One of the most significant provisions of the American Rescue Plan was the establishment of the $350 billion Coronavirus State and Local Fiscal Recovery Funds (SLFRF or Fiscal Recovery Funds). With eligible states, local governments, and territorial and Tribal governments (recipients) receiving the first tranche of payments in May 2021, recipients have been using the funds subject to the guidance specified in the interim final rule (IFR) with comment period issued in May 2021 and accompanying guidance. To date, more than $245 billion has been distributed to eligible recipients as part of the SLFRF program.
On January 6, 2022, the Department of the Treasury (Treasury) released the final rule governing the eligible uses for Fiscal Recovery Funds. The final rule, which was published in the Federal Register this week, provides increased flexibility and discretion to states and localities to use Fiscal Recovery Funds to respond to the COVID-19 public health emergency and support their communities. The final rule maintains the framework contained in the IFR (as previously detailed by the Manatt on Health newsletter), expands the wide range of uses to respond to public health and economic needs, and reduces restrictions on the use of funds contained in the IFR. An overview of the rule is available on the Treasury website.
Notable changes within the final rule include those related to:
- Public Health and Economic Impacts. The final rule expands the nonexhaustive list of uses for responding to COVID-19 and its economic impact. This includes clarifying that recipients may use funds for capital expenditures that support an eligible COVID-19 public health or economic response, including for the construction of hospitals and affordable housing. The final rule also expands the households and communities that are presumed to be “impacted” by the pandemic, allowing for funds to be used for broader population groups without requiring recipients to perform an analysis of whether the populations were impacted by the pandemic. In this change, the final rule presumes that households qualifying for Medicaid and the Children’s Health Insurance Program (CHIP) were impacted by the pandemic, allowing programs and services to be directed to these populations. In addition, the final rule expands the scope of the population impacted by the pandemic for the provision of behavioral health services to include the general public. Finally, the final rule includes programs or services to expand access to health insurance coverage as an eligible use for assistance to households impacted by the pandemic.
- Premium Pay. The final rule broadens the scope of “essential workers” who can receive premium pay without a written justification to include all public employees of recipient governments as essential workers eligible for premium pay while continuing to focus on directing premium pay to lower-income and frontline essential workers.
- Revenue Losses. The final rule offers a standard allowance for revenue loss of $10 million, allowing recipients to select between receiving the standard amount of revenue loss and completing a full revenue loss calculation.
- Water, Sewer, and Broadband Infrastructure. The final rule adds new categories of eligible uses for water and sewer investments, including lead remediation, stormwater infrastructure, and aid for private wells and septic units. It also expands the eligible broadband infrastructure investments to include those with an identified need for additional broadband infrastructure investment.
With the majority of states and local governments scheduled to receive the second (and last) tranche of the remaining $105 billion in Fiscal Recovery Funds in May 2022, recipients can take advantage of the increased flexibility for using these funds. Recipients have until December 31, 2024, to incur or obligate Fiscal Recovery Funds and must return any obligated funds that are not expended by December 31, 2026.
The final rule takes effect on April 1, 2022, replacing the IFR; however, recipients may take actions and use funds in a manner consistent with the final rule immediately, as the Treasury has identified that it will not take action to enforce the IFR issued last May if a use of funds is consistent with the terms of the final rule, regardless of when the Fiscal Recovery Funds were used.
Recipients were authorized to begin spending Fiscal Recovery Funds under the IFR; however, the level of spending across states and localities has significantly varied, as plans were under development and government entities had concerns about what expenditures the final rules would allow. With the release of this final rule and the work governments have already done to develop spending plans, states and localities are likely to quickly finalize and initiate spending plans for the Fiscal Recovery Funds this year and next.