American Rescue Plan Act Funding Guidance

Posted By: Nancy L. Werner Top Issues ,

The Treasury Department has released Interim Final Rules implementing the Coronavirus State Fiscal Recovery Fund and the Coronavirus Local Fiscal Recovery Fund established under the American Rescue Plan Act.  Below is a summary of just a few of the potential uses of the funds that may be of interest to NATOA members. 

Please note that these are interim rules on which the Department is accepting comments, and thus the final rules may not be the same as what is summarized below.  Also, keep in mind that there are many potential uses for the funds that are not discussed below.  This is in no way a complete summary of permissible uses.  Every jurisdiction should review the rules to understand the full scope of possible uses, and please seek assistance from knowledgeable consultants and legal counsel regarding the rules.  As explained below, the decisions about how to use these funds are to be made by each local government so it is important to understand the range of available options.

I want to highlight two important issues before describing several potential uses of the funds:

First, there seems to be some confusion about applying for funds.  As I read the rules, “applying” for these funds is intended to involve providing sufficient information to make sure the right amount of money gets to the right bank account.  Jurisdictions are not supposed to be applying for funding for a specific project as you would in many grant processes. Rather, states and local governments “have flexibility to determine how best to use payments from the Fiscal Recovery Funds to meet the needs of their communities and populations” provided they fall within the eligible uses in the Act and rules.  In short, for local governments, obtaining the funding should not be contingent on a state or Treasury determination regarding specific proposed uses.  The money is to be provided in amounts set forth in the Act and it should be a local decision as to how it is used, with accountability through the future reporting requirements described below.

This process is illustrated in Treasury’s submission requirements for states and larger units of local government (find them here), which will receive funding directly from Treasury.  That process requests information such as taxpayer ID number, DUNS Number, bank routing numbers, etc., not project descriptions or explanations for how funds will be used.  The Treasury guidance for what are called “nonentitlement units of local government” (generally jurisdictions under 50,000, which will get funding through the states rather than directly from Treasury) does not specify what information states may and may not ask for.  However, it makes clear that states must disburse funding to local governments within 30 days of the state getting it from Treasury (unless an extension is granted), with distribution based on the population of the local government unit (not based on proposed uses).  Further, states cannot put conditions on the funding and cannot provide funding on a reimbursement basis (where jurisdictions spend the money then ask for reimbursement).  While we cannot be sure how each state will interpret and implement these restrictions, it does not appear that project-specific applications would fit this criteria.      

Second, there has been some confusion about the mandatory nature of the rules and penalties for misuse of funds.  Though the interim rules are not yet final, the final rules will be the applicable rules for implementing the Fiscal Recovery Fund provisions of the Act.  The Act expressly gives the Treasury Secretary the authority to issue regulations to carry out these provisions.  The rules make clear that “a recipient may only use funds to cover costs incurred during the period beginning March 3, 2021, and ending December 31, 2024, for one or more of the purposes enumerated in sections 602(c)(1) and 603(c)(1)” of the Act and as stated in the rules.  The rules require periodic reporting on the use of funds, and “[f]alse statements or claims made to the Secretary may result in criminal, civil, or administrative sanctions, including fines, imprisonment, civil damages and penalties, debarment from participating in Federal awards or contracts, and/or any other remedy available by law.”  The rules also provide that “amounts used in violation of [the use] restrictions” are subject to “recoupment”—repayment—within 120 days.  To be clear, Treasury included many pages of text explaining their rules and decision-making process, which does include statements that “encourage” certain actions or considerations.  To the extent these statements are not included in the text of the rules, they do not appear to be mandatory, but jurisdictions should consult with legal counsel on this important question.

 

Below are several potential uses of funding that may be of interest to NATOA members: 

Broadband Infrastructure:

The Act expressly allows funding to be used “to make necessary investments in … broadband infrastructure.”  The interim rule implementing this provision states:

(e) To Make Necessary Investments in Infrastructure. A recipient may use funds to make investments in:

* * *  

(2) Broadband. Broadband infrastructure that is designed to provide service to unserved or underserved households and businesses and that is designed to, upon completion:

(A) Reliably meet or exceed symmetrical 100 Mbps download speed and upload speeds; or

(B) In cases where it is not practicable, because of the excessive cost of the project or geography or topography of the area to be served by the project, to provide service meeting the standards set forth in paragraph (e)(2)(A) of this section:         

(i) Reliably meet or exceed 100 Mbps download speed and between at least 20 Mbps and 100 Mbps upload speed; and

(ii) Be scalable to a minimum of 100 Mbps download speed and 100 Mbps upload speed.

The definition of “unserved or underserved …” is:

Unserved and underserved households or businesses means one or more households or businesses that are not currently served by a wireline connection that reliably delivers at least 25 Mbps download speed and 3 Mbps of upload speed.

There has been some concern that the definition of “unserved and underserved” essentially finds a household or business to be served if they have access to 25/3, without consideration of affordability, while finding that a funded project should provide 100/100.  This discrepancy and resulting limitation in use of funds for broadband infrastructure is sure to be raised in comments on the interim rules, as will affordability.  There are, however, other aspects of the rule and definition that perhaps provide more flexibility than some of us expected:

  • The definition of “unserved and underserved” includes only “wireline” connections, meaning that the availability of wireless services will not result in a location being considered served and thus ineligible for funding.
  • The definition also requires 25/3 to be “reliably” delivered.  While “reliably” is undefined, the guidance states that local governments will have a lot of flexibility in using the funds, which perhaps includes in determining what is and is not reliable service:  “Understanding that States, territories, localities, and Tribal governments have a wide range of varied broadband infrastructure needs, the Interim Final Rule provides award recipients with flexibility to identify the specific locations within their communities to be served and to otherwise design the project.”  
  • The rules do not address “overbuilding” an area where there are existing agreements or obligations to build broadband networks.  The guidance encourages avoiding these areas under certain circumstances, but this does not appear to be mandatory: “In selecting an area to be served by a project, recipients are encouraged to avoid investing in locations that have existing agreements to build reliable wireline service with minimum speeds of 100 Mbps download and 20 Mbps upload by December 31, 2024, in order to avoid duplication of efforts and resources.” 
  • Municipal broadband projects are encouraged:  “Treasury also encourages recipients to prioritize support for broadband networks owned, operated by, or affiliated with local governments, non-profits, and co-operatives—providers with less pressure to turn profits and with a commitment to serving entire communities.”

 

Broadband Services and Digital Literacy:

Section 603(c)(1)(A) of the Rescue Plan Act permits use of payments from the Fiscal Recovery Funds to respond to the negative economic impacts of the COVID-19 public health emergency.  Though not expressly listed in the interim rules, the guidance makes clear that this can include assisting with broadband services and digital literacy: “Assistance to households or populations facing negative economic impacts due to COVID-19 is also an eligible use [including] internet access or digital literacy assistance,” among many other authorized uses.  This language may allow funding to be used for broadband projects that do not fall under the broadband infrastructure provision described above, in addition to digital literacy programs. 

The guidance establishes presumptions that should be helpful in determining whether there have been negative economic impacts:  “In assessing whether a household or population experienced economic harm as a result of the pandemic, a recipient may presume that a household or population that experienced unemployment or increased food or housing insecurity or is low- or moderate-income experienced negative economic impacts resulting from the pandemic.”

Note that the guidance also allows funds to be used to improve programs:  “State, local, and Tribal governments may use payments from the Fiscal Recovery Funds to improve efficacy of programs addressing negative economic impacts, including through use of data analysis, targeted consumer outreach, improvements to data or technology infrastructure, and impact evaluations.”

PEG, Public Safety and Other Government Services:

The Act and rules allow funds to be used “[f]or the provision of government services to the extent of a reduction in the recipient’s general revenue” due to the COVID-19 public health emergency.  (The guidance includes important details about how to calculate the revenue reduction and other use limitations that are not included here.)  Where there is a reduction in revenue, the guidance states that “recipients [have] broad latitude to use the Fiscal Recovery Funds for the provision of government services,” followed by a long list of examples.  Expressly included are “modernization of cybersecurity, including hardware, software, and protection of critical infrastructure … and the provision of police, fire, and other public safety services.”  Where the local government provides PEG services, presumably it would be permissible to use the funds for those services as well.  PEG may also be a permissible use of funds to “provide resources to meet and address these emergent public health needs,” which includes, in addition to vaccination programs, testing, contact tracing and the like, “public communication efforts” many PEG entities have been working on throughout the pandemic. 

Note that the funds may be transferred to a “private nonprofit organization . . . a Tribal organization [authorized for states only] . . . a public benefit corporation involved in the transportation of passengers or cargo, or a special-purpose unit of State or local government.” This is a non-exclusive list.  Local governments “are authorized to transfer Fiscal Recovery Funds to other constituent units of government (e.g., a county is able to transfer Fiscal Recovery Funds to a city, town, or school district within it) or to private entities.”  This may allow funding to be directed to a nonprofit PEG access center or nonprofits working on digital inclusion or affordable broadband programs, for example.

 

Other Provisions:

Timeline: As noted above, funds may be used to cover eligible costs incurred during the period beginning March 3, 2021, and ending December 31, 2024.  “Treasury is interpreting the requirement … that costs be incurred by December 31, 2024, to require only that recipients have obligated the Fiscal Recovery Funds by such date.”  Also, “the period of performance will run until December 31, 2026, which will provide recipients a reasonable amount of time to complete projects funded with payments from the Fiscal Recovery Funds.”

Reports:  The guidance includes different reporting requirements for states and larger jurisdictions than for nonentitlement units of local government: 

  • “States (defined to include the District of Columbia), territories, metropolitan cities, counties, and Tribal governments will be required to submit one interim report and thereafter quarterly Project and Expenditure reports through the end of the award period on December 31, 2026.”  
  • “Nonentitlement units of local government will be required to submit annual Project and Expenditure reports until the end of the award period on December 31, 2026.”
  • “States, territories, metropolitan cities, and counties with a population that exceeds 250,000 residents will also be required to submit an annual Recovery Plan Performance report to Treasury. The Recovery Plan Performance report will provide the public and Treasury information on the projects that recipients are undertaking with program funding and how they are planning to ensure project outcomes are achieved in an effective, efficient, and equitable manner.”

The guidance includes additional information about reporting requirements not set forth here, and also states that “Treasury will provide additional guidance and instructions on the reporting requirements outlined above for the Fiscal Recovery Funds at a later date.”

Recoupment:  As mentioned above, “failure to comply with the restrictions on use contained in sections 602(c) and 603(c) of the Act may result in recoupment of funds.”  The rules provide details and timelines for the recoupment process.