local government's ability to effectively deliver
services to its residents. While the interim final rule already
explicitly permitted using funds to restore recipients' workforces up
to pre-pandemic levels, the final rule's inclusion of an upward
adjustment factor recognizes that, as the population or economy of a
jurisdiction grows over time, more workers are generally needed to
effectively meet responsibilities. It also provides recipients greater
room to employ funds toward building back the public sector workforce
after years of chronic underinvestment since the Great Recession.
Treasury arrived at the 7.5 percent adjustment factor through an
analysis of data from the Bureau of Labor Statistics on state and local
government employment and data from the Census Bureau on population to
estimate the extent of underinvestment in the public sector since the
onset of the Great Recession. While Treasury considered a range of
methodologies and point estimates to set the adjustment factor, a 7.5
percent factor errs on the side of recipient flexibility. Treasury
believes this adjustment enhances recipients' ability to identify and
meet the particularized needs of their communities. Treasury also
believes that the additional enumerated eligible uses for supporting
the workforce provide recipients several means to help retain current
workers, decreasing turnover costs.
Identifying Eligible Populations
Treasury has provided several methods for recipients to identify
households, populations, and communities eligible for services that
respond to the public health and negative economic impacts of the
pandemic. In general, these methods seek to provide recipients options
to identify eligible populations with minimal administrative burden,
while also maintaining targeting of the funds
[[Page 4441]]
to entities impacted by the pandemic. Recipients also retain
flexibility to identify and serve other populations and entities that
experienced pandemic impacts, ensuring that recipients can meet the
particularized needs of their local communities.
Defining Low and Moderate Income: To streamline the provision of
funds relating to negative economic impacts resulting from the
pandemic, Treasury has created an eligibility standard making it easier
for recipients to provide assistance to low- and moderate-income
populations without needing to identify and document a specific
negative economic impact. Populations falling under the definition of
low income are presumed to have been disproportionately impacted by the
pandemic, while those falling under the definition of moderate income
are presumed to have been impacted by the pandemic. In addition, the
final rule recognizes categorical eligibility for certain enumerated
programs and populations if a recipient chooses to implement
categorical eligibility when identifying impacted and
disproportionately impacted populations. Treasury considered several
options for eligibility standards that would reduce administrative
burdens for recipients when determining who qualifies as low and
moderate income.
One option involved defining a household as low income or moderate
income based only on FPG thresholds and could use levels lower than
those selected. This option involved setting uniform thresholds
throughout the country.
A second option took a broader approach, defining a household as
low income if it has (i) income at or below 185 percent of the FPG for
the size of its household or (ii) income at or below 40 percent of the
AMI for its county and size of household. The option defined a
household as moderate income if it has (i) income at or below 300
percent of the FPG for the size of its household or (ii) income at or
below 65 percent of the AMI for its county and size of household. The
combination of an FPG floor with AMI allows for a regional adjustment
in areas with substantially higher costs and incomes. Finally, Treasury
also considered a range of FPG and AMI thresholds above and below these
levels.
Treasury chose the second option. Treasury believes that the higher
FPG floor will ease administrative burdens by making more households
presumptively eligible for funds meant to address negative economic
impacts in a targeted manner. With respect to the low-income cutoff,
185 percent of the FPG for a family of four is $49,025, which is
approximately the wage earnings for a two-earner household where both
earners receive the median wage in occupations, such as waiters and
waitresses and hotel clerks, that were heavily impacted by COVID-19. As
such, this cutoff is likely to include more workers in industries
heavily impacted by COVID-19, who may be most likely to face
disproportionate impacts of the pandemic, than a lower threshold.\392\
With respect to the moderate-income cutoff, many households with
incomes between 200 percent and 300 percent of the FPG struggle with a
lack of economic security, suggesting that 300 percent of the FPG was
an appropriate cutoff for moderate income.
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\392\ See U.S. Bureau of Labor Statistics, Occupational
Employment and Wage Estimates, https://www.bls.gov/oes/current/oes_nat.htm (last visited November 9, 2021).
---------------------------------------------------------------------------
Treasury also considered relatively higher thresholds for both an
FPG and AMI approach; however, increasing income thresholds for
presumed eligibility increases the likelihood that higher-income
workers, who generally experienced fewer economic impacts from the
pandemic, would become presumed eligible for responsive services.
Providing services to households that did not experience a negative
economic impact, or experienced a relatively minimal impact, would
provide much less benefit than serving households that experienced more
severe impacts, diluting the benefits of the SLFRF funds.
In all, Treasury anticipates that these selected thresholds,
combined with the regional adjustment, will allow resources to be
targeted toward individuals and households with the greatest need while
also reducing administrative burdens on recipients.
Disproportionately Impacted Populations: In the interim final rule,
Treasury enumerated a broader set of eligible uses for
disproportionately impacted communities, in recognition of the pre-
existing health, economic, and social disparities that contributed to
disproportionate pandemic impacts in certain communities and that
addressing root causes of those disparities constitutes responding to
the public health and negative economic impacts of the pandemic. To
identify these communities and reduce administrative burden, Treasury
allowed recipients to presume that certain populations--those in QCTs
and those being served by Tribal governments--were disproportionately
impacted. In the final rule, to further decrease administrative burden
and enhance recipient flexibility, Treasury is allowing recipients to
also presume that low-income households were disproportionately
impacted. Treasury anticipates that adding low-income households as a
presumed eligible population will maintain targeting of funds to
populations and communities most likely to have experienced severe
pandemic impacts, while providing a more flexible approach for
recipients.
Identifying Impacted Classes: In the final rule, Treasury
reiterated its stance in the interim final rule allowing recipients to
designate a class of households or other entities as impacted or
disproportionately impacted and provide responsive services. After
designating a class, recipients can serve a household or entity by
simply identifying that the household or entity is a member of the
class. Relative to restricting services to only presumed eligible
populations identified by Treasury, this decision provides vital
administrative flexibility for recipients that may identify particular
impacted classes in the context of their jurisdiction. Treasury
anticipates that SLFRF funds will be targeted to impacted or
disproportionately impacted communities, as recipients must demonstrate
that the designated class experienced negative economic impacts or
meaningfully more severe negative economic impacts. This approach
maintains the requirement that entities served have to have experienced
a negative economic impact, while simultaneously minimizing any
administrative costs associated with meeting this requirement.
Additional Enumerated Uses
The interim final rule enumerated eligible uses of SLFRF funds to
serve both impacted and disproportionately impacted communities. For
example, enumerated eligible uses to serve impacted communities
included food assistance; rent, mortgage, or utility assistance; and
counselling and legal aid to prevent eviction or homelessness. Examples
of enumerated eligible uses to serve disproportionately impacted
communities included remediation of lead paint or other lead hazards
and housing vouchers and assistance relocating to neighborhoods with
higher levels of economic opportunity. In the final rule, Treasury had
the option to retain, expand, or reduce enumerated eligible uses, or
shift use eligibility between disproportionately impacted and impacted
communities. Many
[[Page 4442]]
public comments suggested potential expansions of uses, including
shifting enumerated eligible uses for disproportionately impacted
communities to serve a broader population of impacted communities.
Taking these comments into account, Treasury generally took this
approach, in anticipation that the benefits of the program will
increase while recipient administrative costs in identifying and
justifying non-enumerated uses of funds will decrease.
Specifically, Treasury added enumerated eligible uses for impacted
populations including paid sick, medical, or family leave; health
insurance subsidies; and services for the unbanked and underbanked, on
the basis that impacts of the pandemic that were broadly experienced by
many communities would be addressed by these uses. Treasury also
shifted some eligible uses, formerly restricted only to
disproportionately impacted communities, to impacted communities. These
uses included community violence intervention, assistance accessing or
applying to public benefits and services, affordable housing
development, and services to promote healthy childhood environments
like childcare and early learning. These uses were shifted on the basis
that the associated impacts of the pandemic were experienced by a
broader population, and responses are, accordingly, eligible to benefit
a broader population.
Additionally, the final rule clarified that investments in parks
and other public outdoor recreation spaces are enumerated eligible uses
for disproportionately impacted communities. In including these uses,
Treasury took into account evidence on the social determinants of
health, or the ways that social context, like the neighborhood built
environment, impacts health outcomes. By taking a more holistic
approach to public health, the final rule allows recipients to respond
more broadly to factors that contributed to the pandemic's health
impacts and more fully mitigate those health impacts.
To balance administrative flexibility with a maintenance of focus
on impacts of the pandemic, Treasury considered, but did not include,
other proposed enumerated uses that did not respond to the impacts of
the pandemic or responded to impacts that were not experienced
generally across the country by many jurisdictions and populations. For
example, Treasury did not include pollution remediation broadly, a
proposed enumerated eligible use for disproportionately impacted
communities, on the basis that associated projects would only respond
to disproportionate impacts of the pandemic depending on the specific
issue addressed. In sum, Treasury expanded enumerated eligible uses
while retaining a focus on broadly experienced impacts of the pandemic.
Treasury anticipates that this will give recipients further flexibility
to presume eligibility and respond to pandemic impacts without
increasing administrative burden.
Capital Expenditures: In the interim final rule, Treasury permitted
funds to be used for a limited number of capital expenditures mostly
related to the COVID-19 public health response. This decision granted
recipients some discretion to use SLFRF funds to address COVID-19
prevention and mitigation through certain investments in equipment,
real property, and facilities, which Treasury recognized as critical
components of the public health response. In the final rule, Treasury
considered maintaining the provisions in the interim final rule or
expanding allowable capital expenditures to provide recipients greater
flexibility to pursue other capital investments that are responsive to
the public health emergency and its negative economic impacts. While
expanding allowable capital expenditures may increase the risk that
recipients will undertake large expenditures that do not sufficiently
address intended harms, or address harms in a less cost-efficient
manner than an alternative investment (e.g., a program or service),
expanding allowable capital expenditures would likely help fill
critical gaps in recipients' response to the pandemic and provide
equipment and facilities that generate benefits beyond SLFRF's period
of performance. To preserve flexibility while mitigating risks, the
final rule allows recipients to undertake an expanded set of capital
expenditures while requiring additional written justifications for
projects with an expected total cost at or over $1 million. Treasury
believes this approach balances the implementation of appropriate risk-
based compliance requirements and the provision of administrative
convenience for smaller capital expenditures, while generally allowing
recipients the flexibility to undertake a greater variety of responsive
capital expenditures.
Revenue Loss
Revenue Loss Formula: In this final rule, Treasury's approach to
revenue loss allows recipients to compute the extent of reduction in
revenue by comparing actual revenue to a counterfactual trend
representing what could have plausibly been expected to occur in the
absence of the pandemic. The counterfactual trend begins with the last
full fiscal year prior to the public health emergency (as required by
statute) and projects forward with an annualized growth adjustment.
Treasury has made several adjustments in the final rule to decrease
administrative burden, reducing costs for recipients, while still
accurately capturing reductions in revenue due to the pandemic.
Under the interim final rule, Treasury specified that recipients
calculate revenue loss on a calendar year basis. In this final rule,
Treasury is providing recipients the option to calculate revenue loss
on a calendar year or fiscal year basis, which will allow recipients
the administrative flexibility to minimize administrative burdens based
on the data available to them.
Treasury's decision to incorporate a growth adjustment into the
calculation of revenue loss ensures that the formula more fully
captures revenue shortfalls relative to recipients' pre-pandemic
expectations. Recipients will have the opportunity to calculate revenue
loss at several points throughout the program, recognizing that some
recipients may experience revenue effects with a lag. This option to
re-calculate revenue loss on an ongoing basis is intended to result in
more support for recipients to avoid harmful cutbacks in future years.
In calculating revenue loss, recipients will look at general revenue in
the aggregate, rather than on a source-by-source basis, given that
recipients may have experienced offsetting changes in revenues across
sources. The final rule also provides for removing the impact of tax
increasing or decreasing changes, which affect the amount of revenue
collected but are not ``due to'' the pandemic, from the calculation of
revenue loss due to the public health emergency. Both of these
components of Treasury's approach provide a more accurate
representation of the effect of the pandemic on overall revenues.
Revenue Loss Standard Allowance: In addition to largely preserving
the formula to calculate revenue loss from the interim final rule,
Treasury also added an alternative ``standard allowance'' option for
the revenue loss calculation to this final rule. Treasury's decision to
elect to allow a fixed amount of loss that can be used to fund
``government services'' allows recipients the flexibility to use
minimal administrative capacity on the calculation if desired. The
decision also benefits recipients by allowing them to avoid expending
administrative
[[Page 4443]]
resources to determine how unique variations in revenue interact with
the revenue loss formula.
Premium Pay
Per the ARPA statute, recipients have broad latitude to designate
critical infrastructure sectors and make grants to third-party
employers for the purpose of providing premium pay. While the final
rule provides significant flexibility to implement the statutory
requirement that premium pay respond to essential workers, it requires
recipients give written justification in the case that premium pay
would increase a worker's annual pay above a certain threshold or is
awarded to an individual whose annual pay is already above that
threshold. To set this threshold, Treasury analyzed data from the
Bureau of Labor Statistics to determine a level that would not require
further justification for premium pay to the vast majority of essential
workers, while requiring higher scrutiny for provision of premium pay
to higher earners who, even without premium pay, would likely have
greater personal financial resources to cope with the effects of the
pandemic. Alternatively, a recipient need not submit written
justification to Treasury if the worker receiving premium pay is
eligible for overtime under the FLSA. Treasury believes this
alternative, which is an addition to the final rule, will give
recipients more flexibility and will simplify application of the final
rule as employers, public and private, are already legally required to
determine whether an employee is eligible for overtime pay under the
FLSA. Treasury believes the threshold and overtime eligibility
provision in the final rule strike the appropriate balance between
preserving flexibility and helping encourage use of these resources to
help those in greatest need. The final rule also requires that workers
eligible for premium pay have regular in-person interactions or regular
physical handling of items that were also handled by others. This
requirement will help encourage use of financial resources for those
who have endured the heightened risk of performing essential work.
Water and Sewer Infrastructure
In the interim final rule, Treasury aligned eligible uses of funds
for water and sewer infrastructure to those projects eligible to
receive financial assistance through the DWSRF and CWSRF administered
by the EPA.
The benefits of this approach included giving recipients an
existing list that would provide them clarity as well as flexibility in
identifying eligible projects, particularly given the broad range of
projects eligible under the CWSRF and DWSRF. The approach also ensured
that projects would conform to vetted project types from a widely used
program. Treasury received comments from recipients requesting
additional project categories to be considered eligible, indicating a
potential cost to maintaining alignment with the CWSRF and DWSRF.
For the final rule, Treasury has expanded eligibility to include
several additional project types beyond those covered by the CWSRF and
DWSRF.
Treasury believes that expanded eligibility will benefit recipients
by allowing them additional flexibility to pursue beneficial projects,
including project categories that support the provision of drinking
water and the removal, management, and treatment of wastewater and
stormwater: Additional stormwater management projects, private well
infrastructure, additional projects that address lead in water, and
certain dam and reservoir rehabilitation projects undertaken to address
the provision of drinking water. A potential cost of this approach is
that uses beyond the CSWRF and DWSRF may have less public guidance
available to understand project eligibilities. However, Treasury
anticipates that this eligibility expansion will provide a net benefit
to recipients by allowing them to pursue projects relevant to their
goals that were ineligible under the interim final rule.
The expansion to allow private well infrastructure may also affect
the distributional impact of SLFRF. Private wells disproportionately
serve rural Americans, including low-income households, and expanding
eligibility to include this use may allow SLFRF funds to benefit such
households. While distributional impacts are uncertain, Treasury
believes that the potential for benefits to accrue to rural and low-
income households makes it important to clarify that these types of
projects are eligible.
Broadband Infrastructure
In the final rule, Treasury expands eligible areas for broadband
investment by requiring that recipients invest in projects designed to
provide service to households and businesses with an identified need
for additional broadband investment, including increasing access to
high-speed broadband, increasing the affordability of broadband
services, and improving the reliability of broadband service.\393\
Treasury considered multiple alternatives when selecting this standard.
The threshold for the interim final rule allowed benefits to accrue in
a more targeted manner to the approximately 9 percent of the country
with access to speeds under the 25/3 Mbps threshold.\394\ However,
since SLFRF funds are distributed to tens of thousands of governments
across the country with a variety of broadband needs, Treasury believes
that allowing recipients greater flexibility to determine locations to
serve in their jurisdictions--including considering affordability and
competition barriers--will lead to greater long-term public benefit.
Further, given that many federal broadband grant programs are focused
solely on unserved and underserved areas, Treasury believes that the
final rule's flexibility enables these funds to fill an important role
in the overall federal broadband landscape.
---------------------------------------------------------------------------
\393\ Further, the final rule encourages, but does not require,
that recipients pursue broadband infrastructure projects in
locations not currently served by a wireline connection that
reliably delivers at least 100 Mbps of download speed and 20 Mbps of
upload speed.
\394\ Data from the Federal Communications Commission shows that
as of June 2020, 9.07 percent of the U.S. population had no
available cable or fiber broadband providers providing greater than
25 Mbps download speeds and 3 Mbps upload speeds. Federal
Communications Commission, Fixed Broadband Deployment, https://broadbandmap.fcc.gov/#/ (last visited May 9, 2021).
---------------------------------------------------------------------------
In the final rule, Treasury also requires that broadband projects
must meet a standard of reliably delivering at least 100 Mbps download
speeds and upload speeds, or in cases where it is not practicable to do
so, reliably delivering at least 100 Mbps download speed and between at
least 20 Mbps and 100 Mbps upload speed while being scalable to 100
Mbps upload and download speeds. Treasury expects that this threshold
will yield long-term benefits and allow networks to meet both pandemic-
related and future needs. The Federal Communications Commission (FCC)
estimates that currently a household with two to three remote learners
using the internet simultaneously needs a connection supporting 100
Mbps download speeds.\395\ While a lower threshold may have resulted in
lower near-term costs to build, it would have potentially constrained
future utility from the infrastructure by producing infrastructure that
would more quickly--potentially in the near-term--become obsolete and
no longer meet household needs, potentially requiring sooner
replacement and generally decreasing the return on investment. As
[[Page 4444]]
such, projects meeting a lower threshold could not be considered
``necessary'' investments in broadband infrastructure, so Treasury has
retained the threshold from the interim final rule.
---------------------------------------------------------------------------
\395\ See Federal Communications Commission, Broadband Speed
Guide, available at https://www.fcc.gov/consumers/guides/broadband-speed-guide (last visited October 28, 2021).
---------------------------------------------------------------------------
Further, the final rule adds a requirement that recipients address
the affordability needs of low-income consumers in accessing broadband
networks funded by SLFRF, either by requiring service providers that
provide service to households to either participate in the FCC's
Affordable Connectivity Program (ACP), or a broad-based affordability
program with commensurate benefits. Treasury believes that this
requirement will increase the number of customers that are able to take
advantage of broadband infrastructure funded by SLFRF, increasing the
effectiveness of funds in connecting households and businesses to high-
speed internet that is critical to work, health, and education. There
is a potential that this requirement may marginally increase project
costs for recipients and providers, but this impact is uncertain, given
the varying business models and pricing structures of broadband
projects and providers.
Labor Standards
In this Supplementary Information for the final rule, Treasury
encourages recipients to ensure that capital expenditures to respond to
the public health and negative economic impacts of the pandemic and
water, sewer, and broadband projects use strong labor standards,
including, for example, project labor agreements and community benefits
agreements that offer wages at or above the prevailing rate and include
local hire provisions. Treasury believes that its encouragement of
labor standards carries benefits because it will ensure that workers
have access to strong employment opportunities associated with
infrastructure projects, which will in turn aid the economic recovery.
Treasury believes that infrastructure projects may also benefit from
stronger labor standards due to the potential of these standards to
ensure a stronger skilled labor supply and minimize labor disputes and
workplace injuries, which can result in costly disruptions to projects.
Treasury assesses that these benefits will increase the economy and
efficiency of infrastructure projects undertaken through SLFRF and will
outweigh the potential for a marginal increase in labor costs.
Splitting Payments to Recipients
Treasury is required by statute to deliver funds to local
governments in two payments separated by at least twelve months, and
the interim final rule provided for split payments to a majority of
states as well. As discussed above, splitting payments ensures that
recipients can adapt spending plans to evolving economic conditions and
that at least some of the economic benefits will be realized in 2022 or
later. However, consistent with authorities granted to Treasury in the
statute, Treasury recognizes that a subset of states with significant
remaining elevation in the unemployment rate could face heightened
additional near term needs to aid unemployed workers and stimulate the
recovery. Therefore, for a subset of state governments, Treasury has
provided funds in one payment. Treasury believes that this approach
strikes an appropriate balance between the general reasons to provide
funds in two payments and the heightened additional near-term needs in
specific states. As discussed above, Treasury set a threshold based on
historical analysis of unemployment rates in recessions.
Reaching Underserved Communities
Finally, the final rule aims to promote and streamline the
provision of assistance to individuals and communities in greatest
need, particularly communities that have been historically underserved
and have experienced disproportionate impacts of the COVID-19 crisis.
Targeting relief is in line with Executive Order 13985, ``Advancing
Racial Equity and Support for Underserved Communities Through the
Federal Government,'' which laid out an Administration-wide priority to
support ``equity for all, including people of color and others who have
been historically underserved, marginalized, and adversely affected by
persistent poverty and inequality.'' To this end, the final rule
enumerates a list of services that may be provided using SLFRF funds in
disproportionately impacted communities, including low-income areas, to
address the more severe impacts of the pandemic in these communities;
establishes the characteristics of essential workers eligible for
premium pay and encouragement to serve workers based on financial need;
provides that recipients may use SLFRF funds to restore state and local
workforces, where women and people of color are disproportionately
represented; and requires that broadband infrastructure projects
participate in programs to support affordability of broadband service.
Collectively, these provisions will promote use of resources to
facilitate the provision of assistance to individuals and communities
with the greatest need.
Analysis of Costs
This regulatory action will generate administrative costs relative
to a pre-statutory baseline. This includes, chiefly, costs required to
administer SLFRF funds, oversee subrecipients and beneficiaries, and
file periodic reports with Treasury. It also requires states to
allocate SLFRF funds to nonentitlement units, which are smaller units
of local government that are statutorily required to receive their
funds through states. Treasury expects that the administrative burden
associated with this program will be moderate for a grant program of
its size. Treasury expects that many recipients receive direct or
indirect funding from federal government programs and that many have
familiarity with how to administer and report on federal funds or grant
funding provided by other entities. In particular, states, territories,
and large localities will have received funds from the Coronavirus
Relief Fund (CRF) and Treasury expects them to rely heavily on
established processes developed through that program or other prior
grant funding, mitigating burden on these governments. Treasury has
enhanced the level of recipient reporting as compared to the CRF,
incorporating feedback from the Government Accountability Office and
others that additions would improve the oversight of recipients' use of
funds. To balance the oversight benefits with the costs of added
reporting burdens, Treasury has incorporated other mechanisms to
mitigate burden. For example, Treasury is ``tiering'' reporting
requirements so that recipients that receive relatively lesser amounts
of SLFRF funds are required to submit less frequent reports than
recipients receiving greater amounts of funds. Treasury is noting
administrative costs as a generally allowable use of SLFRF funds, which
defrays administrative expenses to recipients that may be needed to
comply with reporting requirements. Treasury has also provided options
for recipients to use eligibility thresholds they are already familiar
with during administration of SLFRF funds, which will enable recipients
to avoid the costs of setting up new programs and reporting mechanisms
to meet reporting and compliance requirements. For example, Treasury
has permitted recipients to use ``categorical eligibility'' when
delivering assistance to particular groups, such as impacted or
disproportionately impacted households.
[[Page 4445]]
In making implementation choices, Treasury has hosted numerous
consultations with a diverse range of direct recipients--states,
cities, counties, and Tribal governments--along with various
communities across the United States, including those that are
underserved. Furthermore, Treasury has made clear in guidance that
SLFRF funds may be used to cover certain expenses related to
administering programs established using SLFRF funds.\396\
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\396\ See Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, 10.2, as of July 19, 2021; https://home.treasury.gov/system/files/136/SLFRPFAQ.pdf.
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Executive Order 13132
Executive Order 13132 (entitled Federalism) prohibits an agency
from publishing any rule that has federalism implications if the rule
either imposes substantial, direct compliance costs on state, local,
and Tribal governments, and is not required by statute, or preempts
state law, unless the agency meets the consultation and funding
requirements of section 6 of the Executive Order. This final rule does
not have federalism implications within the meaning of the Executive
Order and does not impose substantial, direct compliance costs on
state, local, and Tribal governments or preempt state law within the
meaning of the Executive Order. The compliance costs are imposed on
state, local, and Tribal governments by sections 602 and 603 of the
Social Security Act, as enacted by the ARPA. Notwithstanding the above,
Treasury has engaged in efforts to consult and work cooperatively with
affected state, local, and Tribal government officials and associations
in the process of developing the interim final rule and this final
rule. Pursuant to the requirements set forth in section 8(a) of
Executive Order 13132, Treasury certifies that it has complied with the
requirements of Executive Order 13132.
Administrative Procedure Act
The Administrative Procedure Act (APA), 5 U.S.C. 551 et seq.,
generally requires public notice and an opportunity for comment before
a rule becomes effective. However, the APA provides that the
requirements of 5 U.S.C. 553 do not apply ``to the extent that there is
involved . . . a matter relating to agency . . . grants.'' The APA also
provides an exception to ordinary notice-and-comment procedures ``when
the agency for good cause finds (and incorporates the finding and a
brief statement of reasons therefor in the rules issued) that notice
and public procedure thereon are impracticable, unnecessary, or
contrary to the public interest.'' 5 U.S.C. 553(b)(B). The interim
final rule was issued without prior notice and comment procedures
because it implemented statutory conditions on the eligible uses of
SLFRF funds, and addressed the payment of those funds, the reporting on
uses of funds, and potential consequences of ineligible uses to help
address the economic and public health emergency. See the Supplementary
Information section of the May 17, 2021 interim final rule for the
applicability of the requirements of 5 U.S.C. 553. In addition, under
the exception discussed in that section for matters relating to agency
grants, the requirements of 5 U.S.C. 553 also do not apply to this
final rule. After careful consideration of the comments received, this
final rule adopts the May 17, 2021 interim final rule with the
revisions discussed in this Supplementary Information.
Congressional Review Act
The Administrator of OIRA has determined that this is a major rule
for purposes of Subtitle E of the Small Business Regulatory Enforcement
and Fairness Act of 1996 (also known as the Congressional Review Act or
CRA) (5 U.S.C. 804(2) et seq.). Under the CRA, a major rule generally
may take effect no earlier than 60 days after the rule is published in
the Federal Register. 5 U.S.C. 801(a)(3).
Paperwork Reduction Act
The information collections associated with the SLFRF program have
been reviewed and approved by OMB pursuant to the Paperwork Reduction
Act (44 U.S.C. Chapter 35) (PRA) and assigned control number 1505-0271.
Under the PRA, an agency may not conduct or sponsor, and a respondent
is not required to respond to, an information collection unless it
displays a valid OMB control number.
Estimates of hourly burden under this program are set forth in the
table below.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number Cost to
Number responses Total Total respondents
Reporting respondents per responses Hours per response burden in ($48.80 per
respondent hours hour *)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Recipient Payment Form....................... 5,050 1 5,050 .25 (15 minutes)........................ 1,262.5 $61,610
Acceptance of Award Terms.................... 5,050 1 5,050 .25 (15 minutes)........................ 1,262.5 61,610
Title VI Assurances.......................... 5,050 1 5,050 .50 (30 minutes)........................ 2,525 123,220
Tribal Employment Information Form........... 584 1 584 .75 (45 minutes)........................ 438 21,374
Request for Extension Form................... 96 1 96 1....................................... 96 4,685
Annual Recovery Plan Performance Report...... 430 1 430 100..................................... 43,000 2,098,400
NEU Distribution Template.................... 55 2 110 10...................................... 1,100 53,680
Non-UGLG Distribution Template............... 55 2 110 5....................................... 550 26,840
Transfer Forms............................... 1,500 1 1,500 1....................................... 1,500 73,200
Project and Expenditure Report............... 37,000 1 37,000 5....................................... 185,000 9,028,000
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Total.................................... 54,870 ........... 54,980 ........................................ 236,735 11,552,619
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Accountants and Auditors, on the internet at https://www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm (visited March 28, 2020). Base wage of $33.89/hour increased by 44 percent to account for
fully loaded employer cost of employee compensation (benefits, etc.) for a fully loaded wage rate of $48.80.
Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA) generally requires that when
an agency issues a proposed rule, or a final rule pursuant to section
553(b) of the Administrative Procedure Act or another law, the agency
must prepare a regulatory flexibility analysis that meets the
requirements of the RFA and publish such analysis in the Federal
Register. 5 U.S.C. 603, 604.
Rules that are exempt from notice and comment under the APA or any
other law are also exempt from the RFA
[[Page 4446]]
requirements, including the requirement to conduct a regulatory
flexibility analysis, when among other things the agency for good cause
finds that notice and public procedure are impracticable, unnecessary,
or contrary to the public interest. Because this rule is exempt from
the notice and comment requirements of the APA, Treasury is not
required to conduct a regulatory flexibility analysis.
Rule Text
List of Subjects in 31 CFR Part 35
Executive compensation, State and Local Governments, Tribal
Governments, Public health emergency.
For the reasons stated in the preamble, the United States
Department of the Treasury amends 31 CFR part 35 as follows:
PART 35--PANDEMIC RELIEF PROGRAMS
0
1. Revise Subpart A to read as follows:
Subpart A--Coronavirus State and Local Fiscal Recovery Funds
Sec.
35.1 Purpose.
35.2 Applicability.
35.3 Definitions.
35.4 Reservation of authority, reporting.
35.5 Use of funds.
35.6 Eligible uses.
35.7 Pensions.
35.8 Tax.
35.9. Compliance with applicable laws.
35.10. Recoupment.
35.11 Payments to States.
35.12. Distributions to nonentitlement units of local government and
units of general local government.
Authority: 42 U.S.C. 802(f); 42 U.S.C. 803(f).
Sec. 35.1 Purpose.
This part implements section 9901 of the American Rescue Plan Act
(Subtitle M of Title IX of Pub. L. 117-2), which amends Title VI of the
Social Security Act (42 U.S.C. 801 et seq.) by adding sections 602 and
603 to establish the Coronavirus State Fiscal Recovery Fund and
Coronavirus Local Fiscal Recovery Fund.
Sec. 35.2 Applicability.
This part applies to states, territories, Tribal governments,
metropolitan cities, nonentitlement units of local government,
counties, and units of general local government that accept a payment
or transfer of funds made under section 602 or 603 of the Social
Security Act.
Sec. 35.3 Definitions.
Baseline means tax revenue of the recipient for its fiscal year
ending in 2019, adjusted for inflation in each reporting year using the
Bureau of Economic Analysis's Implicit Price Deflator for the gross
domestic product of the United States.
Capital expenditures has the same meaning given in 2 CFR 200.1.
County means a county, parish, or other equivalent county division
(as defined by the Census Bureau).
Covered benefits include, but are not limited to, the 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 taxes (which includes Social Security and
Medicare taxes).
Covered change means a change in law, regulation, or administrative
interpretation that reduces any tax (by providing for a reduction in a
rate, a rebate, a deduction, a credit, or otherwise) or delays the
imposition of any tax or tax increase. A change in law includes any
final legislative or regulatory action, a new or changed administrative
interpretation, and the phase-in or taking effect of any statute or
rule if the phase-in or taking effect was not prescribed prior to the
start of the covered period.
Covered period means, with respect to a state or territory, the
period that:
(1) Begins on March 3, 2021; and
(2) Ends on the last day of the fiscal year of such State or
territory in which all funds received by the State or territory from a
payment made under section 602 or 603 of the Social Security Act have
been expended or returned to, or recovered by, the Secretary.
COVID-19 means the Coronavirus Disease 2019.
COVID-19 public health emergency means the period beginning on
January 27, 2020 and lasting until the termination of the national
emergency concerning the COVID-19 outbreak declared pursuant to the
National Emergencies Act (50 U.S.C. 1601 et seq.).
Deposit means an extraordinary payment of an accrued, unfunded
liability. The term deposit does not refer to routine contributions
made by an employer to pension funds as part of the employer's
obligations related to payroll, such as either a pension contribution
consisting of a normal cost component related to current employees or a
component addressing the amortization of unfunded liabilities
calculated by reference to the employer's payroll costs.
Eligible employer means an employer of an eligible worker who
performs essential work.
Eligible workers means workers needed to maintain continuity of
operations of essential critical infrastructure sectors, including
health care; emergency response; sanitation, disinfection, and cleaning
work; maintenance work; grocery stores, restaurants, food production,
and food delivery; pharmacy; biomedical research; behavioral health
work; medical testing and diagnostics; home- and community-based health
care or assistance with activities of daily living; family or
childcare; social services work; public health work; vital services to
Tribes; any work performed by an employee of a State, local, or Tribal
government; educational work, school nutrition work, and other work
required to operate a school facility; laundry work; elections work;
solid waste or hazardous materials management, response, and cleanup
work; work requiring physical interaction with patients; dental care
work; transportation and warehousing; work at hotel and commercial
lodging facilities that are used for COVID-19 mitigation and
containment; work in a mortuary; and work in critical clinical
research, development, and testing necessary for COVID-19 response.
(1) With respect to a recipient that is a metropolitan city,
nonentitlement unit of local government, or county, workers in any
additional non-public sectors as each chief executive officer of such
recipient may designate as critical to protect the health and well-
being of the residents of their metropolitan city, nonentitlement unit
of local government, or county; or
(2) With respect to a State, territory, or Tribal government,
workers in any additional non-public sectors as each Governor of a
State or territory, or each Tribal government, may designate as
critical to protect the health and well-being of the residents of their
State, territory, or Tribal government.
Essential work means work that:
(1) Is not performed while teleworking from a residence; and
(2) Involves:
(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.
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Funds means, with respect to a recipient, amounts provided to the
recipient pursuant to a payment made under section 602(b) or 603(b) of
the Social Security Act or transferred to the recipient pursuant to
section 603(c)(4) of the Social Security Act.
General revenue means money that is received from tax revenue,
current charges, and miscellaneous general revenue, excluding refunds
and other correcting transactions and proceeds from issuance of debt or
the sale of investments, agency or private trust transactions, and
intergovernmental transfers from the Federal Government, including
transfers made pursuant to section 9901 of the American Rescue Plan
Act. General revenue also includes revenue from liquor stores that are
owned and operated by state and local governments. General revenue does
not include revenues from utilities, except recipients may choose to
include revenue from utilities that are part of their own government as
general revenue provided the recipient does so consistently over the
remainder of the period of performance. Revenue from Tribal business
enterprises must be included in general revenue.
Intergovernmental transfers means money received from other
governments, including grants and shared taxes.
Low-income household means a household with:
(1) Income at or below 185 percent of the Federal Poverty
Guidelines for the size of its household based on the poverty
guidelines published most recently by the Department of Health and
Human Services; or
(2) Income at or below 40 percent of the Area Median Income for its
county and size of household based on data published most recently by
the Department of Housing and Urban Development.
Micro-business means a small business that has five or fewer
employees, one or more of whom owns the small business.
Moderate-income household means a household with:
(1) Income at or below 300 percent of the Federal Poverty
Guidelines for the size of its household based on poverty guidelines
published most recently by the Department of Health and Human Services;
or
(2) Income at or below 65 percent of the Area Median Income for its
county and size of household based on data published most recently by
the Department of Housing and Urban Development.
Metropolitan city has the meaning given that term in section
102(a)(4) of the Housing and Community Development Act of 1974 (42
U.S.C. 5302(a)(4)) and includes cities that relinquish or defer their
status as a metropolitan city for purposes of receiving allocations
under section 106 of such Act (42 U.S.C. 5306) for fiscal year 2021.
Net reduction in total spending is measured as the State or
territory's total spending for a given reporting year excluding its
spending of funds, subtracted from its total spending for its fiscal
year ending in 2019, adjusted for inflation using the Bureau of
Economic Analysis's Implicit Price Deflator for the gross domestic
product of the United States for that reporting year.
Nonentitlement unit of local government means a ``city,'' as that
term is defined in section 102(a)(5) of the Housing and Community
Development Act of 1974 (42 U.S.C. 5302(a)(5)), that is not a
metropolitan city.
Nonprofit means a nonprofit organization that is exempt from
Federal income taxation and that is described in section 501(c)(3) or
501(c)(19) of the Internal Revenue Code.
Obligation means an order placed for property and services and
entering into contracts, subawards, and similar transactions that
require payment.
Pension fund means a defined benefit plan and does not include a
defined contribution plan.
Period of performance means the time period described in Sec. 35.5
during which a recipient may obligate and expend funds in accordance
with sections 602(c)(1) and 603(c)(1) of the Social Security Act and
this subpart.
Premium pay means an amount of up to $13 per hour that is paid to
an eligible worker, 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 in total over the period of performance with respect to
any single eligible worker. Premium pay may be awarded to non-hourly
and part-time eligible workers performing essential work. Premium pay
will be considered to be in addition to wages or remuneration the
eligible worker otherwise receives if, as measured on an hourly rate,
the premium pay is:
(1) With regard to work that the eligible worker previously
performed, pay and remuneration equal to the sum of all wages and
remuneration previously received plus up to $13 per hour with no
reduction, substitution, offset, or other diminishment of the eligible
worker's previous, current, or prospective wages or remuneration; or
(2) With regard to work that the eligible worker continues to
perform, pay of up to $13 per hour that is in addition to the eligible
worker's regular rate of wages or remuneration, with no reduction,
substitution, offset, or other diminishment of the worker's current and
prospective wages or remuneration.
Qualified census tract has the same meaning given in 26 U.S.C.
42(d)(5)(B)(ii)(I).
Recipient means a State, territory, Tribal government, metropolitan
city, nonentitlement unit of local government, county, or unit of
general local government that receives a payment made under section
602(b) or 603(b) of the Social Security Act or transfer pursuant to
section 603(c)(4) of the Social Security Act.
Reporting year means a single year or partial year within the
covered period, aligned to the current fiscal year of the State or
territory during the covered period.
Secretary means the Secretary of the Treasury.
State means each of the 50 States and the District of Columbia.
Small business means 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).
Tax revenue means revenue received from a compulsory contribution
that is exacted by a government for public purposes excluding refunds
and corrections and, for purposes of Sec. 35.8, intergovernmental
transfers. Tax revenue does not include payments for a special
privilege granted or service rendered, employee or employer assessments
and contributions to finance retirement and social insurance trust
systems, or special assessments to pay for capital improvements.
Territory means the Commonwealth of Puerto Rico, the United States
Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands,
or American Samoa.
Title I eligible schools means schools eligible to receive services
under section 1113 of Title I, Part A of the Elementary and Secondary
Education Act of 1965, as amended (20 U.S.C. 6313), including schools
served under section 1113(b)(1)(C) of that Act.
Tribal enterprise means a business concern:
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(1) That is wholly owned by one or more Tribal governments, or by a
corporation that is wholly owned by one or more Tribal governments; or
(2) That is owned in part by one or more Tribal governments, or by
a corporation that is wholly owned by one or more Tribal governments,
if all other owners are either United States citizens or small business
concerns, as these terms are used and consistent with the definitions
in 15 U.S.C. 657a(b)(2)(D).
Tribal government means the recognized governing body of any Indian
or Alaska Native Tribe, band, nation, pueblo, village, community,
component band, or component reservation, individually identified
(including parenthetically) in the list published on January 29, 2021,
pursuant to section 104 of the Federally Recognized Indian Tribe List
Act of 1994 (25 U.S.C. 5131).
Unemployment rate means the U-3 unemployment rate provided by the
Bureau of Labor Statistics as part of the Local Area Unemployment
Statistics program, measured as total unemployment as a percentage of
the civilian labor force.
Unemployment trust fund means an unemployment trust fund
established under section 904 of the Social Security Act (42 U.S.C.
1104).
Unit of general local government has the meaning given to that term
in section 102(a)(1) of the Housing and Community Development Act of
1974 (42 U.S.C. 5302(a)(1)).
Sec. 35.4 Reservation of authority, reporting.
(a) Reservation of authority. Nothing in this part shall limit the
authority of the Secretary to take action to enforce conditions or
violations of law, including actions necessary to prevent evasions of
this subpart.
(b) Extensions or accelerations of timing. The Secretary may extend
or accelerate any deadline or compliance date of this part, including
reporting requirements that implement this subpart, if the Secretary
determines that such extension or acceleration is appropriate. In
determining whether an extension or acceleration is appropriate, the
Secretary will consider the period of time that would be extended or
accelerated and how the modified timeline would facilitate compliance
with this subpart.
(c) Reporting and requests for other information. During the period
of performance, recipients shall provide to the Secretary periodic
reports providing detailed accounting of the uses of funds,
modifications to a State or Territory's tax revenue sources, and such
other information as the Secretary may require for the administration
of this section. In addition to regular reporting requirements, the
Secretary may request other additional information as may be necessary
or appropriate, including as may be necessary to prevent evasions of
the requirements of this subpart. False statements or claims made to
the Secretary may result in criminal, civil, or administrative
sanctions, including fines, imprisonment, civil damages and penalties,
debarment from participating in Federal awards or contracts, and/or any
other remedy available by law.
Sec. 35.5 Use of funds.
(a) In general. A recipient may only use funds to cover costs
incurred during the period beginning March 3, 2021, and ending December
31, 2024, for one or more of the purposes enumerated in sections
602(c)(1) and 603(c)(1) of the Social Security Act, as applicable,
including those enumerated in Sec. 35.6, subject to the restrictions
set forth in sections 602(c)(2) and 603(c)(2) of the Social Security
Act, as applicable.
(b) Costs incurred. A cost shall be considered to have been
incurred for purposes of paragraph (a) of this section if the recipient
has incurred an obligation with respect to such cost by December 31,
2024.
(c) Return of funds. A recipient must return any funds not
obligated by December 31, 2024. A recipient must also return funds
obligated by December 31, 2024 but not expended by December 31, 2026.
Sec. 35.6 Eligible uses.
(a) In general. Subject to Sec. Sec. 35.7 and 35.8, a recipient
may use funds for one or more of the purposes described in paragraphs
(b) through (f) of this section.
(b) Responding to the public health emergency or its negative
economic impacts. A recipient may use funds to respond to the public
health emergency or its negative economic impacts if the use meets the
criteria provided in paragraph (b)(1) of this section or is enumerated
in paragraph (b)(3) of this section; provided that, in the case of a
use of funds for a capital expenditure under paragraphs (b)(1) or
(b)(3) of this section, the use of funds must also meet the criteria
provided in paragraph (b)(4) of this section. Treasury may also
articulate additional eligible programs, services, or capital
expenditures from time to time that satisfy the eligibility criteria of
this paragraph (b), which shall be eligible under this paragraph (b).
(1) Identifying eligible responses to the public health emergency
or its negative economic impacts. (i) A program, service, or capital
expenditure is eligible under this paragraph (b)(1) if a recipient
identifies a harm or impact to a beneficiary or class of beneficiaries
caused or exacerbated by the public health emergency or its negative
economic impacts and the program, service, or capital expenditure
responds to such harm.
(ii) A program, service, or capital expenditure responds to a harm
or impact experienced by an identified beneficiary or class of
beneficiaries if it is reasonably designed to benefit the beneficiary
or class of beneficiaries that experienced the harm or impact and is
related and reasonably proportional to the extent and type of harm or
impact experienced.
(2) Identified harms: Presumptions of impacted and
disproportionately impacted beneficiaries. A recipient may rely on the
following presumptions to identify beneficiaries presumptively impacted
or disproportionately impacted by the public health emergency or its
negative economic impacts for the purpose of providing a response under
paragraph (b)(1) or (b)(3) of this section:
(i) Households or populations that experienced unemployment;
experienced increased food or housing insecurity; qualify for the
Children's Health Insurance Program (42 U.S.C. 1397aa et seq.),
Childcare Subsidies through the Child Care and Development Fund Program
(42 U.S.C. 9857 et seq. and 42 U.S.C. 618), or Medicaid (42 U.S.C. 1396
et seq.); if funds are to be used for affordable housing programs,
qualify for the National Housing Trust Fund (12 U.S.C. 4568) or the
Home Investment Partnerships Program (42 U.S.C. 12721 et seq.); if
funds are to be used to address impacts of lost instructional time for
students in kindergarten through twelfth grade, any student who did not
have access to in-person instruction for a significant period of time;
and low- and moderate-income households and populations are presumed to
be impacted by the public health emergency or its negative economic
impacts;
(ii) The general public is presumed to be impacted by the public
health emergency for the purposes of providing the uses set forth in
subparagraphs (b)(3)(i)(A) and (b)(3)(i)(C); and
(iii) The following households, communities, small businesses, and
nonprofit organizations are presumed to be disproportionately impacted
by the public health emergency or its negative economic impacts:
(A) Households and populations residing in a qualified census
tract;
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households and populations receiving services provided by Tribal
governments; households and populations residing in the territories;
households and populations receiving services provided by territorial
governments; low-income households and populations; households that
qualify for Temporary Assistance for Needy Families (42 U.S.C. 601 et
seq.), the Supplemental Nutrition Assistance Program (7 U.S.C. 2011 et
seq.), Free and Reduced Price School Lunch and/or Breakfast programs
(42 U.S.C. 1751 et seq. and 42 U.S.C. 1773), Medicare Part D Low-income
Subsidies (42 U.S.C. 1395w-114), Supplemental Security Income (42
U.S.C. 1381 et seq.), Head Start (42 U.S.C. 9831 et seq.), Early Head
Start (42 U.S.C. 9831 et seq.), the Special Supplemental Nutrition
Program for Women, Infants, and Children (42 U.S.C. 1786), Section 8
Vouchers (42 U.S.C. 1437f), the Low-Income Home Energy Assistance
Program (42 U.S.C. 8621 et seq.), Pell Grants (20 U.S.C. 1070a), and,
if SLFRF funds are to be used for services to address educational
disparities, Title I eligible schools;
(B) Small businesses operating in a qualified census tract,
operated by Tribal governments or on Tribal lands, or operating in the
territories; and
(C) Nonprofit organizations operating in a qualified census tract,
operated by Tribal governments or on Tribal lands, or operating in the
territories.
(3) Enumerated eligible uses: Responses presumed reasonably
proportional. A recipient may use funds to respond to the public health
emergency or its negative economic impacts on a beneficiary or class of
beneficiaries for one or more of the following purposes unless such use
is grossly disproportionate to the harm caused or exacerbated by the
public health emergency or its negative economic impacts:
(i) Responding to the public health impacts of the public health
emergency for purposes including:
(A) COVID-19 mitigation and prevention in a manner that is
consistent with recommendations and guidance from the Centers for
Disease Control and Prevention, including vaccination programs and
incentives; testing programs; contact tracing; isolation and
quarantine; mitigation and prevention practices in congregate settings;
acquisition and distribution of medical equipment for prevention and
treatment of COVID-19, including personal protective equipment; COVID-
19 prevention and treatment expenses for public hospitals or health
care facilities, including temporary medical facilities; establishing
or enhancing public health data systems; installation and improvement
of ventilation systems in congregate settings, health facilities, or
other public facilities; and assistance to small businesses,
nonprofits, or impacted industries to implement mitigation measures;
(B) Medical expenses related to testing and treating COVID-19 that
are provided in a manner consistent with recommendations and guidance
from the Centers for Disease Control and Prevention, including
emergency medical response expenses, treatment of long-term symptoms or
effects of COVID-19, and costs to medical providers or to individuals
for testing or treating COVID-19;
(C) Behavioral health care, including prevention, treatment,
emergency or first-responder programs, harm reduction, supports for
long-term recovery, and behavioral health facilities and equipment; and
(D) Preventing and responding to increased violence resulting from
the public health emergency, including community violence intervention
programs, or responding to increased gun violence resulting from the
public health emergency, including payroll and covered benefits
associated with community policing strategies; enforcement efforts to
reduce gun violence; and investing in technology and equipment;
(ii) Responding to the negative economic impacts of the public
health emergency for purposes including:
(A) Assistance to households and individuals, including:
(1) Assistance for food; emergency housing needs; burials, home
repairs, or weatherization; internet access or digital literacy; cash
assistance; and assistance accessing public benefits;
(2) Paid sick, medical, or family leave programs, or assistance to
expand access to health insurance;
(3) Childcare, early learning services, home visiting, or
assistance for child welfare-involved families or foster youth;
(4) Programs to address the impacts of lost instructional time for
students in kindergarten through twelfth grade;
(5) Development, repair, and operation of affordable housing and
services or programs to increase long-term housing security;
(6) Financial services that facilitate the delivery of Federal,
State, or local benefits for unbanked and underbanked individuals;
(7) Benefits for the surviving family members of individuals who
have died from COVID-19, including cash assistance to surviving spouses
or dependents of individuals who died of COVID-19;
(8) Assistance for individuals who want and are available for work,
including those who are unemployed, have looked for work sometime in
the past 12 months, who are employed part time but who want and are
available for full-time work, or who are employed but seeking a
position with greater opportunities for economic advancement;
(9) Facilities and equipment related to the provision of services
to households provided in subparagraphs (b)(3)(ii)(A)(1)-(8);
(10) The following expenses related to Unemployment Trust Funds:
(i) Contributions to a recipient Unemployment Trust Fund and
repayment of principal amounts due on advances received under Title XII
of the Social Security Act (42 U.S.C. 1321) up to an amount equal to
the difference between the balance in the recipient's Unemployment
Trust Fund as of January 27, 2020 and the balance of such account as of
May 17, 2021 plus 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; provided that if a recipient
repays principal on Title XII advances or makes a contribution to an
Unemployment Trust Fund after April 1, 2022, such recipient shall not
reduce average weekly benefit amounts or maximum benefit entitlements
prior to December 31, 2024; and
(ii) Any interest due on such advances received under Title XII of
the Social Security Act (42 U.S.C. 1321); and
(11) A program, service, capital expenditure, or other assistance
that is provided to a disproportionately impacted household,
population, or community, including:
(i) Services to address health disparities of the
disproportionately impacted household, population, or community;
(ii) Housing vouchers and relocation assistance;
(iii) Investments in communities to promote improved health
outcomes and public safety such as parks, recreation facilities, and
programs that increase access to healthy foods;
(iv) Capital expenditures and other services to address vacant or
abandoned properties;
(v) Services to address educational disparities; and
(vi) Facilities and equipment related to the provision of these
services to the disproportionately impacted household, population, or
community.
[[Page 4450]]
(B) Assistance to small businesses, including:
(1) Programs, services, or capital expenditures that respond to the
negative economic impacts of 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, or
providing technical assistance; and
(2) A program, service, capital expenditure, or other assistance
that responds to disproportionately impacted small businesses,
including rehabilitation of commercial properties; storefront and
fa[ccedil]ade improvements; technical assistance, business incubators,
and grants for start-ups or expansion costs for small businesses; and
programs or services to support micro-businesses;
(C) Assistance to nonprofit organizations including programs,
services, or capital expenditures, including loans or grants to
mitigate financial hardship such as declines in revenues or increased
costs, or technical assistance;
(D) Assistance to tourism, travel, hospitality, and other impacted
industries for programs, services, or capital expenditures, including
support for payroll costs and covered benefits for employees,
compensating returning employees, support for operations and
maintenance of existing equipment and facilities, and technical
assistance; and
(E) Expenses to support public sector capacity and workforce,
including:
(1) Payroll and covered benefit expenses for public safety, public
health, health care, human services, and similar employees to the
extent that the employee's time is spent mitigating or responding to
the COVID-19 public health emergency;
(2) Payroll, covered benefit, and other costs associated with
programs or services to support the public sector workforce and with
the recipient:
(i) Hiring or rehiring staff to fill budgeted full-time equivalent
positions that existed on January 27, 2020 but that were unfilled or
eliminated as of March 3, 2021; or
(ii) Increasing the number of its budgeted full-time equivalent
employees by up to the difference between the number of its budgeted
full-time equivalent employees on January 27, 2020, multiplied by
1.075, and the number of its budgeted full-time equivalent employees on
March 3, 2021, provided that funds shall only be used for additional
budgeted full-time equivalent employees above the recipient's number of
budgeted full-time equivalent employees as of March 3, 2021;
(3) Costs to improve the design and execution of programs
responding to the COVID-19 pandemic and to administer or improve the
efficacy of programs addressing the public health emergency or its
negative economic impacts; and
(4) Costs associated with addressing administrative needs of
recipient governments that were caused or exacerbated by the pandemic.
(4) Capital expenditures. A recipient, other than a Tribal
government, must prepare a written justification for certain capital
expenditures according to Table 1 to paragraph (b)(4) of this section.
Such written justification must include the following elements:
(i) Describe the harm or need to be addressed;
(ii) Explain why a capital expenditure is appropriate; and
(iii) Compare the proposed capital expenditure to at least two
alternative capital expenditures and demonstrate why the proposed
capital expenditure is superior.
Table 1 to Paragraph (b)(4)
------------------------------------------------------------------------
and the use is and the use is not
If a project has total expected enumerated in enumerated in
capital expenditures of (b)(3), then (b)(3), then
------------------------------------------------------------------------
Less than $1 million............ No Written No Written
Justification Justification
required. required.
Greater than or equal to $1 Written Written
million, but less than $10 Justification Justification
million. required but required and
recipients are recipients must
not required to submit as part of
submit as part of regular reporting
regular reporting to Treasury.
to Treasury.
$10 million or more............. Written
Justification
required and
recipients must
submit as part of
regular reporting
to Treasury.
------------------------------------------------------------------------
(c) Providing premium pay to eligible workers. A recipient may use
funds to provide premium pay to eligible workers of the recipient who
perform essential work or to provide grants to eligible employers that
have eligible workers who perform essential work, provided that any
premium pay or grants provided under this paragraph (c) must respond to
eligible workers performing essential work during the COVID-19 public
health emergency. A recipient uses premium pay or grants provided under
this paragraph (c) to respond to eligible workers performing essential
work during the COVID-19 public health emergency if:
(1) The eligible worker's total wages and remuneration, including
the premium pay, is less than or equal to 150 percent of the greater of
such eligible worker's residing State's or county's average annual wage
for all occupations as defined by the Bureau of Labor Statistics'
Occupational Employment and Wage Statistics;
(2) The eligible worker is not exempt from the Fair Labor Standards
Act overtime provisions (29 U.S.C. 207); or
(3) The recipient has submitted to the Secretary a written
justification that explains how providing premium pay to the eligible
worker is responsive to the eligible worker performing essential work
during the COVID-19 public health emergency (such as a description of
the eligible workers' duties, health, or financial risks faced due to
COVID-19, and why the recipient determined that the premium pay was
responsive despite the worker's higher income).
(d) Providing government services. A recipient may use funds for
the provision of government services to the extent of the reduction in
the recipient's general revenue due to the public health emergency,
calculated according to this paragraph (d). A recipient must make a
one-time election to calculate the amount of the reduction in the
recipient's general revenue due to the public health emergency
according to either paragraph (d)(1) or (d)(2) of this section:
(1) Standard allowance. The reduction in the recipient's general
revenue due to the public health emergency over the period of
performance will be deemed to be ten million dollars; or
(2) Formula. The reduction in the recipient's general revenue due
to the public health emergency over the period of performance equals
the sum of the reduction in revenue, calculated as of each date
identified in paragraph (d)(2)(i) of this section and according to the
formula in paragraph (d)(2)(ii) of this section:
[[Page 4451]]
(i) A recipient must make a one-time election to calculate the
reduction in its general revenue using information as of either:
(A) December 31, 2020, December 31, 2021, December 31, 2022, and
December 31, 2023; or
(B) The last day of each of the recipient's fiscal years ending in
2020, 2021, 2022, and 2023.
(ii) A reduction in a recipient's general revenue for each date
identified in paragraph (d)(2)(i) of this section equals:
Max {[Base Year Revenue * (1 + Growth
Adjustment)[supcaret](nt/12)]-Actual General Revenue;
0{time}
Where:
(A) Base Year Revenue is the recipient's general revenue for the
most recent full fiscal year prior to the COVID-19 public health
emergency;
(B) Growth Adjustment is equal to the greater of 5.2 percent (or
0.052) and the recipient's average annual revenue growth over the three
full fiscal years prior to the COVID-19 public health emergency;
(C) n equals the number of months elapsed from the end of the base
year to the calculation date;
(D) Subscript t denotes the specific calculation date; and
(E) Actual General Revenue is a recipient's actual general revenue
collected during the 12-month period ending on each calculation date
identified in paragraph (d)(2)(i) of this section, except:
(1) For purposes of all calculation dates on or after April 1,
2022, in the case of any change made after January 6, 2022 to any law,
regulation, or administrative interpretation that reduces any tax (by
providing for a reduction in a rate, a rebate, a deduction, a credit,
or otherwise) or delays the imposition of any tax or tax increase and
that the recipient assesses has had the effect of decreasing the amount
of tax revenue collected during the 12-month period ending on the
calculation date relative to the amount of tax revenue that would have
been collected in the absence of such change, the recipient must add to
actual general revenue the amount of such decrease in tax revenue;
(2) For purposes of any calculation date on or after April 1, 2022,
in the case of any change made after January 6, 2022 to any law,
regulation, or administrative interpretation that increases any tax (by
providing for an increase in a rate, the reduction of a rebate, a
deduction, or a credit, or otherwise) or accelerates the imposition of
any tax or tax increase and that the recipient assesses has had the
effect of increasing the amount of tax revenue collected during the 12-
month period ending on the calculation date relative to the amount of
tax revenue that would have been collected in the absence of such
change, the recipient must subtract from actual general revenue the
amount of such increase in tax revenue;
(3) If the recipient makes a one-time election to adjust general
revenue to reflect tax changes made during the period beginning on
January 27, 2020 and ending on January 6, 2022, for purposes of each
calculation date identified in paragraph (d)(2)(i) of this section:
(i) In the case of any change made during such prior period to any
law, regulation, or administrative interpretation that reduces any tax
(by providing for a reduction in a rate, a rebate, a deduction, a
credit, or otherwise) or delays the imposition of any tax or tax
increase and that the recipient assesses has had the effect of
decreasing the amount of tax revenue collected during the 12-month
period ending on the calculation date relative to the amount of tax
revenue that would have been collected in the absence of such change,
the recipient must add to actual general revenue the amount of such
decrease in tax revenue; and
(ii) In the case of any change made during such prior period to any
law, regulation, or administrative interpretation that increases any
tax (by providing for an increase in a rate, the reduction of a rebate,
a deduction, or a credit, or otherwise) or accelerates the imposition
of any tax or tax increase and that the recipient assesses has had the
effect of increasing the amount of tax revenue collected during the 12-
month period ending on the calculation date relative to the amount of
tax revenue that would have been collected in the absence of such
change, the recipient must subtract from actual general revenue the
amount of such increase in tax revenue; and
(4) With respect to any calculation date during the period
beginning on January 6, 2022 and ending on March 31, 2022, if the
recipient makes the election in paragraph (d)(3) of this section, the
recipient must also make the adjustments referenced in paragraph (d)(3)
of this section with respect to any such changes in law, regulation, or
administrative interpretation during the period beginning on January 6,
2022 and ending on such calculation date.
(e) Making necessary investments in water, sewer, and broadband
infrastructure. A recipient may use funds to make the following
investments in water, sewer, and broadband infrastructure.
(1) Water and sewer investments--(i) Clean Water State Revolving
Fund projects. Projects or activities of the type that meet the
eligibility requirements of section 603(c) of the Federal Water
Pollution Control Act (33 U.S.C. 1383(c));
(ii) Additional stormwater projects. Projects to manage, reduce,
treat, or recapture stormwater or subsurface drainage water regardless
of whether such projects would improve water quality if such projects
would otherwise meet the eligibility requirements of section 603(c)(5)
of the Federal Water Pollution Control Act (33 U.S.C. 1383(c)(5));
(iii) Drinking Water State Revolving Fund projects. Projects or
activities of the type that meet the eligibility requirements of
section 1452 of the Safe Drinking Water Act (42 U.S.C. 300j-12) as
implemented by the regulations adopted by the Environmental Protection
Agency (EPA) under 40 CFR 35.3520, provided that:
(A) The recipient is not required to comply with the limitation
under 40 CFR 35.3520(c)(2) to acquisitions of land from willing sellers
or the prohibition under 40 CFR 35.3520(e)(6) on uses of funds for
certain Tribal projects; and
(B) In the case of lead service line replacement projects, the
recipient must replace the full length of the service line and may not
replace only a partial portion of the service line.
(iv) Additional lead remediation and household water quality
testing. Projects or activities to address lead in drinking water or
provide household water quality testing that are within the scope of
the programs the EPA is authorized to establish under sections
1459A(b)(2), 1459B(b)(1), 1464(d)(2), and 1465 of the Safe Drinking
Water Act (42 U.S.C. 300j-19a(b)(2), 300j-19b(b)(1), 300j-24(d)(2), and
300j-25), provided that:
(A) In the case of lead service line replacement projects, the
recipient must replace the full length of the service line and may not
replace only a partial portion of the service line; and
(B) In the case of projects within the scope of the program the EPA
is authorized to establish under section 1459B(b)(1) of the Safe
Drinking Water Act, the recipient may determine the income eligibility
of homeowners served by lead service line replacement projects in its
discretion.
(v) Drinking water projects to support increased population.
Projects of the type that meet the eligibility requirements of 40 CFR
35.3520 other than the requirement of subparagraph
[[Page 4452]]
(b)(1) of such regulation to address present or prevent future
violations of health-based drinking water standards, if the following
conditions are met:
(A) The project is needed to support increased population, with
need assessed as of the time the project is undertaken;
(B) The project is designed to support no more than a reasonable
level of projected increased need, whether due to population growth or
otherwise;
(C) The project is a cost-effective means for achieving the desired
level of service; and
(D) The project is projected to continue to provide an adequate
level of drinking water over its estimated useful life.
(vi) Dams and reservoirs. Rehabilitation of dams and reservoirs if
the following conditions are met:
(A) The project meets the requirements of 40 CFR 35.3520 other than
the following requirements:
(1) The prohibition on the rehabilitation of dams and reservoirs in
40 CFR 35.3520(e)(1) and (3); and
(2) The requirement in 40 CFR 35.3520(b)(1) that the project is
needed to address present or prevent future violations of health-based
drinking water standards, provided that if the dam or reservoir project
does not meet this requirement, the project must be needed to support
increased population, with need assessed as of the time the project is
undertaken, and the project must be projected to continue to provide an
adequate level of drinking water over its estimated useful life;
(B) The primary purpose of the dam or reservoir is for drinking
water supply;
(C) The project is needed for the provision of drinking water
supply, with need assessed as of the time the project is initiated;
(D) The project is designed to support no more than a reasonable
level of projected increased need, whether due to population growth or
otherwise; and
(E) The project is a cost-effective means for achieving the desired
level of service.
(vii) Private wells. Rehabilitation of private wells, testing
initiatives to identify contaminants in private wells, and treatment
activities and remediation projects that address contamination in
private wells, if the project meets the requirements of 40 CFR 35.3520
other than the limitation to certain eligible systems under 40 CFR
35.3520(a).
(2) Broadband investments--(i) General. Broadband infrastructure if
the following conditions are met:
(A) The broadband infrastructure is designed to provide service to
households and businesses with an identified need, as determined by the
recipient, for such infrastructure;
(B) The broadband infrastructure is designed to, upon completion:
(1) Reliably meet or exceed symmetrical 100 Mbps download speed and
upload speeds; or
(2) In cases where it is not practicable, because of the excessive
cost of the project or geography or topography of the area to be served
by the project, to provide service reliably meeting or exceeding
symmetrical 100 Mbps download speed and upload speeds:
(i) Reliably meet or exceed 100 Mbps download speed and between at
least 20 Mbps and 100 Mbps upload speed; and
(ii) Be scalable to a minimum of 100 Mbps download speed and 100
Mbps upload speed; and
(C) The service provider for a completed broadband infrastructure
investment project that provides service to households is required, for
as long as the SLFRF-funded broadband infrastructure is in use, by the
recipient to:
(1) Participate in the Federal Communications Commission's
Affordable Connectivity Program (ACP) through the lifetime of the ACP;
or
(2) Otherwise provide access to a broad-based affordability program
to low-income consumers in the proposed service area of the broadband
infrastructure that provides benefits to households commensurate with
those provided under the ACP through the lifetime of the ACP.
(ii) Cybersecurity infrastructure investments. Cybersecurity
infrastructure investments that are designed to improve the reliability
and resiliency of new and existing broadband infrastructure. Such
investments may include the addition or modernization of network
security hardware and software tools designed to strengthen
cybersecurity for the end-users of these networks.
(f) Meeting the non-federal matching requirements for Bureau of
Reclamation projects. A recipient may use funds to meet the non-federal
matching requirements of any authorized Bureau of Reclamation project.
Sec. 35.7 Pensions.
A recipient (other than a Tribal government) may not use funds for
deposit into any pension fund.
Sec. 35.8 Tax.
(a) Restriction. A State or Territory shall not use funds to either
directly or indirectly offset a reduction in the net tax revenue of the
State or Territory resulting from a covered change during the covered
period.
(b) Violation. Treasury will consider a State or Territory to have
used funds to offset a reduction in net tax revenue if, during a
reporting year:
(1) Covered change. The State or Territory has made a covered
change that, either based on a reasonable statistical methodology to
isolate the impact of the covered change in actual revenue or based on
projections that use reasonable assumptions and do not incorporate the
effects of macroeconomic growth to reduce or increase the projected
impact of the covered change, the State or Territory assesses has had
or predicts to have the effect of reducing tax revenue relative to
current law;
(2) Exceeds the de minimis threshold. The aggregate amount of the
measured or predicted reductions in tax revenue caused by covered
changes identified under paragraph (b)(1) of this section, in the
aggregate, exceeds 1 percent of the State's or Territory's baseline;
(3) Reduction in net tax revenue. The State or Territory reports a
reduction in net tax revenue, measured as the difference between actual
tax revenue and the State's or Territory's baseline, each measured as
of the end of the reporting year; and
(4) Consideration of other changes. The aggregate amount of
measured or predicted reductions in tax revenue caused by covered
changes is greater than the sum of the following, in each case, as
calculated for the reporting year:
(i) The aggregate amount of the expected increases in tax revenue
caused by one or more covered changes that, either based on a
reasonable statistical methodology to isolate the impact of the covered
change in actual revenue or based on projections that use reasonable
assumptions and do not incorporate the effects of macroeconomic growth
to reduce or increase the projected impact of the covered change, the
State or Territory assesses has had or predicts to have the effect of
increasing tax revenue; and
(ii) Reductions in spending, up to the amount of the State's or
Territory's net reduction in total spending, that are in:
(A) Departments, agencies, or authorities in which the State or
Territory is not using funds; and
(B) Departments, agencies, or authorities in which the State or
Territory is using funds, in an amount equal to the value of the
spending cuts in those departments, agencies, or authorities, minus
funds used.
(c) Amount and revenue reduction cap. If a State or Territory is
considered to be in violation pursuant to paragraph (b) of this
section, the amount used in
[[Page 4453]]
violation of paragraph (a) of this section is equal to the lesser of:
(1) The reduction in net tax revenue of the State or Territory for
the reporting year, measured as the difference between the State's or
Territory's baseline and its actual tax revenue, each measured as of
the end of the reporting year; and,
(2) The aggregate amount of the reductions in tax revenues caused
by covered changes identified in paragraph (b)(1) of this section,
minus the sum of the amounts in identified in paragraphs (b)(4)(i) and
(ii) of this section.
Sec. 35.9 Compliance with applicable laws.
A recipient must comply with all other applicable Federal statutes,
regulations, and executive orders, and a recipient shall provide for
compliance with the American Rescue Plan Act, this subpart, and any
interpretive guidance by other parties in any agreements it enters into
with other parties relating to these funds.
Sec. 35.10 Recoupment.
(a) Identification of violations--(1) In general. Any amount used
in violation of Sec. 35.5, 35.6, or 35.7 may be identified at any time
prior to December 31, 2026.
(2) Annual reporting of amounts of violations. On an annual basis,
a recipient that is a State or territory must calculate and report any
amounts used in violation of Sec. 35.8.
(b) Calculation of amounts subject to recoupment--(1) In general.
Except as provided in paragraph (b)(2) of this section, the Secretary
will calculate any amounts subject to recoupment resulting from a
violation of Sec. 35.5, 35.6 or 35.7 as the amounts used in violation
of such restrictions.
(2) Violations of Sec. 35.8. The Secretary will calculate any
amounts subject to recoupment resulting from a violation of Sec. 35.8,
equal to the lesser of:
(i) The amount set forth in Sec. 35.8(c); and,
(ii) The amount of funds received by such recipient.
(c) Initial notice. If the Secretary calculates an amount subject
to recoupment under paragraph (b) of this section, Treasury will
provide the recipient an initial written notice of the amount subject
to recoupment along with an explanation of such amounts.
(d) Request for reconsideration. Unless the Secretary extends or
accelerates the time period, within 60 calendar days of receipt of an
initial notice of recoupment provided under paragraph (c) of this
section, a recipient may submit a written request to the Secretary
requesting reconsideration of any amounts subject to recoupment under
paragraph (b) of this section. To request reconsideration of any
amounts subject to recoupment, a recipient must submit to the Secretary
a written request that includes:
(1) An explanation of why the recipient believes all or some of the
amount should not be subject to recoupment; and
(2) A discussion of supporting reasons, along with any additional
information.
(e) Final amount subject to recoupment. Unless the Secretary
extends or accelerates the time period, within 60 calendar days of
receipt of the recipient's request for reconsideration provided
pursuant to paragraph (d) of this section or the expiration of the
period for requesting reconsideration provided under paragraph (d), the
recipient will be notified of the Secretary's decision to affirm,
withdraw, or modify the notice of recoupment. Such notification will
include an explanation of the decision, including responses to the
recipient's supporting reasons and consideration of additional
information provided. A recipient must invoke and exhaust the
procedures available under this subpart prior to seeking judicial
review of a decision under Sec. 35.10.
(f) Repayment of funds. Unless the Secretary extends or accelerates
the time period, a recipient shall repay to the Secretary any amounts
subject to recoupment in accordance with instructions provided by the
Secretary:
(1) Within 120 calendar days of receipt of the notice of recoupment
provided under paragraph (c) of this section, in the case of a
recipient that does not submit a request for reconsideration in
accordance with the requirements of paragraph (d) of this section; or
(2) Within 120 calendar days of receipt of the Secretary's decision
under paragraph (e) of this section, in the case of a recipient that
submits a request for reconsideration in accordance with the
requirements of paragraph (d) of this section.
(g) Other remedial actions. Prior to seeking recoupment or taking
other appropriate action pursuant to paragraph (c), (d), (e), or (f) of
this section, the Secretary may notify the recipient of potential
violations and provide the recipient an opportunity for informal
consultation and remediation.
Sec. 35.11 Payments to States.
(a) In general. With respect to any State or Territory that has an
unemployment rate as of the date that it submits an initial
certification for payment of funds pursuant to section 602(d)(1) of the
Social Security Act that is less than two percentage points above its
unemployment rate in February 2020, the Secretary will withhold 50
percent of the amount of funds allocated under section 602(b) of the
Social Security Act to such State or territory until at least May 10,
2022 and not more than twelve months from the date such initial
certification is provided to the Secretary.
(b) Payment of withheld amount. In order to receive the amount
withheld under paragraph (a) of this section, the State or Territory
must submit to the Secretary the following information:
(1) A certification, in the form provided by the Secretary, that
such State or Territory requires the payment to carry out the
activities specified in section 602(c) of the Social Security Act and
will use the payment in compliance with section 602(c) of the Social
Security Act; and
(2) Any reports required to be filed by that date pursuant to this
part that have not yet been filed.
Sec. 35.12 Distributions to nonentitlement units of local government
and units of general local government.
(a) Nonentitlement units of local government. Each State or
Territory that receives a payment from the Secretary pursuant to
section 603(b)(2)(B) of the Social Security Act shall distribute the
amount of the payment to nonentitlement units of local government in
such State or Territory in accordance with the requirements set forth
in section 603(b)(2)(C) of the Social Security Act and without
offsetting any debt owed by such nonentitlement units of local
governments against such payments.
(b) Budget cap. A State or Territory may not make a payment to a
nonentitlement unit of local government pursuant to section
603(b)(2)(C) of the Social Security Act and paragraph (a) of this
section in excess of the amount equal to 75 percent of the most recent
budget for the nonentitlement unit of local government as of January
27, 2020. For purposes of this section 35.12, a nonentitlement unit of
local government's most recent budget shall mean the nonentitlement
unit of local government's total annual budget, including both
operating and capital expenditure budgets, in effect as of January 27,
2020. A State or Territory shall permit a nonentitlement unit of local
government without a formal budget as of January 27, 2020, to provide a
certification from an authorized officer of the nonentitlement unit of
local government of its most recent annual expenditures as of
[[Page 4454]]
January 27, 2020, and a State or Territory may rely on such
certification for purposes of complying with this section 35.12.
(c) Units of general local government. Each State or Territory that
receives a payment from the Secretary pursuant to section
603(b)(3)(B)(ii) of the Social Security Act, in the case of an amount
to be paid to a county that is not a unit of general local government,
shall distribute the amount of the payment to units of general local
government within such county in accordance with the requirements set
forth in section 603(b)(3)(B)(ii) of the Social Security Act and
without offsetting any debt owed by such units of general local
government against such payments.
(d) Additional conditions. A State or Territory may not place
additional conditions or requirements on distributions to
nonentitlement units of local government or units of general local
government beyond those required by section 603 of the Social Security
Act or this subpart.
Jacob Leibenluft,
Chief Recovery Officer.
[FR Doc. 2022-00292 Filed 1-26-22; 8:45 am]
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