The U.S. Department of the Treasury has released detailed guidance that increases flexibility for the use of Coronavirus State and Local Fiscal Recovery Funds under the American Rescue Plan Act.

The ARPA Flex Interim Final Rule, released on Aug. 10, provides additional clarity on what spending can be included, as well as different deadlines for using the funds in the new ways. The eligibility provisions were expanded by a federal budget law in late 2022.

The additional approved uses include costs associated with emergency response to a natural disaster, spending on transportation infrastructure-eligible projects, including matching funds, and any program, project or service that would also be eligible under the Community Development Block Grant program, also referred to as Title 1.

The new rule is most likely to be helpful to “metro cities” (generally with populations greater than 50,000), as most non-entitlement units of government opted to use ARPA’s standard allowance (up to $10 million for revenue loss replacement), which already granted them maximum flexibility.

Emergency response to a natural disaster
The new rule allows municipalities to use SLFRF funds for natural disasters or their negative economic impact, and outlines a two-step process for this category. The municipality must identify a natural disaster that occurred, will occur, or is threatened to occur in the future and then identify the emergency relief that responds to the physical and negative economic impacts. Examples of eligible uses include temporary housing, food assistance, fire and flood fighting expenses, public infrastructure repairs, and increased operational costs.

CDBG eligible uses
Under ARPA Flex, municipalities can use SLFRF funds for Title 1/CDBG projects. Examples include acquisition of property for a public purpose, construction and improvements to public facilities, and payments to housing owners for loss of certain rental income. Details about additional requirements are available online.

Transportation infrastructure
The new rule outlines three “pathways” for surface transportation spending:
1. Supplementing surface transportation projects receiving funding from the U.S. Department of Transportation
2. Funding surface transportation projects not receiving funding from the USDOT.
3. Satisfying non-federal share requirements for certain surface transportation projects or repaying a loan provided under the Transportation Infrastructure Finance and Innovation Act

Under Pathway 1, after consulting with the USDOT, municipalities may:
• Expand an existing project that is receiving funding from the USDOT to cover unexpected costs of an existing project receiving funding from the USDOT
• Expand the scope of a project, cover additional costs, or in other ways supplement USDOT funding for projects that have not yet, but will receive, funding from the USDOT by the Dec. 31, 2024, obligation deadline

Recipients may use SLFRF funds for projects eligible only under specific programs; the list is available on the Treasury’s website.

Pathway 2 projects will be administered by the Treasury, which released a streamlined framework for municipalities to use up to $10 million in SLFRF funds per project on surface transportation projects that do not include USDOT funding but meet certain parameters. Municipalities may use SLFRF funds for a surface transportation project that would be eligible under the RAISE grant program and meets the following criteria: contribute no more than $10 million of SLFRF and limited to actions that typically do not have significant environmental impact.

Under Pathway 3, municipalities may use SLFRF funding to repay a Transportation Infrastructure Finance and Innovation Act loan or to satisfy non-federal share requirements for projects eligible under the following programs:
• INFRA grants
• Fixed Guidance Capital Improvement grants
• Mega grants
• Projects eligible under credit assistance under the TIFIA program

The total amount of SLFRF funds a grantee may use for a surface transportation project and Title I project cannot exceed the greater of $10 million or 30% of a grantee’s SLFRF allocation.

Recipients may use funds under these new eligible use categories for costs incurred beginning on Dec. 29, 2022. Municipalities using SLFRF funds for Surface Transportation and Title I projects must obligate funds by Dec. 31, 2024, and expend funds by Sept. 30, 2026.

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