The U.S. Department of the Treasury continues to release answers to new frequently asked questions regarding the expenditure of Coronavirus State and Local Fiscal Recovery Funds under the American Rescue Plan Act.

The latest guidance increases flexibility for spending in all four eligible expense categories articulated in the law:
• Response to the public health emergency or its negative economic consequences
• Provision of premium pay to eligible workers
• Revenue replacement
• Investments in water, sewer and broadband infrastructure

The $1.9 trillion ARPA federal relief package, signed into law on March 11, includes $360 billion for State and Local Government Fiscal Recovery Funds. The Treasury Department, the federal agency responsible for administering the program, issued initial guidance — its Interim Final Rule — in early May. Since then, the Treasury has published expanded guidance for eligible expenses through an FAQ document. The latest iteration of the FAQ was issued on July 14.

Response to the public health emergency or its negative economic consequences
The initial guidance from Treasury provides for a wide range of potential uses, including COVID-19 mitigation and containment, behavioral health care to address situations exacerbated by the pandemic, and public health and safety employee costs.

The guidance around negative economic consequences includes rebuilding public sector capacity, including by rehiring public sector staff, and replenishing unemployment insurance trust funds to pre-pandemic levels. Recipients may also use funding to build internal capacity to successfully implement economic relief programs, with investments in data analysis, targeted outreach and technology infrastructure.

The latest updates include expanded information regarding eligible expenses for addressing court case backlogs, assisting certain business startups, eviction prevention and housing stability services, including utility assistance, counseling, outreach, and legal aid services.

Funding jobs programs is also a defined eligible expense. Improvements to community outdoor spaces is an allowable expense when meeting certain criteria.

In communities where the pandemic has led to an increase in violence, recipients may use funds to address that harm. Only in these communities, this spending may include:
• Hiring law enforcement officials, even above pre-pandemic levels, or paying overtime where the funds are directly focused on advancing community policing strategies in those communities experiencing an increase in gun violence associated with the pandemic
• Community Violence Intervention programs, including capacity building efforts at CVI programs, like funding and training additional intervention workers
• 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
• 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

Premium pay for eligible workers
Regarding premium pay for essential workers, the term “essential worker” is broad, and not limited to municipal employees. The Treasury Department did, however, prohibit premium pay for employees who were allowed to telework during the public health emergency.

The latest FAQ document adds further guidance for municipalities that wish to partner with nonprofits and private organizations, whether to issue premium pay or to address public health and economic impacts.

Revenue replacement
The Treasury has established a methodology to calculate the reduction in local revenue during the pandemic, and allows recipients to recalculate revenue loss at several points throughout the program, supporting municipalities that have experienced a lagging impact of the crisis on revenue.

Once a shortfall has been identified, municipalities have broad latitude to use ARPA funding to support government services, up to the amount of lost revenue.

Under the Interim Final Rule, government services can include, but are not limited to, maintenance or “pay-go funded” building of infrastructure, including roads; modernization of cybersecurity, including hardware, software and protection of critical infrastructure; health services; environmental remediation; school or educational services; and the provision of police, fire, and other public safety services.

Water, sewer and broadband
In the area of infrastructure, the ARPA focused on water, sewer and broadband projects.

For water and sewer, the Treasury aligned the types of projects with the wide range of projects that can be supported by the Environmental Protection Agency’s clean water state revolving fund and drinking water state revolving fund. Recipients can use this funding to invest in an array of projects related to drinking water infrastructure, as well as wastewater infrastructure, including managing or treating stormwater (which must have a water quality benefit) or subsurface drainage water.

In addition, the Treasury guidance allows for spending on cybersecurity aimed at protecting water and sewer infrastructure; projects promoting climate change resilience (for instance, reducing energy consumption on water and sewer facilities); and lead water line service replacement.

The latest guidance clarifies that road repairs connected to eligible water and sewer infrastructure improvements can be included. Pre-project development expenses for eligible water and sewer projects are also allowed, and State and Local Fiscal Recovery Funds may be used to support energy or electrification infrastructure that would be used to deliver clean power to water treatment plants and wastewater systems on a pro-rata basis. If the wastewater system or water treatment plant is the sole user of the clean energy, the full cost would be considered an eligible use of funds. If the clean energy provider provides power to other entities, only the proportionate share used by the water treatment plant or wastewater system would be an eligible use of State and Local Fiscal Recovery Funds.

Broadband infrastructure eligibility focuses on households and businesses that do not have an existing wireline connection capable of reliably delivering at least 25 Mbps download/3 Mbps upload. Treasury interprets “businesses” in this context broadly to include non-residential users of broadband, including private businesses and institutions that serve the public, such as schools, libraries, health care facilities, and public safety organizations.

Last-mile connections and affordable service are key focus areas of the Treasury’s guidance around broadband infrastructure eligible uses.

The Treasury recently clarified that not every household or business being connected as part of an eligible broadband project needs to be “un-served or underserved” if the project is a more holistic approach including a wider area.

Ineligible uses of ARPA funds
In general, categories of ineligible expenditures include:
• Using the money for federal matching funds
• Premium pay for employees who were able to telework during the public health emergency
• Funding pension accounts, paying off outstanding debt, or making deposits to reserve accounts or rainy day funds

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