The final rule delivers broader flexibility and greater simplicity in the program for cities.
The U.S. Department of Treasury released the final rule for the American Rescue Plan Act (ARPA) Coronavirus State and Local Fiscal Recovery Funds on Jan. 6.
The final rule will replace the existing interim final rule (IFR) on April 1; however, cities and other recipients can choose to take advantage of the final rule’s flexibility and simplifications immediately.
ARPA was signed into law on March 11, 2021. In May, the Treasury published the IFR describing eligible and ineligible uses of funds as well as other program provisions. Treasury also sought feedback from the public on these program rules, and began to distribute funds. The IFR went into effect immediately in May and remains in effect through May 31, 2022.
More flexibility and simplicity
The final rule, which takes effect on April 1, “provides state, local, and tribal governments with even broader flexibility to pursue a wider range of uses to respond to local public health and economic needs — as well as greater simplicity, so they can focus on responding to the needs in their communities and maximizing the impact of their funds,” according to the Treasury’s press release.
Based on the League’s initial review of the final rule, it is clear that local government advocacy and comments, including those from the League, regarding the need for greater flexibility had an impact on the changes to the guidance. The final rule includes broadened eligibility for broadband, water, and sewer infrastructure investments, streamlined options to provide premium pay, and a standard allowance for calculating loss of revenue.
Prior to April 1, recipients may take actions and use funds in a manner consistent with the final rule, and Treasury will not take action to enforce the IFR if a use of funds is consistent with the terms of the final rule, regardless of when the State and Local Fiscal Recovery Funds were used. Cities must comply with the final rule beginning April 1, when the rule takes effect.
Treasury has released two documents to accompany the final rule:
- The Statement Regarding Compliance with the Coronavirus State and Local Fiscal Recovery Funds Interim Final Rule and Final Rule provides information on the effective date and a brief summary of changes and additional requirements.
- The Overview of the Final Rule, which is a user guide that boils the rule text down into an easy-to-understand summary. The Overview of the Final Rule includes a non-exhaustive list of projects that recipients can undertake with ARPA funds without undergoing additional independent analysis.
Update on calculation of lost revenues
Of note to cities is the update to the final rule related to the calculation of lost revenues, which allows a city to use the funds for almost any governmental purpose. The rule now provides an alternative to the complex calculation of lost revenues by allowing recipients to use a “standard allowance” option, which assumes the recipient experienced a revenue loss equal to the lesser of their full ARPA distribution or $10 million.
Recipients that select the standard allowance may use that amount — in many cases their full award — for government services, with streamlined reporting requirements. Recipients must choose one of the two options and cannot switch between these approaches after an election is made.
ARPA funds must be used for costs incurred on or after March 3, 2021, obligated by Dec. 31, 2024, and expended by Dec. 31, 2026.