The American Rescue Plan (ARPA) was signed into law on March 11, 2021. One of the provisions of ARPA is the Coronavirus State and Local Fiscal Recovery Fund (CSLFRF). CSLFRF provides over $350 billion dollars in emergency funding for state, local, territorial and Tribal governments. All but nine Kentucky cities will receive their funding through the Department of Local Government. Over $300 million in funds will flow through the Department for Local Government. County governments and the nine entitlement cities of Ashland, Bowling Green, Covington, Elizabethtown, Henderson, Hopkinsville, Lexington, Louisville and Owensboro will receive over $1 billion in funding directly from the US Department of Treasury. Funding will be provided via two tranches and many local governments have already received their first tranche so many questions have begun to arise on what the money can be used for and what impact this funding will have on their audit.
CSLFRF funds can be used on eligible costs incurred from March 3, 2021 through December 31, 2024. Eligible cost must meet one of the following uses:
- To respond to the public health emergency or its negative economic impacts. This can include assistance to households, small businesses, nonprofits and additional aid to tourism, travel, and hospitality industry;
- To provide premium pay to workers performing essential functions during the COVID-19 public health emergency;
- To provide government services to the extent revenue has been reduced due to the COVID-19 public health emergency; and
- To provide necessary investments in water, sewer or broadband infrastructure.
The FAQs confirm that, in general, responses to the public health emergency under the Coronavirus Relief Fund (CRF) are also eligible responses under CSLFRF; however, there are two exceptions: (1) the eligibility definitions for public health and safety payroll were updated and (2) expenses related to tax anticipation note issuance are no longer an eligible use. Many local governments may have previously used CRF funds for public health and safety employees’ salary and benefits, so it is important to understand the difference in the CSLFRF funding. The FAQs for CSLFRF specify that funds may be used for payroll and related benefits for “public safety, public health, health care, human services and similar employees, including first responders to the extent that the employee’s time is dedicated to responding to COVID-19 public health emergency”. The FAQs specify that hours do not have to be routinely tracked but recipients are required to maintain documentation to support an assessment that an employee’s time is primarily dedicated (defined as more than half of their time is dedicated and thus fully eligible) to responding to the public health emergency. This is a change from the CRF funding, where classes of employees, such as public safety, public health, health care, and human services, were considered categorically eligible, without the requirement to document an assessment that over half of their time was primarily dedicated to the public health emergency.
The Treasury Guidance also provides additional information on how to calculate lost revenues. Key provisions of the calculation include calculating it on an entity-wide basis and not a source-by-source basis. In addition, the calculation is done on “General Revenue” which includes revenue from taxes, current charges, and miscellaneous and general revenue. This definition excludes debt issuances, federal intergovernmental monies (CRF and CSLFRF funding is excluded from the calculation), and refunds. It includes intergovernmental transfers between state and local governments. The lost revenue must be calculated on a base year and we expect more guidance to be forthcoming on this calculation.
It is important to note that CSLFRF funds are often received in advance of incurring eligible expenditures. Since many local governments are receiving funding now that will not be used until future periods, we are anticipating that many local governments will defer reporting of revenue until the related expenditures are incurred. This could result in many local governments recognizing revenue and related expenditures in the year following the year of receipt. In addition, any interest earned on the funds is not subject to the requirement of the Cash Management Improvement Act; therefore, interest earned on the funds can be retained by the local government.
Special purpose governments like water and sewer utilities will not receive funding directly but can obtain funding from their local governments via transfers. These entities should be reaching out to their Area Development Districts and local governments to see what may be available to them.
RFH is analyzing information related to CSLFRF funds as it is released and there are still many unanswered questions. We are anticipating additional guidance in the coming months. However, if you have questions or need assistance, please contact one of our governmental team members.