Treasury Issues Final Rule for State and Local Fiscal Recovery Funds Under the A…

On March 11, 2021, the American Rescue Plan Act (“ARPA”) was signed into law and established the Coronavirus State Fiscal Recovery Fund and Coronavirus Local Fiscal Recovery Fund, which together make up the Coronavirus State and Local Fiscal Recovery Funds (“SLFRF”) program. The SLFRF program provides $350 billion to state, territorial, local, and tribal governments to assist in responding to the economic and public health impacts of COVID-19 and assist in their efforts to mitigate impacts on their communities, residents, and businesses. The SLFRF program provides four categories of eligible uses of SLFRF funds. Recipients may use SLFRF funds to: 1) replace lost revenue; 2) invest in water, sewer, and broadband infrastructure; 3) respond to the public health and economic impacts of COVID-19; or 4) provide premium pay to eligible workers.

On January 6, 2022, the U.S. Department of the Treasury issued the Final Rule governing the eligible uses of SLFRF funds under ARPA. Along with the Final Rule, the Treasury also published an overview which outlines the major provisions of the Final Rule. The Final Rule provides several key changes from the Interim Final Rule, which was published on May 17, 2021.  The Final Rule broadens the eligible uses and provides recipients with more flexibility in administering SLFRF funds. 

Replacing Lost Revenue

Possibly the most significant change in the Final Rule comes within the replacing lost revenue provision. The lost revenue provision of the SLFRF allows recipients to use SLFRF funds in the amount up to the recipient’s lost revenue for provisions of “government services.” This provision provides recipients with the broadest discretion in using SLFRF funds. The Final Rule provides a new standard allowance of up to $10 million for lost revenue and allows recipients to choose between the standard allowance for lost revenue or complete a full lost revenue calculation using the formula provided in the Final Rule. Notably, electing the standard allowance does not impact a recipient’s total SLFRF allocation. 

Water and Sewer Infrastructure

Another eligible use of SLFRF funds is for investment in water and sewer infrastructure.  Previously the Interim Final Rule aligned qualifying water and sewer investments with project eligibility requirements under the EPA’s Clean Water State Revolving Fund (“CWSRF”) and Drinking Water State Revolving Fund (“DWSRF”). While CWSRF and DWSRF aligned projects are still eligible uses, the Final Rule expands eligibility to also include drinking water projects to support anticipated population growth. SLFRF funds may be used for a drinking water project to support population growth if:

• The project is needed to support an increase in population;
• The project is designed to support no more than a reasonable level of projected increased need;
• The project is a cost-effective means for achieving the desired level of service; and
• The project is…