HomeMy WebLinkAboutBack-Up from Law Dept4338 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
DEPARTMENT OF THE TREASURY
31 CFR Part 35
RIN 1505-AC77
Coronavirus State and Local Fiscal
Recovery Funds
AGENCY: Department of the Treasury.
ACTION: Final rule.
SUMMARY: The Secretary of the Treasury
(Treasury) is adopting as final the
interim final rule published on May 17,
2021, with amendments. This rule
implements the Coronavirus State Fiscal
Recovery Fund and the Coronavirus
Local Fiscal Recovery Fund established
under the American Rescue Plan Act.
DATES: The provisions in this final rule
are effective April 1, 2022.
FOR FURTHER INFORMATION CONTACT:
Katharine Richards, Director,
Coronavirus State and Local Fiscal
Recovery Funds, Office of Recovery
Programs, Department of the Treasury,
(844) 529-9527.
SUPPLEMENTARY INFORMATION:
I. Introduction
Overview
Since the first case of coronavirus
disease 2019 (COVID-19) was
discovered in the United States in
January 2020, the pandemic has caused
severe, intertwined public health and
economic crises. In March 2021, as
these crises continued, the American
Rescue Plan Act of 2021 (ARPA)1
established the Coronavirus State and
Local Fiscal Recovery Funds (SLFRF) to
provide state, local, and Tribal
governments z with the resources
needed to respond to the pandemic and
its economic effects and to build a
stronger, more equitable economy
during the recovery. The U.S.
Department of the Treasury (Treasury)
issued an interim final rule
implementing the SLFRF program on
May 10, 2021 3 and has since disbursed
over $240 billion to state, local, and
Tribal governments and received over
1,500 public comments on the interim
final rule. Treasury is now issuing this
final rule which responds to public
comments, implements the ARPA
statutory provisions on eligible and
ineligible uses of SLFRF funds, and
'Public Law 117-2. https://www.congress.govl
117/plaws/pub12/PLAW-117p ub12. pdf.
2 Throughout this Supplementary Information,
Treasury uses "state, local, and Tribal
governments" or "recipients" to refer generally to
governments receiving SLFRF funds; this includes
states, territories, Tribal governments, counties,
metropolitan cities, and nonentitlement units of
local government.
386 FR 26786 (May 17, 2021).
makes several changes to the provisions
of the interim final rule, summarized
below in the section Executive
Summary of Major Changes.
Since Treasury issued the interim
final rule in May 2 02 1, both the public
health and economic situations facing
the country have evolved. On the public
health front, the United States has made
tremendous progress in the fight against
COVID-19, including a historic
vaccination campaign that has reached
over 80 percent of adults with at least
one dose and is reaching millions of
children as well.4 However, the disease
continues to present an imminent threat
to public health, especially among
unvaccinated individuals. As the Delta
variant spread across the country this
summer and fall, the United States faced
another severe wave of cases, deaths,
and strain on the healthcare system,
with the risk of hospitalization and
mortality exponentially greater to
unvaccinated Americans. COVID-19 has
now infected over 50 million and killed
over 800,000 Americans since January
2020; tens of thousands of Americans
continue to be infected each day.5 Even
as the nation recovers, new and
emerging COVID-19 variants may
continue to pose threats to both public
health and the economy. Moving
forward, state, local, and Tribal
governments will continue to play a
major role in responding through
vaccination campaigns, testing, and
other services.
The economic recovery similarly has
made tremendous progress but faces
continued risks from the disease and the
disruptions it has caused. In the early
months of the pandemic, the United
States experienced the sharpest
economic downturn on record, with
unemployment spiking to 14.8 percent
in April 2020.6 The economy has
gradually added back jobs, with growth
accelerating in the first half of 2021.7
However, as the Delta variant spread,
the intensified health risks and renewed
disruptions slowed growth,
demonstrating the continued risks from
the virus. By fall 2021, the economy had
4 Centers for Disease Control and Prevention,
COVID Data Tracker: COVID-19 Vaccinations in the
United States, https.Ilcovid.cdc.govlcovid-data-
tracker/#vaccinations (last visited December 31,
2021).
s Centers for Disease Control and Prevention,
COVID Data Tracker, http://www.covid.cdc.gov/
covid-data-tracker/#datatracker-home (last visited
December 7, 2021).
6 U.S. Bureau of Labor Statistics, Unemployment
Rate [UNRATE], retrieved from FRED, Federal
Reserve Bank of St. Louis; https.Ilfred.
stlouisfed.org/series/UNRATE (last visited
December 7, 2021).
7 Id.
exceeded its pre -pandemic size,, and
unemployment had fallen below 5
percent,9 but despite this progress, too
many Americans remain unemployed,
out of the labor force, or unable to pay
their bills, with this pain particularly
acute among lower -income Americans
and communities of color. Again,
moving forward, state, local, and Tribal
governments will remain on the
frontlines of the economic response and
rebuilding a stronger economy in the
aftermath of the pandemic.
However, as state, local, and Tribal
governments continue to face
substantial needs to respond to public
health and economic conditions, they
have also experienced severe impacts
from the pandemic and resulting
recession. State, local, and Tribal
governments cut over 1.5 million jobs in
the early months of the pandemic amid
sharp declines in revenue and remain
over 950,000 jobs below their pre -
pandemic levels.10 As the Great
Recession demonstrated, austerity
among state, local, and Tribal
governments can hamper overall
economic growth and severely curtail
the ability of governments to serve their
constituents.
Recognizing these imperatives, the
SLFRF program provides vital resources
for state, local, and Tribal governments
to respond to the pandemic and its
economic effects and to replace revenue
lost due to the public health emergency,
preventing cuts to government services.
Specifically, the ARPA provides that
SLFRF funds 11 may be used:
(a) To respond to the public health
emergency or its negative economic
impacts, including assistance to
households, small businesses, and
nonprofits, or aid to impacted industries
such as tourism, travel, and hospitality;
(b) To respond to workers performing
essential work during the COVID-19
8 U.S. Bureau of Economic Analysis, Real Gross
Domestic Product [GDPC1], retrieved from FRED,
Federal Reserve Bank of St. Louis, https.Ilfred.
st1ouisfed.org/series/GDPC1 (last visited December
7, 2021).
9 U.S. Bureau of Labor Statistics, supra note 6.
'oU.S. Bureau of Labor Statistics, All Employees,
State Government [CES9092000001] and All
Employees, Local Government [CES9093000001],
retrieved from FRED, Federal Reserve Bank of St.
Louis, https.Ilfred.stlouisfed.org/series/
CES9092000001 and https.Ilfred.stlouisfed.org/
series/CES9093000001 (last visited December 7,
2021).
"The ARPA adds section 602 of the Social
Security Act, which creates the State Fiscal
Recovery Fund, and section 603 of the Social
Security Act, which creates the Local Fiscal
Recovery Fund (together, SLFRF). Sections 602 and
603 contain substantially similar eligible uses; the
primary difference between the two sections is that
section 602 establishes a fund for states, territories,
and Tribal governments and section 603 establishes
a fund for metropolitan cities, nonentitlement units
of local government, and counties.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4339
public health emergency by providing
premium pay to eligible workers;
(c) For the provision of government
services to the extent of the reduction in
revenue due to the COVID-19 public
health emergency relative to revenues
collected in the most recent full fiscal
year prior to the emergency; and
(d) To make necessary investments in
water, sewer, or broadband
infrastructure.
In addition, Congress specified two
types of ineligible uses of funds: funds
may not be used for deposit into any
pension fund or, for states and
territories only, to directly or indirectly
offset a reduction in net tax revenue
resulting from a change in law,
regulation, or administrative
interpretation.
Issued May 10, 2021, Treasury's
interim final rule provided further detail
on eligible uses of funds within the four
statutory categories, ineligible uses of
funds, and administration of the
program. The interim final rule
provided state, local, and Tribal
governments substantial flexibility to
determine how best to use payments
from the SLFRF program to meet the
needs of their communities. The interim
final rule aimed to facilitate swift and
effective implementation by establishing
a framework for determining the types
of programs and services that are
eligible under the ARPA along with
examples of eligible uses of funds that
state, local, and Tribal governments may
consider.
State, local, and Tribal governments
are already deploying SLFRF funds to
make an impact in their communities.
The SLFRF program ensures that state,
local, and Tribal governments have the
resources needed to fight the pandemic,
sustain and strengthen the economic
recovery, maintain vital public services,
and make investments that support
long-term growth, opportunity, and
equity. Treasury looks forward to
supporting and engaging with state,
local, and Tribal governments as they
use these funds to make transformative
investments in their communities.
Finally, with so many pressing and
effective ways to use SLFRF funds, there
is no excuse for waste, fraud, or abuse
of these funds.
Treasury received over 1,500
comments spanning nearly all aspects of
the interim final rule. The final rule
considers and responds to comments,
provides clarification to many aspects of
the interim final rule, and makes several
changes to eligible uses under the
program, summarized immediately
below.
Executive Summary of Major Changes
and Clarifications
The final rule provides broader
flexibility and greater simplicity in the
program, in response to public
comments. Among other clarifications
and changes, the final rule provides for
the following:
• Public Health and Negative
Economic Impacts: In addition to
programs and services, the final rule
clarifies that recipients may use funds
for capital expenditures that support an
eligible COVID-19 public health or
economic response. For example,
recipients may build certain affordable
housing, childcare facilities, schools,
hospitals, and other projects consistent
with the requirements in this final rule
and the Supplementary Information.
In addition, the final rule presumes
that an expanded set of households and
communities are "impacted" or
"disproportionately impacted" by the
pandemic, thereby allowing recipients
to provide responses to a broad set of
households and entities without
requiring additional analysis. Further,
the final rule provides a broader set of
enumerated eligible uses available for
these communities as part of COVID-19
public health and economic response,
including making affordable housing,
childcare, and early learning services
eligible in all impacted communities
and making certain community
development and neighborhood
revitalization activities eligible for
disproportionately impacted
communities.
Further, the final rule allows for a
broader set of uses to restore and
support government employment,
including hiring above a recipient's pre -
pandemic baseline, providing funds to
employees that experienced pay cuts or
furloughs, avoiding layoffs, and
providing retention incentives.
• Premium Pay. The final rule offers
more streamlined options to provide
premium pay, by broadening the share
of essential workers who can receive
premium pay without a written
justification while maintaining a focus
on lower -income and frontline essential
workers.
• Revenue Loss: The final rule offers
a standard allowance for revenue loss of
up to $10 million, not to exceed a
recipient's SLFRF award amount,
allowing recipients to select between a
standard amount of revenue loss or
complete a full revenue loss calculation.
Recipients that select the standard
allowance may use that amount for
government services.
• Water, Sewer, and Broadband
Infrastructure: The final rule
significantly broadens eligible
broadband infrastructure investments to
address challenges with broadband
access, affordability, and reliability, and
adds additional eligible water and sewer
infrastructure investments, including a
broad range of lead remediation and
stormwater management projects.
Structure of the Supplementary
Information
In addition to this Introduction, this
Supplementary Information is organized
into four sections: (1) Eligible Uses, (2)
Restrictions on Use, (3) Program
Administration Provisions, and (4)
Regulatory Analyses.
The Eligible Uses section describes
the standards to determine eligible uses
of funds in each of the four eligible use
cate ories:
(1 Responding to the public health
and negative economic impacts of the
pandemic (which includes several sub-
cate ories)
(2 Providing premium pay to
essential workers
(3) Providing government services to
the extent of revenue loss due to the
pandemic, and
(4) Making necessary investments in
water, sewer, and broadband
infrastructure.
Each eligible use category has
separate and distinct standards for
assessing whether a use of funds is
eligible. Standards, restrictions, or other
provisions in one eligible use category
do not apply to the others. Therefore,
recipients should first determine which
eligible use category a potential use of
funds fits within, then assess whether
the potential use of funds meets the
eligibility standard or criteria for that
category. In the case of uses to respond
to the public health and negative
economic impacts of the pandemic,
recipients should also determine which
sub -category the eligible use fits within
(i.e., public health, assistance to
households, assistance to small
businesses, assistance to nonprofits, aid
to impacted industries, or public sector
capacity and workforce), then assess
whether the potential use of funds
meets the eligibility standard for that
sub -category. Treasury does not pre -
approve uses of funds; recipients are
advised to review the final rule and may
pursue eligible projects under it.
In some sections of the rule, Treasury
identifies specific uses of funds that are
eligible, called "enumerated eligible
uses"; for example, Treasury provides
many enumerated eligible uses of funds
to respond to the public health and
negative economic impacts of the
pandemic. Uses of funds that are not
specifically named as eligible in this
4340 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
final rule may still be eligible in two
ways. First, under the revenue loss
eligible use category, recipients have
broad latitude to use funds for
government services up to their amount
of revenue loss due to the pandemic. A
potential use of funds that does not fit
within the other three eligible use
categories may be permissible as a
government service, which recipients
can fund up to their amount of revenue
loss. For example, transportation
infrastructure projects are generally
ineligible as a response to the public
health and negative economic impacts
of the pandemic; however, a recipient
could fund these projects as a
government service up to its amount of
revenue loss, provided that other
restrictions on use do not apply. See
sections Revenue Loss and Restrictions
on Use for further information. Second,
the eligible use category for responding
to the public health and negative
economic impacts of the pandemic
provides a non -exhaustive list of
enumerated eligible uses, which means
that the listed eligible uses include
some, but not all, of the uses of funds
that could be eligible. The Eligible Uses
section provides a standard for
determining if other uses of funds,
beyond those specifically enumerated,
are eligible. If a recipient would like to
pursue a use of funds that is not
specifically enumerated, the recipient
should use the standard and other
guidance provided in the section Public
Health and Negative Economic Impacts
to assess whether the use of funds is
eligible.
Next, the Restrictions on Use section
describes limitations on how funds may
be used. Treasury has divided the
Restriction on Use section into (A)
statutory restrictions under the ARPA,
which include (1) offsetting a reduction
in net tax revenue, and (2) deposits into
pension funds, and (B) other restrictions
on use, which include (1) debt service
and replenishing reserves, (2)
settlements and judgments, and (3)
general restrictions. These restrictions
apply to all eligible use categories;
however, some restrictions apply only
to certain types of recipient
governments, and recipients are advised
to review the final rule to determine
which restrictions apply to their type of
government (e.g., state, territory, Tribal
government, county, metropolitan city,
or nonentitlement unit of government).
To reiterate, for recipient governments
covered by a specific restriction, that
restriction applies to all eligible use
categories and any use of funds under
the SLFRF program. Specifically:
• For states and territories only, funds
may not be used to offset directly or
indirectly a reduction in net tax revenue
resulting from a change in state or
territory law.
• For all recipients except Tribal
governments, funds may not be used for
deposits into a pension fund.
• For all recipients, funds may not be
used for debt service or replenishing
financial reserves.
• All recipients must also comply
with three general restrictions. First, a
recipient may not use SLFRF funds for
a program, service, or capital
expenditure that conflicts with or
contravenes the statutory purpose of
ARPA, including a program, service, or
capital expenditure that includes a term
or condition that undermines efforts to
stop the spread of COVID-19. Second,
recipients may not use SLFRF funds in
violation of the conflict -of -interest
requirements contained in the Award
Terms and Conditions, including any
self -dealing or violation of ethics rules.
Lastly, recipients should be aware that
federal, state, and local laws and
regulations, outside of SLFRF program
requirements, also apply, including for
example, environmental laws and
federal civil rights and
nondiscrimination requirements, which
include prohibitions on discrimination
on the basis of race, color, national
origin, sex (including sexual orientation
and gender identity), religion, disability,
age, or familial status (having children
under the age of 18).
The Program Administration
Provisions section describes the
processes and requirements for
administering the program on an
ongoing basis, specifically as relates to
the following: Distribution of funds,
timeline for using funds, transfer of
funds from a recipient to different
organizations, use of funds for program
administration, reporting on use of
funds, and remediation and recoupment
of funds used for ineligible purposes. Of
note, SLFRF funds may only be used for
costs incurred within a specific time
period, beginning March 3, 2021, with
all funds obligated by December 31,
2024 and all funds spent by December
319 2026. Recipients are advised to also
consult Treasury's Reporting and
Compliance Guidance for additional
information on program administration
processes and requirements, including
applicability of the Uniform Guidance.
Finally, the section Regulatory
Analyses provides Treasury's analysis of
the impacts of this rulemaking, as
required by several laws, regulations,
and Executive Orders.
Throughout this Supplementary
Information, statements using the terms
"should" or "must" refer to
requirements, except when used in
summarizing opinions expressed in
public comments. Statements using the
term "encourage" refer to
recommendations, not requirements.
II. Eligible Uses
A. Public Health and Negative
Economic Impacts
Background
Since the first case of COVID-19 was
discovered in the United States in
January 2020, the disease has infected
over 50 million and killed over 800,000
Americans.12 The disease —and
necessary measures to respond —have
had an immense public health and
economic impact on millions of
Americans across many areas of life, as
detailed below in the respective sections
on Public Health and Negative
Economic Impacts. Since the release of
the interim final rule in May 2 02 1, the
country has made major progress in
fighting the disease and rebuilding the
economy but faces continued risks, as
illustrated by the spread of the Delta
variant and the resulting slowdown in
the economic recovery. The SLFRF
program, and Treasury's interim final
rule, provide substantial flexibility to
recipients to respond to pandemic
impacts in their local community; this
flexibility is designed to help state,
local, and Tribal governments adapt to
the evolving public health emergency
and tailor their response as needs evolve
and to the particular local needs of their
communities.
Indeed, state, local, and Tribal
governments face continued needs to
respond at scale to the public health
emergency. This includes continued
public health efforts to slow the spread
of the disease, to increase vaccination
rates and provide vaccinations to new
populations as they become eligible, to
protect individuals living in congregate
facilities, and to address the broader
impacts of the pandemic on public
health. Similarly, while a strong
economic recovery is underway, the
economy remains 3.9 million jobs below
its pre -pandemic level, pointing to the
continued need for response efforts,
with low-income workers and
communities of color facing elevated
rates of unemployment and economic
hardship.13 Long-standing disparities in
health and economic outcomes in
12 Centers for Disease Control and Prevention,
COVID Data Tracker, http://www.covid.cdc.gov/
covid-data-tracker/#datatracker-home (last visited
December 31, 2021).
13 U.S. Bureau of Labor Statistics, All Employees,
Total Nonfarm [PAYEMS] https.Ilfred.
stlouisfed.org/series/PAYEMS (last visited
December 7, 2021).
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4341
underserved14 communities, that
amplified and exacerbated the impacts
of the pandemic, also present continued
barriers to full and equitable recovery.
As state, local, and Tribal
governments work to meet the public
health and economic needs of their
communities, these governments are
also confronting the need to rebuild
their own capacity. Facing severe
budget challenges during the pandemic,
many state, local, and Tribal
governments have been forced to make
cuts to services or their workforces,
including cutting over 1.5 million jobs
from February to May 2020, or delay
critical investments. As of fall 2021,
state, local, and Tribal government
employment remained over 950,000 jobs
below pre -pandemic levels.15 In the
recovery from the Great Recession, cuts
to state, local, and Tribal governments
became a meaningful drag on economic
growth for several years, and the SURF
program provides the resources needed
to re -invest in vital public services and
workers to avoid this outcome.16
1. General Provisions: Structure and
Standards
Background: Sections 602(c)(1)(A)
and 603(c)(1)(A) of the Social Security
Act establish that recipients may use
funds "to respond to the public health
emergency with respect to COVID-19 or
its negative economic impacts,
including assistance to households,
small businesses, and nonprofits, or aid
to impacted industries such as tourism,
travel, and hospitality." The interim
final rule established three categories
within this eligible use: (1) Public
health responses for those impacted by
the pandemic, including the general
public; (2) responses to the negative
economic impacts that were
experienced by those impacted as a
result of the pandemic; and (3)
additional services, either as a public
health response or a response to the
negative economic impacts of the
14 Treasury uses "underserved" to refer to
populations sharing a particular characteristic, as
well as geographic communities, that have been
systematically denied a full opportunity to
participate in aspects of economic, social, and civic
life. In the interim final rule, Treasury generally
used the term "disadvantaged" to refer to these
same populations and communities.
15 U.S. Bureau of Labor Statistics, All Employees,
State Government [CES9092000001] and All
Employees, Local Government [CES9093000001],
retrieved from FRED, Federal Reserve Bank of St.
Louis, https.Ilfred.stlouisfed.org/series/
CES9092000001 and https.Ilfred.stlouisfed.org/
series/CES9093000001 (last visited December 7,
2021).
16 Tracy Gordon, State and Local Budgets and the
Great Recession, Brookings Institution (Dec. 31,
2012), http://www.brookings.edu/articles/state-and-
local-budgets-and-th e-great-recession.
pandemic, for disproportionately
impacted communities.
The interim final rule established the
method to determine which specific
programs or services may be eligible to
respond to the public health emergency
or to respond to the negative economic
impacts of the public health emergency
within this framework. The interim final
rule included multiple enumerated uses
that are eligible within each of these
categories when provided to eligible
populations, including populations that
the interim final rule presumed to have
been impacted (in the case of public
health responses and responses to
negative economic impacts) or
disproportionately impacted (in the case
of disproportionately impacted
communities). Finally, the interim final
rule also allowed recipients to designate
additional individuals or classes as
impacted or disproportionately
impacted. The standards for each of
these criteria under the interim final
rule are discussed below.
To assess whether a program or
service would be eligible to respond to
the public health emergency or its
negative economic impacts, the interim
final rule stated that, "the recipient [is
required] to, first, identify a need or
negative impact of the COVID-19 public
health emergency and, second, identify
how the program, service, or other
intervention addresses the identified
need or impact [. . .] [E]ligible uses
under this category must be in response
to the disease itself or the harmful
consequences of the economic
disruptions resulting from or
exacerbated by the COVID-19 public
health emergency." The enumerated
eligible uses were presumed to meet this
criterion.
With respect to uses not specifically
enumerated in the interim final rule as
eligible public health responses, the
interim final rule stated that, "[t]o assess
whether additional uses would be
eligible under this category, recipients
should identify an effect of COVID-19
on public health, including either or
both of immediate effects or effects that
may manifest over months or years, and
assess how the use would respond to or
address the identified need."
With respect to uses not specifically
enumerated in the interim final rule as
eligible responses to a negative
economic impact of the public health
emergency, the interim final rule stated
that "[e]ligible uses that respond to the
negative economic impacts of the public
health emergency must be designed to
address an economic harm resulting
from or exacerbated by the public health
emergency. In considering whether a
program or service would be eligible
under this category, the recipient should
assess whether, and the extent to which,
there has been an economic harm, such
as loss of earnings or revenue, that
resulted from the COVID-19 public
health emergency and whether, and the
extent to which, the use would respond
to or address this harm.17 A recipient
should first consider whether an
economic harm exists and whether this
harm was caused or made worse by the
COVID-19 public health emergency."
The interim final rule went on to say
that: "In addition, the eligible use must
`respond to' the identified negative
economic impact. Responses must be
related and reasonably proportional to
the extent and type of harm
experienced; uses that bear no relation
or are grossly disproportionate to the
type or extent of harm experienced
would not be eligible uses."
Throughout this final rule, Treasury
refers to households, communities,
small businesses, nonprofits, and
industries that experienced public
health or negative economic impacts of
the pandemic as "impacted." The first
section in the interim final rule under
this eligible use category included
public health responses for these
impacted classes. The second category
in the interim final rule under this
eligible use category included responses
to the negative economic impacts that
were experienced by these impacted
classes as a result of the pandemic.
The interim final rule further
recognized that certain populations
have experienced disproportionate
health or negative economic impacts
during the pandemic, as pre-existing
disparities in these communities
amplified the impacts of the pandemic.
For example, the interim final rule
recognized that the negative economic
effects of the pandemic were
particularly pronounced among lower -
income families, who were more likely
to experience income loss and more
likely to have a job that required in -
person work. The interim final rule
recognized the role of pre-existing social
vulnerabilities and disparities in driving
the disparate health and economic
outcomes and presumed that programs
designed to address these health or
economic disparities are responsive to
the public health or negative economic
impacts of the COVID-19 public health
emergency, when provided in
disproportionately impacted
communities. In addition to identifying
certain populations and communities
17In some cases, a use maybe permissible under
another eligible use category even if it falls outside
the scope of section (c)(1)(A) of section 602 and 603
of the Social Security Act.
4342 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
presumed to be disproportionately
impacted, it also empowered recipients
to identify other disproportionately
impacted households, populations,
communities, or small businesses. The
interim final rule provided that, in
identifying these disproportionately
impacted communities, recipients
should be able to support their
determination that the pandemic
resulted in disproportionate public
health or economic outcomes to the
specific populations, households, or
geographic areas to be served.
Throughout this final rule, Treasury
refers to those households,
communities, small businesses, and
nonprofits that experienced
disproportionate public health or
negative economic impacts of the
pandemic as "disproportionately
impacted." The third category in the
interim final rule under this eligible use
included public health responses and
responses to the negative economic
impacts for these disproportionately
impacted classes.
The interim final rule provided
significant flexibility for recipients to
determine which households,
populations, communities, or small
businesses have been impacted and/or
disproportionately impacted by the
pandemic and to identify appropriate
responses. The interim final rule
included several provisions to provide
simple methods for recipients to
identify impacts and design programs to
address those impacts. First, the interim
final rule allowed recipients to
demonstrate a negative economic
impact on a population or class and
provide assistance to households or
small businesses that fall within that
population or class. In such cases, the
recipient need only demonstrate that an
individual household or business is
within the class that experienced a
negative economic impact, rather than
requiring a recipient to demonstrate that
each individual household or small
business experienced a negative
economic impact, because the impact
was already identified for the class.
Second, in the interim final rule,
Treasury presumed that certain
populations have been impacted or
disproportionately impacted and are
thus eligible for services that respond to
these impacts or disproportionate
impacts. Specifically, the interim final
rule permitted recipients to presume
that households that experienced
unemployment, increased food or
housing insecurity, or are low- or
moderate -income experienced a
negative economic impact from the
pandemic. The interim final rule also
permitted recipients to presume that
certain services provided in Qualified
Census Tracts (QCTs), to individuals
living in QCTs, or by Tribal
governments are responsive to
disproportionate impacts of the
pandemic. In addition to the
populations presumed to be impacted or
disproportionately impacted, under the
interim final rule, recipients could
identify other impacted households or
classes, as described above, as well as
other populations, households, or
geographic areas that are
disproportionately impacted by the
pandemic.
Third, as mentioned previously, the
interim final rule included a non -
exhaustive list of uses of funds that
Treasury identified as responsive to the
impacts or disproportionate impacts of
the pandemic. Treasury refers to these
as "enumerated eligible uses."
To summarize, the interim final rule
identified certain populations that are
presumed to be impacted by the
pandemic (and specific enumerated
uses of funds that are responsive to that
impact) and populations that are
presumed to be disproportionately
impacted by the pandemic (and specific
enumerated uses of funds that are
responsive to those disproportionate
impacts). In addition, the interim final
rule provided standards for recipients to
assess whether additional uses of funds,
beyond the enumerated eligible uses,
are eligible for impacted and
disproportionately impacted
populations and permitted recipients to
identify other households or classes that
experienced impacts of the pandemic or
disproportionate impacts of the
pandemic.
Rule Structure
Public Comment: Many commenters
expressed concern regarding the
structure of the eligible uses, indicating
they found the structure of the public
health and negative economic impacts
section of the interim final rule to be
confusing or difficult to navigate. Other
commenters indicated that they
understood the enumerated uses to be
the only eligible uses and/or the
presumed eligible populations to be the
only eligible populations. Several
commenters expressed frustration about
the number of eligible uses specifically
enumerated in the interim final rule,
which they considered too few, and
commenters proposed a wide range of
additional enumerated eligible uses (for
further discussion, see the section
Public Health and section Negative
Economic Impacts). Commenters
expressed concern with pursuing uses
of funds not explicitly enumerated in
the eligible use section or uncertainty
regarding the broad flexibility provided
under the interim final rule to pursue
additional programs that respond to the
public health or negative economic
impacts of the pandemic or the process
for doing so.
Treasury Response: Treasury
recognizes that many commenters felt
the structure of the interim final rule
could be clarified. These comments are
consistent with many of the questions
that Treasury has received from
recipients, which requested clarification
regarding the category their desired
response fits into. Treasury observes
that these comments and questions
generally fall into four categories: (1)
How to identify the correct public
health or negative economic impact
category for a particular response, (2)
how to identify whether a particular use
is eligible, (3) how to identify an
impacted or disproportionately
impacted class, and (4) whether an
enumerated use can be provided to a
class other than those presumed
impacted or disproportionately
impacted. In response to comments,
Treasury is adjusting the structure of the
public health and negative economic
impacts eligible use section of the final
rule to improve clarity and make it
easier for recipients to interpret and
apply the final rule.
Specifically, Treasury is restructuring
the rule to aid recipients in determining
whether a particular response is eligible
and how the particular response might
be eligible under a particular category.
This restructuring reinforces the
fundamental criteria that a use of funds
is eligible based on its responsiveness to
a public health or negative economic
impact experienced by individuals,
households, small businesses,
nonprofits, or impacted industries
(together "beneficiaries").1' This
restructuring is intended to make the
rule easier to navigate and to
implement, including any criteria or
conditions on particular uses of funds.
The reorganization of the public
health and negative economic impacts
section of the final rule is also intended
to clarify the enumerated eligible uses
described in the interim final rule. The
reorganization itself is not intended to
change the scope of the enumerated
uses that were included in the interim
final rule or that were allowable under
the interim final rule. In some cases,
specific enumerated uses are being
altered, and those changes are discussed
18Note that small businesses, nonprofits, and
industries may also function as subrecipients. For
additional information on these distinctions see
section Distinguishing Subrecipients versus
Beneficiaries.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4343
as changes within the section on that
enumerated use.
The final rule streamlines and aligns
services and standards that are generally
applicable or are provided for public
health purposes. Under this approach,
eligible uses to respond to the public
health emergency are organized based
on the type of public health problem: (1)
COVID-19 mitigation and prevention,
(2) medical expenses, (3) behavioral
health care, and (4) preventing and
responding to violence. Under this
approach, eligible uses to respond to the
negative economic impacts of the public
health emergency are organized based
on the type of beneficiary: (1) Assistance
to households, (2) assistance to small
businesses, and (3) assistance to
nonprofits, alongside a fourth
standalone eligibility category for aid to
travel, tourism, hospitality, and other
impacted industries. The first three
categories, assistance to households,
small businesses, and nonprofits,
include enumerated eligible uses for
impacted and disproportionately
impacted beneficiaries. This change in
structure is intended to provide a
framework that clearly identifies the
intended beneficiaries of uses of funds
and provides clarity about what types of
assistance are "responsive to the
pandemic or its negative economic
impacts" for these beneficiaries.
a. Standards for Identifying a Public
Health or Negative Economic Impact
Standards: Designating a Public Health
Impact
Public Comment: Many commenters
expressed uncertainty about how to
determine whether a use of funds,
beyond those specifically enumerated as
eligible, might be an eligible public
health response. For example, many
commenters submitted questions asking
whether specific uses of funds would be
eligible. Others described what they
considered to be impacts of the
pandemic and argued that uses of funds
to respond to these issues should be
eligible. Some commenters requested
that Treasury provide additional detail
to guide their assessments of eligible
uses of funds. For example, a
commenter requested more clarification
around exactly what and whose medical
expenses can be covered. These
comments ranged in their specificity
and covered the fall range of the
enumerated eligible uses.
Treasury Response: Treasury is
clarifying that when assessing whether
a program or service is an eligible use
to respond to the public health impacts
of the COVID-19 public health
emergency, the Department will
consider the two eligibility
requirements discussed below. These
standards apply to all proposed public
health uses.
First, there must be a negative public
health impact or harm experienced by
an individual or a class. For ease of
administration, the interim final rule
allowed, and the final rule maintains
the ability for, recipients to identify a
public health impact on a population or
group of individuals, referred to as a
"class," and to provide assistance to
that class. In determining whether an
individual is eligible for a program
designed to address a harm experienced
by a class, the recipient need only
document that the individual is within
the class that experienced a public
health impact, see section Standards:
Designating Other Impacted Classes. In
the case of some impacts, for example
impacts of COVID-19 itself that are
addressed by providing prevention and
mitigation services, such a class could
reasonably include the general public.
Second, the program, service, or other
intervention must address or respond to
the identified impact or harm. The final
rule maintains the interim final rule
requirement that eligible uses under this
category must be in response to the
disease itself or other public health
harms that it caused.19
Responses must be reasonably
designed to benefit the individual or
class that experienced the public health
impact or harm. Uses of funds should be
assessed based on their responsiveness
to their intended beneficiaries and the
ability of the response to address the
impact or harm experienced by those
beneficiaries.
Responses must also be related and
reasonably proportional to the extent
and type of public health impact or
harm experienced. Uses that bear no
relation or are grossly disproportionate
to the type or extent of harm
experienced would not be eligible uses.
Reasonably proportional refers to the
scale of the response compared to the
scale of the harm. It also refers to the
targeting of the response to beneficiaries
compared to the amount of harm they
experienced. In evaluating whether a
19In designing an intervention to mitigate
COVID-19, the recipient should consider guidance
from public health authorities, particularly the
Centers for Disease Control and Prevention (CDC),
in assessing appropriate COVID-19 mitigation and
prevention strategies (see Centers for Disease
Control and Prevention, COVID-19, https://
www.cdc.gov/coronavirus/2ol9-ncovlindex.html .
A program or service that imposes conditions on
participation in or acceptance of the service that
would undermine efforts to stop the spread of
COVID-19 or discourage compliance with practices
in line with CDC guidance for stopping the spread
of COVID-19 is not a permissible use of funds.
use is reasonably proportional,
recipients should consider relevant
factors about the harm identified and
the response. For example, recipients
may consider the size of the population
impacted and the severity, type, and
duration of the impact. Recipients may
also consider the efficacy, cost, cost-
effectiveness, and time to delivery of the
response.
It a recipient intends to fund capital
expenditures in response to the public
health impacts of the pandemic,
recipients should refer to the section
Capital Expenditures for details about
the eligibility of capital expenditures.
Standards: Designating a Negative
Economic Impact
Public Comment: Many commenters
expressed uncertainty about how to
determine whether uses of funds,
beyond those specifically enumerated as
eligible, might be eligible responses to
negative economic impacts. For
example, many commenters submitted
questions asking whether specific uses
of funds would be eligible. Others
described what they considered to be
impacts of the pandemic and argued
that uses of funds to respond to these
issues should be eligible. Some
commenters requested that Treasury
provide additional detail to guide their
assessments of eligible uses of funds.
These comments ranged in their
specificity and covered the full range of
eligible uses to respond to negative
economic impacts. Several commenters
asked for clarification about what types
of food assistance would be considered
eligible. Another commenter requested
that the establishment of outdoor dining
be eligible. Many commenters inquired
about homeless shelters as an eligible
use of SLFRF funds.
Commenters also expressed
uncertainty about the ability to establish
classes, including geographic areas, that
experienced a negative economic impact
or disagreed with the requirement that
an individual entity be impacted by the
pandemic in order to receive assistance.
For example, a commenter argued that
interventions should not be limited to
individuals or businesses that
experienced an economic impact and
should instead be used broadly to
support economic growth. These
commenters argued that an expenditure
that supports a more robust economy
may help combat the pandemic's
negative economic impacts, and it can
do so even if funding is provided to
individuals or entities that did not
themselves experience a negative
economic impact during the pandemic.
Treasury Response: The final rule
maintains the standard articulated in
4344 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
the interim final rule. For clarity, the
final rule re -articulates that when
assessing whether a program or service
is an eligible use to respond to the
negative economic impacts of the
COVID-19 public health emergency,
Treasury will consider the two
eligibility requirements discussed
below.
First, there must be a negative
economic impact, or an economic harm,
experienced by an individual or a class.
The recipient should assess whether,
and the extent to which, there has been
an economic harm, such as loss of
earnings or revenue, that resulted from
the COVID-19 public health emergency.
A recipient should first consider
whether an economic harm exists and
then whether this harm was caused or
made worse by the COVID-19 public
health emergency. This approach is
consistent with the text of the statute,
which provides that funds in this
category must be used to "respond to
the public health emergency with
respect to . . . its negative economic
impacts."
While economic impacts may either
be immediate or delayed, individuals or
classes that did not experience a
negative economic impact from the
public health emergency would not be
eligible beneficiaries under this
category. As noted above, the interim
final rule permitted recipients to
presume that households that
experienced unemployment, increased
food or housing insecurity, or are low -
or moderate -income experienced a
negative economic impact from the
pandemic. For discussion of the final
rule's approach to this presumption, see
section Populations Presumed Eligible.
The final rule also maintains several
provisions included in the interim final
rule and subsequent guidance that are
intended to ease administration of
identifying that the beneficiary
experienced a negative economic impact
or harm. For example, the interim final
rule allowed, and the final rule
maintains the ability for, recipients to
demonstrate a negative economic
impact on a population or group,
referred to as a "class," and to provide
assistance to households, small
businesses, or nonprofits that fall within
that class. In such cases, the recipient
need only demonstrate that the
household, small business, or nonprofit
is within the class that experienced a
negative economic impact, see section
Standards: Designating Other Impacted
Classes. This would allow, for example,
an internet access assistance program
for all households with children to
support those households' ability to
participate in healthcare, work, and
educational activities like extending
learning opportunities, among other
critical activities. In that case, the
recipient would only need to identify a
negative economic impact to the class of
"households with children" and would
not need to document or otherwise
demonstrate that each individual
household served experienced a
negative economic impact.
Second, the response must be
designed to address the identified
economic harm or impact resulting from
or exacerbated by the public health
emergency. In selecting responses, the
recipient must assess whether, and the
extent to which, the use would respond
to or address this harm or impact. This
approach is consistent with the text of
the statute, which provides that funds
may be used to "respond to" the
"negative economic impacts" of the
public health emergency "including
assistance to households, small
businesses, and nonprofits, or aid to
impacted industries such as tourism,
travel, and hospitality." The list of
potential responses ("assistance" or
"aid") suggests that responses should
address the "negative economic
impacts" of particular types of
beneficiaries (e.g., households or small
businesses).
Responses must be reasonably
designed to benefit the individual or
class that experienced the negative
economic impact or harm. Uses of funds
should be assessed based on their
responsiveness to their intended
beneficiary and the ability of the
response to address the impact or harm
experienced by that beneficiary.20
Responses must also be related and
reasonably proportional to the extent
and type of harm experienced; uses that
bear no relation or are grossly
disproportionate to the type or extent of
harm experienced would not be eligible
uses.21 Reasonably proportional refers
to the scale of the response compared to
the scale of the harm. It also refers to the
targeting of the response to beneficiaries
compared to the amount of harm they
experienced; for example, it may not be
reasonably proportional for a cash
assistance program to provide assistance
in a very small amount to a group that
20 For example, expenses such as excessive
compensation to employees or expenses which
have already been reimbursed through another
federal program, are not reasonably designed to
address a negative economic impact to a
beneficiary.
21 For example, a program or service that imposes
conditions on participation in or acceptance of the
service that would undermine efforts to stop the
spread of COVID-19 or discourage compliance with
practices in line with CDC guidance for stopping
the spread of COVID-19 is not a permissible use of
funds.
experienced severe harm and in a much
larger amount to a group that
experienced relatively little harm. In
evaluating whether a use is reasonably
proportional, recipients should consider
relevant factors about the harm
identified and the response. For
example, recipients may consider the
size of the population impacted and the
severity, type, and duration of the
impact. Recipients may also consider
the efficacy, cost, cost-effectiveness, and
time to delivery of the response.
Finally, recipients should be aware of
the distinction between beneficiaries of
funds and subrecipients; a recipient
may provide services to beneficiaries
through subrecipients that did not
experience a negative economic impact,
see section Distinguishing Subrecipients
versus Beneficiaries. That is, a recipient
may award SLFRF funds to an entity
that did not experience a negative
economic impact in order to implement
a program or provide a service to
beneficiaries on its behalf. Such
transfers, when implementing a public
health or negative economic impact
response, should be responsive to and
designed to benefit individuals,
households, small businesses,
nonprofits, or impacted industries that
did experience a public health or
negative economic impact.
Determining the Appropriate Eligible
Use Category
Public Comment: Some commenters
expressed uncertainty about how to
analyze negative economic impacts to
different entities (e.g., households, small
businesses, nonprofits). For example,
commenters asked whether a nonprofit,
which did not experience a negative
economic impact itself, could be granted
funds to provide services to individuals
experiencing homelessness, who did
experience negative economic impacts.
Other commenters proposed providing
assistance to support the expansion of
small businesses, under the theory that
this would create more job
opportunities for unemployed workers
who experienced negative economic
impacts.
Treasury Response: In the final rule,
Treasury is clarifying that recipients
should assess a potential use of funds
based on which beneficiary experienced
the negative economic impact, in other
words, the households, small
businesses, nonprofits, or impacted
industries that experienced the negative
economic impact.
Treasury notes that recipients may
award SLFRF funds to many different
types of organizations to carry out
eligible uses of funds and serve
beneficiaries on behalf of a recipient.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4345
When a recipient provides funds to
another entity to carry out eligible uses
of funds and serve beneficiaries the
entity becomes a subrecipient (see
section Distinguishing a Subrecipient
versus a Beneficiary). For example, a
recipient may grant funds to a nonprofit
organization to provide food assistance
(an eligible use) to low-income
households (the beneficiaries).
Recipients only need to assess whether
the beneficiaries experienced a negative
economic impact and whether the
eligible use responds to that impact,
consistent with the two-part framework
described above; the organization
carrying out the eligible use does not
need to have experienced a negative
economic impact if it is serving as the
vehicle for reaching the beneficiaries.
When making determinations about
how to implement a program, recipients
should consider whether that method of
program implementation is an effective
and efficient method to implement the
program and do so in accordance with
the Uniform Guidance provisions that
govern procurements and sub -granting
of federal funds, as applicable.
As noted above, recipients should
analyze eligible uses based on the
beneficiary of the assistance or the
entity that experienced a negative
economic impact. Assistance to a small
business or to an impacted industry
must respond to a negative economic
impact experienced by that small
business or industry. Recipients may
not provide assistance to small
businesses or impacted industries that
did not experience a negative economic
impact, although recipients can identify
negative economic impacts for classes,
rather than individual businesses, and
may also presume that small businesses
in certain areas experienced impacts;
see section General Provisions:
Structure and Standards and section
Assistance to Small Businesses for
details.
Several examples illustrate the
application of these concepts. For
example, a recipient could provide
assistance to households via a contract
with a business to create subsidized jobs
for the long-term unemployed; in this
case the business is a subrecipient and
need not have experienced a negative
economic impact, but the recipient
would need to identify a specific
connection between the assistance
provided and addressing the negative
economic impact experienced by the
unemployed households. The recipient
could, for instance, document the
subsidized jobs created under the
contract and their reservation for long-
term unemployed individuals.
Similarly, a recipient might provide
assistance to a small business that
experienced a pandemic -related loss of
revenue. This small business is a
beneficiary and may use those funds in
many ways, potentially including hiring
or retaining staff. However, general
assistance to a business that did not
experience a negative economic impact
under the theory that this assistance
generally grows the economy and
therefore enhances opportunities for
unemployed workers would not be an
eligible use, because such assistance is
not reasonably designed to impact the
individuals or classes that experienced
a negative economic impact. In other
words, there is not a reasonable
connection between the assistance
provided and an impact on the
beneficiaries. Such an activity would be
attenuated from and thus not reasonably
designed to benefit the households that
experienced the negative economic
impact.
b. Populations Presumed Eligible
Presumed Eligibility: Impacted and
Disproportionately Impacted
Households and Communities
Background: As noted above, the
interim final rule allowed recipients to
presume that certain households were
impacted or disproportionately
impacted by the pandemic and thus
eligible for responsive programs or
services. Specifically, under the interim
final rule, recipients could presume that
a household or population that
experienced unemployment,
experienced increased food or housing
insecurity, or is low- or moderate -
income experienced negative economic
impacts resulting from the pandemic,
and recipients may provide services that
respond to these impacts.
The interim final rule also recognized
that pre-existing health, economic, and
social disparities contributed to
disproportionate pandemic impacts in
certain communities and allowed for a
broader list of enumerated eligible uses
to respond to the pandemic in
disproportionately impacted
communities. Under the interim final
rule, recipients were allowed to
presume that families residing in QCTs
or receiving services provided by Tribal
governments were disproportionately
impacted by the pandemic.
Definition of Low- and Moderate -
Income
Public Comment: As noted earlier,
many commenters sought a definition
for "low- and moderate -income" to
provide recipients greater clarity on
which specific households could be
presumed to be impacted by the
pandemic.
Treasury Response: The final rule
maintains the presumptions identified
in the interim final rule and defines
low- and moderate -income for the
purposes of determining which
households and populations recipients
may presume to have been impacted. To
simplify the administration of this
presumption, the final rule adopts a
definition of low- and moderate -income
based on thresholds established and
used in other federal programs.
Definitions. The final rule defines a
household as low income if it has (i)
income at or below 185 percent of the
Federal Poverty Guidelines (FPG) for the
size of its household based on the most
recently published poverty guidelines
by the Department of Health and Human
Services (HHS) or (ii) income at or
below 40 percent of the Area Median
Income (AMI) for its county and size of
household based on the most recently
published data by the Department of
Housing and Urban Development
(HUD).zz
The final rule defines a household as
moderate income if it has (i) income at
or below 300 percent of the FPG for the
size of its household based on the most
recently published poverty guidelines
by HHS or (ii) income at or below 65
percent of the AMI for its county and
size of household based on the most
recently published data by HUD.23
Recipients may determine whether to
measure income levels for specific
households or for a geographic area
based on the type of service to be
provided. For example, recipients
developing a program that serves
specific households (e.g., a subsidy for
internet access, a childcare program)
may measure income at the household
level. Recipients providing a service
that reaches a general geographic area
(e.g., a park) may measure median
income of that area.
Further, recipients should generally
use the income threshold for the size of
the household to be served (e.g., when
providing childcare to a household of
five, recipients should reference the
income threshold for a household of
five); however, recipients may use the
income threshold for a default
household size of three if providing
zz AMI is also often referred to as median family
income for the area. Since AMI is synonymous with
this term and used more generally, the final rule
refers to AMI.
23 For the six New England states of Connecticut,
Maine, Massachusetts, New Hampshire, Rhode
Island, and Vermont, HUD provides AMI for towns
rather than counties. Recipients in these states
should use the AMI corresponding to their town
when determining thresholds for both low and
moderate income.
4346 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
services that reach a general geographic
area or if doing so would simplify
administration of the program to be
provided (e.g., when developing a park,
recipients should use the income
threshold for a household size of three
and compare it to median income of the
geographic area to be served).
Note that recipients can also identify
and serve other classes of households
that experienced negative economic
impacts or disproportionate impacts
from the pandemic; recipients can
identify these classes based on their
income levels, including above the
levels defined as low- and moderate -
income in the final rule. For example,
a recipient may identify that households
in their community with incomes above
the final rule threshold for low-income
nevertheless experienced
disproportionate impacts from the
pandemic and provide responsive
services. See section General Provisions:
Standards for Identifying Other Eligible
Populations for details on applicable
standards.
Applicable levels. For reference, the
FPG is commonly referred to as the
federal poverty level (FPL) and is
related to —although distinct from the
U.S. Census Bureau's poverty threshold.
The final rule uses the FPG when
referring specifically to the HHS
guidelines, as these are the quantitative
metrics used for determining low- and
moderate -income households.
The FPG by household size for 2021
is included in the table below.
Recipients should refer to HHS Poverty
2021 FEDERAL POVERTY GUIDELINES
Guidelines for this information, which
is updated annually and available on
the HHS website.24 For calculating the
thresholds of 40 percent and 65 percent
of AMI, recipients should refer to the
annual HUD Section 8 50 percent
income limits by county and household
size published by HUD and available on
the HUD website; in particular,
recipients should calculate the 40
percent threshold as 0.8 times the 50
percent income limit, and recipients
should calculate the 65 percent
threshold as 1.3 times the 50 percent
income limit.25 Finally, for median
income of Census Tracts and other
geographic areas, recipients should refer
to the most recent American
Community Survey 5-year estimates
available through the Census website.26
Household size
48 contiguous
states and the
District of
Columbia
Alaska
Hawaii
1...................................................................................................................................................
$12,880
$16,090
$14,820
2...................................................................................................................................................
17,420
21,770
20,040
3...................................................................................................................................................
21,960
27,450
25,260
4...................................................................................................................................................
26,500
33,130
30,480
5...................................................................................................................................................
31,040
38,810
35,700
6...................................................................................................................................................
35,580
44,490
40.920
7...................................................................................................................................................
40,120
50,170
46,140
8...................................................................................................................................................
44,660
55,850
51,360
For families/households with more than 8 persons, add the following amounts for each additional person:
48 Contiguous States and the District of Columbia: $4,540.
Alaska: $5,680.
Hawaii: $5,220.
Source: "HHS Poverty Guidelines for 2021," available at https://aspe.hhs.govltopics/poverty-economic-mobility/poverty-guidelines
Rationale. In defining low income, the
final rule uses both the FPG and AMI to
account for national trends and regional
differences. The metric of 185 percent of
FPG aligns with some other programs;
for instance, under the National School
Lunch Program, students with
household incomes under 185 percent
of FPG qualify for free or reduced -price
lunch, and schools often use eligibility
for free or reduced -price lunch as an
indicator of low-income status under
Title 1—A of the Elementary and
Secondary Education Act. Eligibility for
other programs, such as the Federal
Communications Commission's e-Rate
24 U.S. Department of Health and Human Service,
HHS Poverty Guidelines for 2021, available at
https.Ilaspe.hhs.gov/topics/poverty-econonli c-
m obi li ty/poverty-guidelines.
25 U.S. Department of Housing and Urban
Development, FY 2021 Section 8 Income Limits,
available at https://www.huduser.gov/portal/
datasets/il/i121/Section8-FY21.xlsx. Recipients may
refer to the list of counties (and New England
towns) identified by state and metropolitan area for
identifying the appropriate area. U.S. Department of
Housing and Urban Development, FY 2021 List of
Counties (and New England Towns) Identified by
program and the Special Supplemental
Nutrition Program for Women, Infants
and Children employ this metric as
well. In addition, 185 percent of the
FPG for a family of four is $49,025,
which is approximately the wage
earnings for a two -earner household in
which both earners receive the median
wage in occupations, such as waiters
and waitresses and hotel clerks, that
were heavily impacted by COVID-19.27
This measure is targeted toward those at
the bottom of the income distribution
and thus helps to promote use of SLFRF
funds towards populations with the
greatest needs. At the same time, with
State and Metropolitan Area, available at https://
www.hud user.gov/portal/datasets/il/i121 /area-
definitions-FY21. pdf.
26The U.S. Census Bureau provides an interactive
map: U.S. Census Bureau, Median Household
Income State Selection Map, available at httf,
data. cens us.gov/cedsci/map?q=Median
%20Ho usehold %201ncome&g=010000O US
%2404000 %24001 &tid=ACSST5Y2019. S1901 &cid=
S1901_C01_012E&vintage=2019. The U.S. Census
Bureau also provides an interactive table: U.S.
Census Bureau, Median Household Income In The
Past 12 Months (In 2019 Inflation -Adjusted Dollars),
approximately one -quarter of Americans
below 185 percent of the poverty
threshold, this approach is broad
enough to facilitate use of SLFRF funds
across many jurisdictions.211 Because
regions have different cost and income
levels, this definition also allows for
upward adjustment based on AMI for
those regions where 40 percent of AMI
exceeds 185 percent of FPG. The metric
of 40 percent of AMI is based on the
midpoint of values often used to
designate certain categories of low-
income households; specifically, it is
the midpoint of the 30 percent income
limit and the 50 percent income limit
available at https.Ildato.census.govlcedsci/table?q=
bl90l3&tid=ACSDT5Y2019.Bl9013&hidePrevi ew=
true.
27 See U.S. Bureau of Labor Statistics,
Occupational Employment and Wage Estimates,
https://www.bls.govloes/currentloes_nat.htm (last
visited December 7, 2021).
28 U.S. Census Bureau, Poverty Status by State,
https://www.census.govldataltablesltime-seriesl
demo/income-poverty/cps-pov/pov-46.htm1 (last
visited December 7, 2021).
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4347
used in programs such as the
Community Development Block Grant
(CDBG) Program.
In defining moderate income, the final
rule uses both the FPG and AMI to
account for national trends and regional
differences. While there are different
definitions of moderate income, 300
percent of FPG falls within the range
commonly used by researchers.29
Analysis of median wages among a
sample of occupations likely impacted
by the pandemic also suggests that an
income cutoff of 300 percent of FPG
would include many households with
workers in such occupations.30
Moreover, the metric of 300 percent of
FPG covers households that, while
above the poverty line, often lack
economic security.31 Treasury
determined the AMI threshold for
moderate income by maintaining the
same ratio of FPG multiplier to AMI
multiplier as in the definition of low
income. This anchors the threshold to
the existing definitions of moderate
income from the literature while taking
into account geographical variation in
income and expenses in the same
manner as the definition of low income.
Eligibility Presumptions
Public Comment: Many commenters
believed that a broader range of groups
should be considered presumptively
impacted and disproportionately
impacted, arguing that many
households had been affected by the
pandemic and that broader presumed
eligibility would help recipients provide
assistance quickly and effectively.
Treasury also received many
comments on the presumption that
29 For instance, Melissa Kearney et al. (2013) cap
the "struggling lower middle -income class" at 250
percent of the federal poverty level, while Isabel
Sawhill and Edward Rodrigue (2015) define the
"middle class" as those with incomes of at least 300
percent of the poverty line. Melissa Kearney et al.,
"A Dozen Facts about America's Struggling Lower -
Middle Class," The Hamilton Project (December
2013), https://www.hamiltonproject.org/assets/
legacy/files/downloads and _links/THP_12Low
IncomeFacts_Final.pdf,• Isabel Sawhill and Edward
Rodrigue, "An Agenda for Reducing Poverty and
Improving Opportunity," Brookings Institution,
https://www.brookings.edu/wp-content/uploads/
2016/07/Sawhill_FINAL. pd f.
30Data on median annual wages from: U.S.
Bureau of Labor and Statistics, Occupational
Employment and Wage Statistics, available at
https://www.bls.govloes/currentloes_not.htm (last
visited December 7, 2021).
31 For instance, households earning between 200
and 300 percent of the FPG have significantly
higher rates of food and housing insecurity than
those earning above 300 percent of the FPG. Table
1, Kyle J. Caswell and Stephen Zuckerman, Food
Insecurity, Housing Hardship, and Medical Care
Utilization, Urban Institute (June 2018), https://
www. urban.org/sites/default/files/publication/
98701/2001896 foodinsecurity_housinghordship_
medicalcareutilization finalized.pdf.
families living in QCTs or receiving
services from Tribal governments were
disproportionately impacted by the
pandemic. While many commenters
supported the interim final rule's
recognition of disproportionate impacts
of the pandemic on low-income
communities, many commenters
disagreed with treating QCTs as the only
presumed eligible group of
disproportionately impacted
households, apart from households
served by Tribal governments. While
acknowledging a potential increase in
administrative burden, commenters
recommended that Treasury presume
other households or geographic areas, in
addition to QCTs, were
disproportionately impacted;
suggestions included all low- and
moderate -income households,
geographic areas designated as
Opportunity Zones, Difficult
Development Areas (DDAs), areas with
a certain amount of Real Estate
Advantage Program (REAP) recipients,
or use of eligibility criteria from the
Community Reinvestment Act. One
commenter generally recommended that
a clearer definition of
"disproportionately impacted" should
be provided and that any definition
should include communities of color
and people of limited means. Another
recommended specific eligibility for
people that had recently interacted with
the criminal justice system. Many
commenters representing Tribal
governments and groups recommended
a presumption of eligibility for all Tribal
uses of funds, clarification that off
reservation members remained eligible,
and broad flexibility on use of funds.
Additionally, commenters noted that
some areas are technically eligible to be
QCTs but fall short because of the
aggregate population of eligible tracts.
One commenter noted that these areas
should be considered the same as QCTs
for the purpose of SLFRF funds. Some
commenters argued that rural counties
typically have few QCTs despite high
levels of poverty and disruption caused
by the COWD-19 pandemic. Other rural
commenters recommended that the
designation be by county rather than at
a more granular level, arguing that the
QCT designation is biased towards
urban areas and understates the harm
done to rural America. Many
commenters representing Tribal
governments supported the
presumption that services provided by
Tribal governments respond to
disproportionate impacts.
Treasury Response
Summary. While households residing
in QCTs or served by Tribal
governments were presumed to be
disproportionately impacted, Treasury
emphasizes that under the interim final
rule recipients could also identify other
households, populations, or geographic
areas that were disproportionately
impacted by the pandemic and provide
services to respond.
The final rule maintains the
presumptions identified in the interim
final rule, as well as recipients' ability
to identify other impacted or
disproportionately impacted classes.
The final rule also allows recipients to
presume that low-income households
were disproportionately impacted, and
as discussed above, defines low- and
moderate -income. Finally, under the
final rule recipients may also presume
that households residing in the U.S.
territories or receiving services from
territorial governments were
disproportionately impacted.
Households presumed to be impacted:
Impacted households are those that
experienced a public health or negative
economic impact from the pandemic.
With regard to public health impacts,
recipients may presume that the general
public experienced public health
impacts from the pandemic for the
purposes of providing services for
COVID-19 mitigation and behavioral
health. In other words, recipients may
provide a wide range of enumerated
eligible uses in these categories to the
general public without further analysis.
As discussed in the introduction,
COVID-19 as a disease has directly
affected the health of tens of millions of
Americans, and efforts to prevent and
mitigate the spread of the disease are
needed and in use across the country.
Further, the stress of the pandemic and
resulting recession have affected nearly
all Americans. Accordingly, the final
rule presumes that the general public
are impacted by and eligible for services
to respond to COVID-19 mitigation and
prevention needs, as well as behavioral
health needs.
With regard to negative economic
impacts, as with the interim final rule,
under the final rule recipients may
presume that a household or population
that experienced unemployment,
experienced increased food or housing
insecurity, or is low- or moderate -
income experienced negative economic
impacts resulting from the pandemic.
The final rule's definition of low- and
moderate -income, by providing
standard metrics based on widely
available data, is intended to simplify
administration for recipients.
Households presumed to be
disproportionately impacted:
Disproportionately impacted
households are those that experienced a
4348 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
disproportionate, or meaningfully more
severe, impact from the pandemic. As
discussed in the interim final rule, pre-
existing disparities in health and
economic outcomes magnified the
impact of the COVID-19 public health
emergency on certain households and
communities. As with the interim final
rule, under the final rule recipients may
presume that households residing in
QCTs or receiving services provided by
Tribal governments were
disproportionately impacted by the
pandemic. In addition, under the final
rule recipients may presume that low-
income households were
disproportionately impacted by the
pandemic. Finally, under the final rule
recipients may also presume that
households residing in the U.S.
territories or receiving services from
territorial governments were
disproportionately impacted.
Treasury notes that households
presumed to be disproportionately
impacted would also be presumptively
impacted, as these households have not
only experienced pandemic impacts but
have experienced disproportionate
pandemic impacts; as a result, these
households are presumptively eligible
for responsive services for both
impacted and disproportionately
impacted households.
Many different geographic, income -
based, or poverty -based presumptions
could be used to designate
disproportionately impacted
populations. The combination of
permitting recipients to use QCTs, low-
income households, and services
provided by Tribal or territorial
governments as presumptions balances
these varying methods. Specifically,
QCTs are a commonly used designation
of geographic areas based on low
incomes or high poverty rates of
households in the community; for
recipients providing geographically
targeted services, QCTs may provide a
simple metric with readily available
maps for use. However, Treasury
recognizes that QCTs do not capture all
underserved populations, including for
reasons noted by commenters. By
allowing recipients to also presume that
low-income households were
disproportionately impacted, the final
rule provides greater flexibility to serve
underserved households or
communities. Data on household
incomes is also readily available at
varying levels of geographic granularity
(e.g., Census Tracts, counties), again
permitting flexibility to adapt to local
circumstances and needs. Finally,
Treasury notes that, as discussed further
below, recipients may also identify
other households, populations, and
communities disproportionately
impacted by the pandemic, in addition
to those presumed to be
disproportionately impacted.
Additionally, Tribar and territorial
governments may face both
disproportionate impacts of the
pandemic and administrability
challenges with operationalizing the
income -based standard; therefore,
Treasury has presumed that services
provided by these governments respond
to disproportionate pandemic impacts.
Given a lack of regularly published data
on household incomes in most
territories,32 as well as a lack of poverty
guidelines developed for these
jurisdictions,33 it may be highly
challenging to assess disproportionate
impact in these communities according
to an income- or poverty -based
standard. Similarly, data on incomes in
Tribal communities are not readily
available.34 Finally, as described in the
sections on Public Health and Negative
Economic Impacts, Tribal communities
have faced particularly severe health
and economic impacts of the pandemic.
Similarly, available research suggests
that preexisting health and economic
disparities in the territories amplified
the impact of the pandemic on these
communities.35
Categorical Eligibility
Public Comment: Several commenters
suggested that the final rule permit
recipients to rely on a beneficiary's
eligibility for other federal benefits
programs as an easily administrable
proxy for identifying a group or
population that experienced a negative
economic impact as a result of the
COVID-19 public health emergency
(i.e., categorical eligibility). In other
words, a recipient would determine that
individuals or households are eligible
for an SLFRF-funded program based on
the individual or household's eligibility
in another program, typically another
federal benefit program. Commenters
noted that categorical eligibility is a
common policy in program
32 For instance, the American Community Survey
does not include all territories. U.S. Census Bureau,
Areas Published, https://www.census.govl
programs-surveys/a cs/geography-a cs/areas-
published.html (last visited November 9, 2021).
33 U.S. Department of Health and Human
Services, supra note 24.
34 For instance, data from the American
Community Survey is based on geographical
location rather than Tribal membership. U.S.
Census Bureau, My Tribal Area, https://
www. census.gov/Tribal/Triba Lglossary. ph p.
35 Lina Stoylar et. al., Challenges in the U.S.
Territories: COVID-19 and the Medicaid Financing
Cliff, Kaiser Family Foundation (May 18, 2021),
https://www.kff. orglcoronavirus-covid-19/issue-
brief/challenges-in-the-u-s-terri tories-covid-19-and-
the-medicaid financing -cliff/.
administration that can significantly
ease administrative burden on both
program administrators and
beneficiaries.
Treasury Response: Treasury agrees
that allowing recipients to identify
impacted and disproportionately
impacted beneficiaries based on their
eligibility for other programs with
similar income tests would ease
administrative burden. To the extent
that the other program's eligibility
criteria align with a population or class
that experienced a negative economic
impact of the pandemic, this approach
is also consistent with the process
allowed under the final rule for
recipients to determine that a class has
experienced a negative economic
impact, and then document that an
individual receiving services is a
member of the class. For these reasons,
the final rule recognizes categorical
eligibility for the following programs
and populations:
• Impacted households. Treasury will
recognize a household as impacted if it
otherwise qualifies for any of the
following programs:
O Children's Health Insurance
Program (CHIP)
O Childcare Subsidies through the
Child Care and Development Fund
(CCDF) Program
o Medicaid
o National Housing Trust Fund
(HTF), for affordable housing programs
only
O Home Investment Partnerships
Program (HOME), for affordable housing
programs only
• Disproportionately impacted
households. Treasury will recognize a
household as disproportionately
impacted if it otherwise qualifies for any
of the following programs:
O Temporary Assistance for Needy
Families (TANF)
O Supplemental Nutrition Assistance
Program (SNAP)
O Free and Reduced -Price Lunch
(NSLP) and/or School Breakfast (SBP)
programs
O Medicare Part D Low-income
Subsidies
O Supplemental Security Income
(SSI)
o Head Start and/or Early Head Start
o Special Supplemental Nutrition
Program for Women, Infants, and
Children (WIC)
O Section 8 Vouchers
o Low -Income Home Energy
Assistance Program (LIHEAP)
o Pell Grants
o For services to address educational
disparities, Treasury will recognize Title
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4349
I eligible schools 36 as
disproportionately impacted and
responsive services that support the
school generally or support the whole
school as eligible
c. Standards for Identifying Other
Eligible Populations
Standards: Designating Other Impacted
Classes
Public Comment: Treasury received
multiple comments requesting
additional clarification about how
classes of impacted individuals may be
designated, as well as questions asking
whether recipients must demonstrate a
specific public health or negative
economic impact to each entity served
(e.g., each household receiving
assistance under a program). There were
several comments requesting that
specific geographic designations, like a
county or Impact Zone, be eligible to
use as a determining boundary.
Treasury Response: The interim final
rule allowed, and the final rule
maintains, the ability for recipients to
demonstrate a public health or negative
economic impact on a class and to
provide assistance to beneficiaries that
fall within that class. Consistent with
the scope of beneficiaries included in
sections 602(c)(1)(A) and 603(c)(1)(A) of
the Social Security Act, Treasury is
clarifying that a recipient may identify
such impacts for a class of households,
small businesses, or nonprofits. In such
cases, the recipient need only
demonstrate that the household, small
business, or nonprofit is within the
relevant class. For example, a recipient
could determine that restaurants in the
downtown area had generally
experienced a negative economic impact
and provide assistance to those small
businesses to respond. When providing
this assistance, the recipient would only
need to demonstrate that the small
businesses receiving assistance were
restaurants in the downtown area. The
recipient would not need to
demonstrate that each restaurant served
experienced its own negative economic
impact.
In identifying an impacted class and
responsive program, service, or capital
expenditure, recipients should consider
the relationship between the definition
of the class and proposed response.
Larger and less -specific classes are less
likely to have experienced similar
harms and thus the responses are less
36 Title I eligible schools means schools eligible to
receive services under section 1113 of Title I, Part
A of the Elementary and Secondary Education Act
of 1965, as amended (20 U.S.C. 6313), including
schools served under section 1113(b)(1)(C) of that
Act.
likely to be responsive to the harms
identified. That is, as the group of
entities being served by a program has
a wider set of fact patterns, or the type
of entities, their circumstances, or their
pandemic experiences differ more
substantially, it may be more difficult to
determine that the class has actually
experienced the same or similar
negative economic impact and that the
response is appropriately tailored to
address that impact.
Standard: Designating Other
Disproportionately Impacted Classes
Summary of Interim Final Rule: As
noted above, the interim final rule
provided a broad set of enumerated
eligible uses of funds in
disproportionately impacted
communities, including to address pre-
existing disparities that contributed to
more severe pandemic impacts in these
communities. The interim final rule
presumed that these services are eligible
uses when provided in a QCT, to
families and individuals living in QCTs,
or when these services are provided by
Tribal governments. Recipients may also
provide these services to "other
populations, households, or geographic
areas disproportionately impacted by
the pandemic" and, in identifying these
disproportionately impacted
communities, should be able to support
their determination that the pandemic
resulted in disproportionate public
health or economic outcomes to the
group identified.
Public Comment: A significant
number of commenters expressed
uncertainty regarding the process for
determining eligibility for
disproportionately impacted
communities beyond QCTs. A
commenter noted that a clearer
definition of "disproportionately
impacted" should be delineated and
that any definition should include
communities of color and people of
limited means. Some commenters
suggested a template or checklist to see
if an area meets the standard for
disproportionately impacted
communities outside of QCTs. Some
commenters stated that QCT and non-
QCT beneficiaries should be treated the
same.
Treasury Response: Under the interim
final rule, presuming eligibility for
services in QCTs, for populations living
in QCTs, and for Tribal governments
was intended to ease administrative
burden, providing a simple path for
recipients to offer services in
underserved communities, and is not an
exhaustive list of disproportionately
impacted communities. To further
clarify, the final rule codifies the
interpretive framework discussed above,
including presumptions of groups
disproportionately impacted, as well as
the ability to identify other
disproportionately impacted
populations, households, or geographies
(referred to here as disproportionately
impacted classes).
As discussed in the interim final rule,
in identifying other disproportionately
impacted classes, recipients should be
able to support their determination that
the pandemic resulted in
disproportionate public health or
economic outcomes to the specific
populations, households, or geographic
areas to be served. For example, the
interim final rule considered data
regarding the rate of COVID-19
infections and deaths in low-income
and socially vulnerable communities,
noting that these communities have
experienced the most severe health
impacts, compared to national averages.
Similarly, the interim final rule
considered the high concentration of
low-income workers performing
essential work, the reduced ability to
socially distance, and other pre-existing
public health challenges, all of which
correlate with more severe COVID-19
outcomes. The interim final rule also
considered the disproportionate
economic impacts of the pandemic,
citing, for example, the rate of job losses
among low-income persons as compared
to the general population. The interim
final rule then identified QCTs, a
common, readily accessible, and
geographically granular method of
identifying communities with a large
proportion of low-income residents, as
presumed to be disproportionately
impacted by the pandemic.
In other words, the interim final rule
identified disproportionately impacted
populations by assessing the impacts of
the pandemic and finding that some
populations experienced meaningfully
more severe impacts than the general
public. Similarly, to identify
disproportionately impacted classes,
recipients should compare the impacts
experienced by that class to the typical
or average impacts of the pandemic in
their local area, state, or nationally.
Recipients may identify classes of
households, communities, small
businesses, nonprofits, or populations
that have experienced a
disproportionate impact based on
academic research or government
research publications, through analysis
of their own data, or through analysis of
other existing data sources. To augment
their analysis, or when quantitative data
is not readily available, recipients may
also consider qualitative research and
sources like resident interviews or
4350 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
feedback from relevant state and local
agencies, such as public health
departments or social services
departments. In both cases, recipients
should consider the quality of the
research, data, and applicability of
analysis to their determination.
In designing a program or service that
responds to a disproportionately
impacted class, a recipient must first
identify the impact and then identify an
appropriate response. To assess
disproportionate impact, recipients
should rely on data or research that
measures the public health or negative
economic impact. An assessment of the
effects of a response (e.g., survey data on
levels of resident support for various
potential responses) is not a substitute
for an assessment of the impact
experienced by a particular class. Data
about the appropriateness or desirability
of a response may be used to assess the
reasonableness of a response, once an
impact or disproportionate impact has
been identified but should not be the
basis for assessing impact.
2. Public Health
Background
On January 21, 2020, the Centers for
Disease Control and Prevention (CDC)
identified the first case of novel
coronavirus in the United States.37
Since that time, and through present
day, the United States has faced
numerous waves of the virus that have
brought acute strain on health care and
public health systems. At various points
in the pandemic, hospitals and
emergency medical services have seen
significant influxes of patients; response
personnel have faced shortages of
personal protective equipment; testing
for the virus has been scarce; and
congregate living facilities like nursing
homes have seen rapid spread.
Since the initial wave of the COVID-
19 pandemic, the United States has
faced several additional major waves
that continued to impact communities
and stretch public health services. The
summer 2020 wave impacted
communities in the south and
southwest. As the weather turned colder
and people spent more time indoors, a
wave throughout fall and winter 2020
impacted communities in almost every
region of the country as the virus
reached a point of uncontrolled spread
and over 3,000 people died per day due
to COVID-19.38
37Press Release, Centers for Disease Control and
Prevention, First Travel -related Case of 2019 Novel
Coronavirus Detected in United States (Jan. 21,
2020), https://www.cdc.gov/media/releases/2020/
p0121-novel-coronavirus-travel-case.html.
38 Centers for Disease Control and Prevention,
COVID Data Tracker: Trends in Number of COVID—
In December 2020, the Food and Drug
Administration (FDA) authorized
COVID-19 vaccines for emergency use,
and soon thereafter, mass vaccination in
the United States began. At the time of
the interim final rule publication in May
2021, the number of daily new
infections was steeply declining as
rapid vaccination campaigns progressed
across the country. By summer 2021,
COVID-19 cases had fallen to their
lowest level since early months of the
pandemic, when testing was scarce.
However, throughout late summer and
early fall, the Delta variant, a more
infectious and transmittable variant of
the SARS—CoV-2 virus, sparked yet
another surge. From June to early
September, the seven-day moving
average of reported cases rose from
12,000 to 165,000.39
As of December 2021, COVID-19 in
total has infected over 50 million and
killed over 800,000 Americans.40
Preventing and mitigating the spread of
COVID-19 continues to require a major
public health response from federal,
state, local, and Tribal governments.
First, state, local, and Tribal
governments across the country have
mobilized to support the national
vaccination campaign. As of December
2021, more than 80 percent of adults
have received at least one dose, with
more than 470 million total doses
administered.41 Additionally, more than
15 million children over the age of 12
have received at least one dose of the
vaccine and over 47 million people have
received a booster dose.42 Vaccines for
younger children, ages 5 through 11,
have been approved and are reaching
communities and families across the
country. As new variants continue to
emerge globally, the national effort to
administer vaccinations and other
COVID-19 mitigation strategies will be
a critical component of the public
health response.
In early reporting on uses of SLFRF
funds, recipients have indicated that
they plan to put funds to immediate use
to support continued vaccination
campaigns. For example, one recipient
has indicated that it plans to use SLFRF
19 Cases and Deaths in the US Reported to CDC,
by State/Territory, https.Ilcovid.cdc.govlcovid-data-
tracker/#trends-dailytrendscases (last visited
December 7, 2021).
39Id.
49 Centers for Disease Control and Prevention,
COVID Data Tracker, http://www.covid.cdc.gov/
covid-data-tracker/#datatracker-home (last visited
December 31, 2021).
41 Centers for Disease Control and Prevention,
COVID Data Tracker: COVID-19 Vaccinations in the
United States, https.Ilcovid.cdc.govlcovid-dato-
tracker/#vaccinations (last visited December 7,
2021).
427d.
funds to support a vaccine incentive
program, providing $100 gift cards to
residents at community vaccination
clinics. The program aimed to target
communities with high public health
needs.43 Another recipient reported that
it is partnering with multiple agencies,
organizations, and providers to
distribute COVID-19 vaccinations to
homebound residents in assisted living
facilities.44
State, local, and Tribal governments
have also continued to execute other
aspects of a wide-ranging public health
response, including increasing access to
COVID-19 testing and rapid at-home
tests, contact tracing, support for
individuals in isolation or quarantine,
enforcement of public health orders,
new public communication efforts,
public health surveillance (e.g.,
monitoring case trends and genomic
sequencing for variants), enhancement
to health care capacity through
alternative care facilities, and
enhancement of public health data
systems to meet new demands or scaling
needs.
State, local, and Tribal governments
have also supported major efforts to
prevent COVID-19 spread through
safety measures at key settings like
nursing homes, schools, congregate
living settings, dense worksites,
incarceration settings, and in other
public facilities. This has included, for
example, implementing infection
prevention measures or making
ventilation improvements.
In particular, state, local, and Tribal
governments have mounted significant
efforts to safely reopen schools. A key
factor in school reopening is the ability
to implement COVID-19 mitigation
strategies such as providing masks and
other hygiene resources, improving air -
quality and ventilation, increasing
outdoor learning and eating spaces,
testing and contact tracing protocols,
and a number of other measures.45 For
example, one recipient described plans
to use SLFRF funds to further invest in
school health resources that were
critical components of school reopening
and reducing the spread of COVID-19 in
schools. Those investments include the
increasing school nurses and social
43 Columbus, Ohio Recovery Plan, https://
www. col umbus.gov/recovery/.
44 Luzerne County, Pennsylvania Recovery Plan,
https://www.luzernecounty.org/DocumentCenter/
Vi ew/26304/Final-In teri m-R ecovery-Plan-
Performance-Re port-83121.
45 This includes implementing mitigation
strategies consistent with the Centers for Disease
Control and Prevention's (CDC) Guidance for
COVID-19 Prevention in K-12 Schools (November
5, 2021), available at https://www.cdc.gov/
coronavirus/2019-ncov/comm unity/schools-
childcare/k-12-guidance.html.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4351
workers, improved ventilation systems,
and other health and safety measures.
The need for public health measures
to respond to COVID-19 will continue
moving forward. This includes the
continuation of vaccination campaigns
for the general public, booster doses,
and children. This also includes
monitoring the spread of COVID-19
variants, understanding the impact of
these variants, developing approaches to
respond, and monitoring global COVID-
19 trends. Finally, the long-term health
impacts of COVID-19 will continue to
require a public health response,
including medical services for
individuals with "long COVID," and
research to understand how COVID-19
impacts future health needs and raises
risks for the tens of millions of
Americans who have been infected.
The COVID-19 pandemic also
negatively impacted other areas of
public health, particularly mental health
and substance use. In January 2021, over
40 percent of American adults reported
symptoms of depression or anxiety, up
from 11 percent in the first half of
2019.46 The mental health impacts of
the pandemic have been particularly
acute for adults ages 18 to 24, racial and
ethnic minorities, caregivers for adults,
and essential workers, with all reporting
significantly higher rates of considering
suicide.47 The proportion of children's
emergency department visits related to
mental health has also risen
noticeably.48 Similarly, rates of
substance use and overdose deaths have
spiked: Preliminary data from the CDC
show a nearly 30 percent increase in
drug overdose mortality from April 2020
to April 2021, bringing the estimated
overdose death toll for a 12-month
period over 100,000 for the first time
ever.49 The CDC also found that 13
percent of adults started or increased
46Nirmita Panchal et al., The Implications of
COVID-19 for Mental Health and Substance Abuse
(Feb. 10, 2021), https.11www.kff.orglcoronavirus
covid-19/issue-brief/the-im plications-of-covid-19-
for-m ental-h eal th-an d-s ubstance-use/#:—: text=
O1der%20adu1ts%20ore%20a1so%20 more,
prior%20to%20the%20current%20crisis; Mark E.
Czeisler et al., Mental Health, Substance Abuse, and
Suicidal Ideation During COVID-19 Pandemic —
United States, June 24-30 2020, Morb. Mortal.
Wkly. Rep. 69(32):1049-57 (Aug. 14, 2020), https://
www.cdc.gov/mmi4TIvolumes/69/wrl
mm6932a1.htm.
477d.
48Rebecca T. Leeb et al., Mental Health -Related
Emergency Department Visits Among Children
Aged <18 Years During the COVID Pandemic —
United States, January 1—October 17, 2020, Morb.
Mortal. Wkly. Rep. 69(45):1675-80 (Nov. 13, 2020),
https://www.cdc.govlmmwrlvolumesl691wrl
mm6945a3.htm.
49 Centers for Disease Prevention and Control,
National Center for Health Statistics, Provisional
Drug Overdose Death Counts, https://www.cdc.govl
nchs/nvss/vsrr/drug-overdose-dato.htm (last visited
May 8 December 6, 2021).
substance use to cope with stress related
to COVID-19 and 26 percent reported
having symptoms of trauma- and
stressor-related disorder (TRSD) related
to the pandemic.50
Another public health challenge
exacerbated by the pandemic was
violent crime and gun violence, which
increased during the pandemic and has
disproportionately impacted low-
income communities.51 According to
the Federal Bureau of Investigation
(FBI), although the property crime rate
fell 8 percent in 2020, the violent crime
rate increased 6 percent in 2020
compared to 2019 data.52 In particular,
the estimated number of aggravated
assault offenses rose 12 percent, while
murder and manslaughter increased 30
percent from 2019 to 2020.53 The
proportion of homicides committed
with firearms rose from 73 percent in
2019 to 76 percent in 2020.54 Exposure
to violence can create serious short-term
and long-term harmful effects to health
and development, and repeated
exposure to violence may be connected
to negative health outcomes.55
Addressing community violence as a
public health issue may help prevent
and even reduce additional harm to
individuals, households, and
communities.56
Many communities are using SLFRF
funds to invest in holistic approaches in
violence prevention that are rooted in
targeted outreach and addressing root
causes. For example, the City of St.
Louis is planning to invest in expanding
a "community responder" model
designed to provide clinical help and to
divert non-violent calls away from the
police department. Additionally, the
city will expand access to mental health
services, allowing residents to seek
support at city recreation centers,
501'anchal, supra note 46; Mark E. Czeisler et al.,
supra note 46.
51 The White House, FACT SHEET: More Details
on the Biden-Harris Administration's Investments
in Community Violence Interventions (April 7,
2021), https://www.whitehouse.gov/briefing-room/
statements-releases/2021 /04/07/fact-sheet-more-
d etails-on-th e-bi d en-harris-administrati ons-
investments-in-community-viol ence-interventions/.
52 Federal Bureau of Investigation, FBI Releases
2020 Crime Statistics (September 27, 2021) https://
www. fbi.gov/news/pressrel/press-releases/fbi-
releases-2020-crime-statistics.
53Id.
547d.
55 The Educational Fund to Stop Gun Violence,
Community Gun Violence, https.Ilefsgv.org/learn/
type-of-gun-violence/community-gun-violence/ (last
visited November 9, 2021).
56 Giffords Law Center, Healing Communities in
Crisis: Lifesaving Solutions to the Urban Gun
Violence Epidemic (March 2016), https.Ilgiffords.
org/wp-content/uploads/2019/01 Meoling-
Comm unities -in -Crisis. pdf.
libraries, and other public spaces.57
Similarly, Los Angeles County will
further invest in its "Care First, Jails
Last" program which seeks to replace
"arrest and incarceration" responses
with health interventions.58
While the pandemic affected
communities across the country, it
disproportionately impacted some
demographic groups and exacerbated
health inequities along racial, ethnic,
and socioeconomic lines.59 The CDC
has found that racial and ethnic
minorities are at increased risk for
infection, hospitalization, and death
from COWD-19, with Hispanic or
Latino and Native American or Alaska
Native patients at highest risk.60
Similarly, low-income and socially
vulnerable communities have seen the
most severe health impacts. For
example, counties with high poverty
rates also have the highest rates of
infections and deaths, with 308 deaths
per 100,000 compared to the U.S.
average of 238 deaths per 100,000, as of
December 2021.61 Counties with high
social vulnerability, as measured by
factors such as poverty and educational
attainment, have also fared more poorly
than the national average, with 325
deaths per 100,000 as of December
2021.62 Over the course of the
57 St. Louis, MO Recovery Plan, https://
www. stlo uis-mo.gov/government/recovery/covid-19/
arpa/plan/.
58 Los Angeles County, CA Recovery Plan, http://
fil e.laco un ty.gov/SDSIn ter/bos/s updo cs/
1 60391.pdf.
59 Office of the White House, National Strategy for
the COVID-19 Response and Pandemic
Preparedness (Jan. 21, 2021), https://
www. whi teh ouse.govlwp-content/uploads/2021 /01 /
National -Strategy for-the-COVID-19-Response-and-
Pandemic-Preparedness. pdf.
60In a study of 13 states from October to
December 2020, the CDC found that Hispanic or
Latino and Native American or Alaska Native
individuals were 1.7 times more likely to visit an
emergency room for COVID-19 than White
individuals, and Black individuals were 1.4 times
more likely to do so than White individuals. See
Sebastian D. Romano et al., Trends in Racial and
Ethnic Disparities in COVID-19 Hospitalizations,
by Region —United States, March —December 2020,
MMWR Morb Mortal Wkly Rep 2021, 70:560-565
(Apr. 16, 2021), https://www.cdc.govlmmwrl
vo1umes/70/wr/mm7015e2.htm?s cid=mm7015e2
61 Centers for Disease Control and Prevention,
COVID Data Tracker: Trends in COVID-19 Cases
and Deaths in the United States, by County -level
Population Factors, https.Ilcovid.cdc.gov/covid-
data-tracker/#pop-factors_totoldeaths (last visited
December 7, 2021).
62 The CDC's Social Vulnerability Index includes
fifteen variables measuring social vulnerability,
including unemployment, poverty, education
levels, single -parent households, disability status,
non-English speaking households, crowded
housing, and transportation access.
Centers for Disease Control and Prevention,
COVID Data Tracker: Trends in COVID-19 Cases
and Deaths in the United States, by Social
Continued
4352 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
pandemic, Native Americans have
experienced more than one and a half
times the rate of COVID-19 infections,
more than triple the rate of
hospitalizations, and more than double
the death rate compared to White
Americans.63 Low-income and minority
communities also exhibit higher rates of
pre-existing conditions that may
contribute to an increased risk of
COVID-19 mortality.64 In addition,
individuals living in low-income
communities may have had more
limited ability to socially distance or to
self -isolate when ill, resulting in faster
spread of the virus, and were over-
represented among essential workers,
who face greater risk of exposure.65
Social distancing measures in
response to the pandemic may have also
exacerbated pre-existing public health
challenges. For example, for children
living in homes with lead paint,
spending substantially more time at
home raises the risk of developing
elevated blood lead levels, while
screenings for elevated blood lead levels
declined during the pandemic .66 The
combination of these underlying social
and health vulnerabilities may have
contributed to more severe public health
outcomes of the pandemic within these
communities, resulting in an
exacerbation of pre-existing disparities
in health outcomes.67
Vulnerability Index, https.Ilcovid.cdc.gov/covid-
data-tracker/#pop-factors-totaldeaths (last visited
December 7, 2021).
63 Centers for Disease Control and Prevention,
Risk for COVID-19 Infection, Hospitalization, and
Death By Race/Ethnicity, https://www.cdc.govl
coronavirus/2019-n cov/co vi d-data/in vestigati ons-
discovery/hospitalization-death-by-race-
ethnicity.html (last visited December 7, 2021).
64 See, e.g., Centers for Disease Control and
Prevention, Risk of Severe Illness or Death from
COVID-19 (Dec. 10, 2020), https://www.cdc.govl
coronavirus/2019-ncov/comm unity/health-equity/
racial-ethni c-disparities/disparities-illness.html
(last visited December 7, 2021).
fi5 Milena Almagro et al., Racial Disparities in
Frontline Workers and Housing Crowding During
COVID-19: Evidence from Geolocation Data (Sept.
22, 2020), NYU Stern School of Business
(forthcoming), available at https://papers.ssrn.com/
so13/papers.cfm?abstract—id=3695249; Grace
McCormack et al., Economic Vulnerability of
Households with Essential Workers, JAMA
324(4):388-90 (2020), available at https.11jamanet
work. com/journals/jama/fullai ticle/2767630.
66 See, e.g., Joseph G. Courtney et al., Decreases
in Young Children Who Received Blood Lead Level
Testing During COVID-19-34 Jurisdictions,
January —May 2020, Morb. Mort. Wkly. Rep.
70(5):155-61 (Feb. 5, 2021), https://www.cdc.govl
mmwr/volumes/70/wr/mm7005a2.htm; Emily A.
Benfer & Lindsay F. Wiley, Health Justice Strategies
to Combat COVID-19: Protecting Vulnerable
Communities During a Pandemic, Health Affairs
Blog (Mar. 19, 2020), https://www.healthaffairs.orgl
doll 0.13771hbl og20200319.757883/f ull /.
67 See, e.g., Centers for Disease Control and
Prevention, supra note 62; Benfer & Wiley, supra
note 66; Nathaniel M. Lewis et al., Disparities in
COVID-19 Incidence, Hospitalizations, and Testing,
Summary of the Interim Final Rule
Approach to Public Health
Summary. As discussed above, the
interim final rule provided flexibility for
recipients to pursue a wide range of
eligible uses to "respond to" the
COVID-19 public health emergency.
Uses of funds to "respond to" the public
health emergency address the SARS-
CoV-2 virus itself, support efforts to
prevent or decrease spread of the virus,
and address other impacts of the
pandemic on public health. The interim
final rule implemented these provisions
by identifying a non -exhaustive list of
programs or services that may be funded
as responding to COVID-19
("enumerated eligible uses"), along with
considerations for evaluating other
potential uses of funds not explicitly
listed. Enumerated eligible uses are
discussed below. For guidance on how
to determine whether a particular use is
allowable, beyond those enumerated,
see section Standards: Identifying a
Public Health Impact.
Enumerated eligible uses under this
section built and expanded upon
permissible expenditures under the
Coronavirus Relief Fund; for clarity, the
interim final rule expressly listed as
eligible uses the uses permissible under
the Coronavirus Relief Fund, with
minor exceptions.68 The interim final
rule also recognized that the nature of
the COVID-19 public health emergency,
and responsive policy measures,
programs, and services, had changed
over time and is expected to continue
evolving.
The interim final rule categorized
enumerated eligible uses to respond to
the public health emergency into several
categories: (1) COVID-19 mitigation and
prevention, (2) medical expenses, (3)
behavioral health care, (4) public health
and safety staff, (5) expenses to improve
the design and execution of health and
public health programs, and (6) eligible
uses to address disparities in public
health outcomes. For each category in
turn, this section describes public
comments received and Treasury's
responses, as well as comments received
by Area -Level Deprivation —Utah, March 3—July 9,
2020, Morb. Mortal. Wkly. Rep. 69(38):1369-73
(Sept. 25, 2020), https://www.cdc.govlmmwrl
volumes/69/wr/mm6938a4.htm.
68 Generally, funding uses eligible under CRF as
a response to the direct public health impacts of
COVID-19 will continue to be eligible under the
ARPA, including those not explicitly listed in the
final rule, with the following two exceptions: (1)
The standard for eligibility of public health and
safety payrolls has been updated (see section Public
Sector Capacity and Workforce in General
Provisions: Other) and (2) expenses related to the
issuance of tax -anticipation notes are no longer an
eligible funding use (see section Restrictions on
Use: Debt Service).
proposing additional enumerated
eligible uses.
Reorganizations and Cross -
References: In some cases, enumerated
eligible uses included in the interim
final rule under responding to the
public health emergency have been re -
categorized in the organization of the
final rule to enhance clarity. For
discussion of eligible uses for public
health and safety staff and to improve
the design and execution of public
health programs, please see section
Public Sector Capacity and Workforce in
General Provisions: Other. For
discussion of eligible uses to address
disparities in public health outcomes,
please see section Assistance to
Households in Negative Economic
Impacts.
Conversely, discussion of eligible
assistance to small businesses and
nonprofits to respond to public health
impacts has been moved from
Assistance to Small Businesses and
Assistance to Nonprofits in Negative
Economic Impacts to this section. This
change is consistent with the interim
final rule, which provides that
appropriate responses to address the
public health impacts of COVID-19 may
be provided to any type of entity.
a. COVID-19 Mitigation and Prevention
COVID-19 public health response and
mitigation tactics. Recognizing the
broad range of services and
programming needed to contain
COVID-19, the interim final rule
provided an extensive list of
enumerated eligible uses to prevent and
mitigate COVID-19 and made clear that
the public health response to the virus
is expected to continue to evolve over
time, necessitating different uses of
funds.
Enumerated eligible uses of funds in
this category included: Vaccination
programs; medical care; testing; contact
tracing; support for isolation or
quarantine; supports for vulnerable
populations to access medical or public
health services; public health
surveillance (e.g., monitoring case
trends, genomic sequencing for
variants); enforcement of public health
orders; public communication efforts;
enhancement to health care capacity,
including through alternative care
facilities; purchases of personal
protective equipment; support for
prevention, mitigation, or other services
in congregate living facilities (e.g.,
nursing homes, incarceration settings,
homeless shelters, group living
facilities) and other key settings like
schools; ventilation improvements in
congregate settings, health care settings,
or other key locations; enhancement of
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4353
public health data systems; other public
health responses; and capital
investments in public facilities to meet
pandemic operational needs, such as
physical plant improvements to public
hospitals and health clinics or
adaptations to public buildings to
implement COVID-19 mitigation tactics.
These enumerated uses are consistent
with guidance from public health
authorities, including the CDC.
Public Comment: Many commenters
were supportive of expansive
enumerated eligible uses for mitigating
and preventing COVID-19, noting the
wide range of activities that
governments may undertake and the
continued changing landscape of
pandemic response. Some commenters
requested that Treasury engage in
ongoing consideration of and
consultation on evolving public health
needs and resulting eligible expenses.
Some commenters noted that their
jurisdiction does not have an official
public health program, for example
smaller jurisdictions or those that do not
have a health department, and requested
clarification on whether their public
health expenses would still be eligible
in compliance with program rules.
Treasury Response: In the final rule,
Treasury is maintaining an expansive
list of enumerated eligible uses to
mitigate and prevent COVID-19, given
the wide-ranging activities that
governments may take to further these
goals, including "other public health
responses." Note that the final rule
discusses several of these enumerated
uses in more detail below.
Treasury is further clarifying that
when providing COVID-19 prevention
and mitigation services, recipients can
identify the impacted population as the
general public. Treasury presumes that
all enumerated eligible uses for
programs and services, including
COVID-19 mitigation and prevention
programs and services, are reasonably
proportional responses to the harm
identified unless a response is grossly
disproportionate to the type or extent of
harm experienced. Note that capital
expenditures are not considered
"programs and services" and are not
presumed to be reasonably proportional
responses to an identified harm except
as provided in section Capital
Expenditures in General Provisions:
Other. In other words, recipients can
provide any COVID-19 prevention or
mitigation service to members of the
general public without any further
analysis of impacts of the pandemic on
those individuals and whether the
service is responsive.
This approach gives recipient
governments an extensive set of eligible
uses that can adapt to local needs, as
well as evolving response needs and
developments in understanding of
transmission of COVID-19. Treasury
emphasizes how the enumerated
eligible uses can adapt to changing
circumstances. For example, when the
interim final rule was released, national
daily COVID-19 cases were at relatively
low levels and declining; 69 as the Delta
variant spread and cases peaked in
many areas of the country, particularly
those with low vaccination rates,
government response needs and tactics
evolved, and the SURF funds provided
the ability to quickly and nimbly adapt
to new public health needs. Treasury
also notes that funds may be used to
support compliance with and
implementation of COVID-19 safety
requirements, including vaccination
requirements, testing programs, or other
required practices.
Recipient governments do not need to
have an official health or public health
program in order to utilize these eligible
uses; any recipient can pursue these
eligible uses, though Treasury
recommends consulting with health and
public health professionals to support
effective implementation.
The CDC has provided
recommendations and guidelines to
help mitigate and prevent COVID-19.
The interim final rule and final rule
help support recipients in stopping the
spread of COVID-19 through these
recommendations and guidelines.70 The
final rule reflects changing
circumstances of COVID-19 and
provides a broad range of permissible
uses for mitigating and preventing the
spread of the disease, in a manner
consistent with CDC guidelines and
recommendations.
The purpose of the SURF funds is to
mitigate the fiscal effects stemming from
the COVID-19 public health emergency,
including by supporting efforts to stop
the spread of the virus. The interim final
rule and final rule implement this
objective by, in part, providing that
recipients may use SURF funds for
COVID-19 mitigation and prevention.71
A program or service that imposes
conditions on participation in or
acceptance of the service that would
undermine efforts to stop the spread of
COVID-19 or discourage compliance
with recommendations and guidelines
69 See Centers for Disease Control and Prevention,
COVID Data Tracker, https.Ilcovid.cdc.gov/covid-
data-tracker/#trends—dailycases (last visited
December 7, 2021).
70 See Centers for Disease Control and Prevention,
COVID-19, https://www.cdc.govlcoronavirusl2Ol9-
ncov/index.html (last visited November 8, 2021).
71 See § 35.6(b); Coronavirus State and Local
Fiscal Recovery Funds, 86 FR at 26786.
in CDC guidance for stopping the spread
of COVID-19 is not a permissible use of
funds. In other words, recipients may
not use funds for a program that
undermines practices included in the
CDC's guidelines and recommendations
for stopping the spread of COVID-19.
This includes programs that impose a
condition to discourage compliance
with practices in line with CDC
guidance (e.g., paying off fines to
businesses incurred for violation of
COVID-19 vaccination or safety
requirements), as well as programs that
require households, businesses,
nonprofits, or other entities not to use
practices in line with CDC guidance as
a condition of receiving funds (e.g.,
requiring that businesses abstain from
requiring mask use or employee
vaccination as a condition of receiving
SURF funds).
Vaccination programs and vaccine
incentives. At the time of the interim
final rule release, many vaccination
programs were using mass vaccination
tactics to rapidly reach Americans en
masse for first vaccine doses.72 Since
that time, the FDA has authorized
booster vaccine doses for certain groups
and certain vaccines and has also
authorized vaccines for youths 73 74 The
inclusion of "vaccination programs" as
an eligible use allows for adaptation as
the needs of programs change or new
groups become eligible for different
types of vaccinations.
Public Comment: Since the release of
the interim final rule, many recipient
governments have also requested
clarification on whether vaccine
incentives are a permissible use of
funds.
Treasury Response: Treasury issued
guidance clarifying that "[vaccine]
programs that provide incentives
reasonably expected to increase the
number of people who choose to get
vaccinated, or that motivate people to
get vaccinated sooner than they
otherwise would have, are an allowable
72 Centers for Disease Control and Prevention,
COVID Data Tracker: COVID-19 Vaccinations in the
United States, https.Ilcovid.cdc.govlcovid-data-
tracker/#vaccinations (last visited October 18,
2021).
73 U.S. Food and Drug Administration,
Coronavirus (COVID-19) Update: FDA Takes
Additional Actions on the Use of a Booster Dose for
COVID-19 Vaccines, https://www.fda.govinews-
events/press-anno uncements/fda-a uthorizes-pfizer-
bi ontech -co vi d-19-vaccin e-em ergen cy-use-children-
5-through-11-years-age (last visited November 8,
2021).
74U.S. Food and Drug Administration, FDA
Authorizes Pfizer-BioNTech COVID-19 Vaccine for
Emergency Use in Children 5 through 11 Years of
Age, https://www.fda.gov/news-events/press-
ann o un cem en ts/f d a -a u th onz es- p fi zer-bi on to ch -
covi d-19-vaccine-em ergen cy-use-children-5-
through-1 1-years-age (last visited November 8,
2021).
4354 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
use of funds so long as such costs are
reasonably proportional to the expected
public health benefit." 75 This use of
funds remains permissible under the
final rule.
Capital Expenditures
Public Comment: Many commenters
requested clarification around the types
and scope of permissible capital
investments in public facilities to meet
pandemic operational needs; ventilation
improvements in congregate settings,
health care settings, or other key
locations; and whether support for
prevention and mitigation in congregate
facilities could include facilities
renovations, improvements, or
construction of new facilities, or if the
facilities must solely be used for
COVID-19 response.
Treasury Response: For clarity,
Treasury has addressed the eligibility
standard for capital expenditures, or
investments in property, facilities, or
equipment, in one section of this
Supplementary Information; see section
Capital Expenditures in General
Provisions: Other. In recognition of the
importance of capital expenditures in
the COWD-19 public health response,
Treasury enumerates that the following
projects are examples of eligible capital
expenditures, as long as they meet the
standards for capital expenditures in
section Capital Expenditures in General
Provisions: Other:
• Improvements or construction of
COVID-19 testing sites and laboratories,
and acquisition of related equipment;
• Improvements or construction of
COVID-19 vaccination sites;
• Improvements or construction of
medical facilities generally dedicated to
COVID-19 treatment and mitigation
(e.g., emergency rooms, intensive care
units, telemedicine capabilities for
COVID-19 related treatment);
• Expenses of establishing temporary
medical facilities and other measures to
increase COVID-19 treatment capacity,
including related construction costs;
• Acquisition of equipment for
COVID-19 prevention and treatment,
including ventilators, ambulances, and
other medical or emergency services
equipment;
• Improvements to or construction of
emergency operations centers and
acquisition of emergency response
75 Coronavirus State and Local Fiscal Recovery
Funds, Frequently Asked Questions, as of July 19,
2021; https.Ilhome.treasury.gov/system/filesll361
SLFRPFAQ.pdf. Note that programs may provide
incentives to individuals who have already received
a vaccination if the incentive is reasonably expected
to increase the number of people who choose to get
vaccinated or motivate people to get vaccinated
sooner and the costs are reasonably proportional to
the expected public health benefit.
equipment (e.g., emergency response
radio systems);
• Installation and improvements of
ventilation systems;
• Costs of establishing public health
data systems, including technology
infrastructure;
• Adaptations to congregate living
facilities, including skilled nursing
facilities, other long-term care facilities,
incarceration settings, homeless
shelters, residential foster care facilities,
residential behavioral health treatment,
and other group living facilities, as well
as public facilities and schools
(excluding construction of new facilities
for the purpose of mitigating spread of
COVID-19 in the facility); and
• Mitigation measures in small
businesses, nonprofits, and impacted
industries (e.g., developing outdoor
spaces).
Other clarifications on COVID-19
mitigation: Medical care, supports for
vulnerable populations, data systems,
cameral settings. Based on public
comments and questions received from
recipients following the interim final
rule, Treasury is making several further
clarifications on enumerated eligible
uses in this category.
Public Comment: Several commenters
requested clarification on eligible uses
of funds for medical care; Treasury
addresses those comments in the section
Medical Expenses below.
Public Comment: Recipients posed
questions on the type and scope of
activities eligible as "supports for
vulnerable populations to access
medical or public health services."
Treasury Response: Enumerated
eligible uses should be considered in
the context of the eligible use category
or section where they appear; in this
case, "supports for vulnerable
populations to access medical or public
health services" appears in the section
COVID-19 Mitigation and Prevention.
As such, these eligible uses should help
vulnerable or high -risk populations
access services that mitigate COVID-19,
for example, transportation assistance to
reach vaccination sites, mobile
vaccination or testing programs, or on -
site vaccination or testing services for
homebound individuals, those in group
homes, or similar settings.
Public Comment: Some commenters
asked whether "enhancement of public
health data systems" could include
investments in software, databases, and
other information technology resources
that support responses to the COVID-19
public health emergency but also
provide benefits for other use cases and
long-term capacity of public health
departments and systems.
Treasury Response: These are
permissible uses of funds under the
interim final rule and remain eligible
under the final rule.
Assistance to Businesses and Nonprofits
To Implement COVID-19 Mitigation
Strategies
Background: As detailed above,
Treasury received many public
comments describing uncertainty about
which eligible use category should be
used to assess different potential uses of
funds. As a result, Treasury has re -
categorized some uses of funds in the
final rule to provide greater clarity,
consistent with the principle that uses
of funds should be assessed based on
their intended beneficiary. For example,
COVID-19 mitigation and prevention
serves the general public or specific
populations within the public.
However, in the interim final rule,
assistance to small businesses,
nonprofits, and impacted industries to
implement COVID-19 mitigation and
prevention strategies was categorized in
the respective sections within Negative
Economic Impacts. The final rule
consolidates all COVID-19 mitigation
and prevention within Public Health.
Public Comment: Treasury has
received multiple comments and
questions about which eligible use
permits the recipient to provide
assistance to businesses and nonprofits
to address the public health impacts of
COVID-19.
Treasury Response: In the final rule,
these services have been re -categorized
under COVID-19 mitigation and
prevention to reflect the fact that this
assistance responds to public health
impacts of the pandemic rather than the
negative economic impacts to a small
business, nonprofit, or impacted
industry. When providing COVID-19
mitigation and prevention services,
recipients can identify the impacted
entity as small businesses, nonprofits, or
businesses in impacted industries in
general. As with all enumerated eligible
uses, recipients may presume that all
COVID-19 mitigation and prevention
programs and services are reasonably
proportional responses to the harm
identified unless a response is grossly
disproportionate to the type or extent of
harm experienced. Note that capital
expenditures are not considered
"programs and services" and are not
presumed to be reasonably proportional
responses to an identified harm except
as provided in section Capital
Expenditures in General Provisions:
Other. In other words, recipients can
provide any COVID-19 prevention or
mitigation service to small businesses,
nonprofits, and businesses in impacted
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4355
industries without any further analysis
of impacts of the pandemic on those
entities and whether the service is
responsive.
In some cases, this means that an
entity not otherwise eligible to receive
assistance to respond to negative
economic impacts of the pandemic, for
example an entity that did not
experience a negative economic impact,
may still be eligible to receive assistance
under this category for COVID-19
mitigation and prevention services.
Uses of funds can include loans,
grants, or in -kind assistance to small
businesses, nonprofits, or other entities
to implement COVID-19 prevention or
mitigation tactics, such as vaccination;
testing; contact tracing programs;
physical plant changes to enable greater
use of outdoor spaces or ventilation
improvements; enhanced cleaning
efforts; and barriers or partitions. For
example, this would include assistance
to a restaurant to establish an outdoor
patio, given evidence showing much
lower risk of COVID-19 transmission
outdoors.76 Uses of funds can also
include aid to travel, tourism,
hospitality, and other impacted
industries to implement COVID-19
mitigation and prevention measures to
enable safe reopening, for example,
vaccination or testing programs,
improvements to ventilation, physical
barriers or partitions, signage to
facilitate social distancing, provision of
masks or personal protective equipment,
or consultation with infection
prevention professionals to develop safe
reopening plans.
Recipients providing assistance to
small businesses, nonprofits, or
impacted industries that includes
capital expenditures (i.e., expenditures
on property, facilities, or equipment)
should also review the section Capital
Expenditures in General Provisions:
Other, which describes eligibility
standards for these expenditures.
Recipients providing assistances in the
form of loans should review the section
Treatment of Loans Made with SLFRF
Funds in General Provisions: Other.
Recipients should also be aware of the
difference between beneficiaries of
assistance and subrecipients when
working with small businesses,
nonprofits, or impacted industries. As
noted above, Treasury presumes that the
general public, as well as small
businesses, nonprofits, and impacted
industries in general, has been impacted
by the COVID-19 disease itself and is
76 See Centers for Disease Control and Prevention,
Participate in Outdoor and Indoor Activities,
https://www. cdc.govlcoronavirusl2Ol 9-ncov/daily-
life-coping/outdoor-activities.html (last visited
November 8, 2021).
eligible for services that mitigate or
prevent COVID-19 spread. As such, a
small business, nonprofit, or impacted
industry receiving assistance to
implement COVID-19 mitigation
measures is a beneficiary of assistance
(e.g., granting funds to a small business
to develop an outdoor patio to reduce
transmission). In contrast, if a recipient
contracts with, or grants funds to, a
small business, nonprofit, or impacted
industry to carry out an eligible use for
COVID-19 mitigation on behalf of the
recipient, the entity is a subrecipient
(e.g., contracting with a small business
to operate COVID-19 vaccination sites).
For further information on
distinguishing between beneficiaries
and subrecipients, as well as the
impacts of the distinction on reporting
and other requirements, see section
Distinguishing Subrecipients versus
Beneficiaries.
b. Medical Expenses
Background: The interim final rule
also included as an enumerated eligible
use medical expenses, including
medical care and services to address the
near -term and potential longer -term
impacts of the disease on individuals
infected.
Public Comment: Some commenters
sought clarification on the types of
medical expenses eligible and for
whom, including whether funds could
be used under this category for
expanding health insurance coverage
(e.g., subsidies for premiums, expanding
a group health plan), improvements to
healthcare facilities or establishment of
new medical facilities, direct costs of
medical services, and costs to a self -
funded health insurance plan (e.g., a
county government health plan) for
COVID-19 medical care.
Treasury Response: In the final rule,
Treasury is maintaining this enumerated
eligible use category and clarifying that
it covers costs related to medical care
provided directly to an individual due
to COVID-19 infection (e.g., treatment)
or a potential infection (e.g., testing).
This can include medical costs to
uninsured individuals; deductibles, co -
pays, or other costs not covered by
insurance; costs for uncompensated care
at a health provider; emergency medical
response costs; and, for recipients with
a self -funded health insurance plan,
excess health insurance costs due to
COVID-19 medical care. These are
medical expenses due to COVID-19 and
distinguish this category of eligible uses
from other related eligible uses, like
COVID-19 mitigation and prevention
and health insurance expenses to
households, to provide greater clarity
for recipients in determining which
category of eligible uses they should
review to assess a potential use of funds.
For discussion of eligibility for
programs to expand health insurance
coverage, see section Assistance to
Households.
c. Behavioral Health Care
Background: Recognizing that the
public health emergency, necessary
mitigation measures like social
distancing, and the economic downturn
have exacerbated mental health and
substance use challenges for many
Americans, the interim final rule
included an enumerated eligible use for
mental health treatment, substance use
treatment, and other behavioral health
services, including a non -exhaustive list
of specific services that would be
eligible under this category.
Public Comment: Many commenters
expressed support for the interim final
rule's recognition of behavioral health
impacts of the pandemic and eligible
uses under this category. Several
commenters requested clarification on
the types of eligible services under this
category, specifically whether both
acute and chronic care are included as
well as services that often do not
directly accept insurance payments, like
peer support groups. Some commenters
highlighted the importance of cultural
competence in providing effective
behavioral health services. Some
commenters suggested that funding
should be available broadly and quickly
for this purpose, recommending that
funding available for behavioral health
not be tied to the amount of revenue
loss experienced by the recipient.
Treasury Response: In the final rule,
Treasury is maintaining this enumerated
eligible use category and clarifying that
it covers an expansive array of services
for prevention, treatment, recovery, and
harm reduction for mental health,
substance use, and other behavioral
health challenges caused or exacerbated
by the public health emergency. The
specific services listed in the interim
final rule also remain eligible.77
Treasury is further clarifying that
when providing behavioral health
services, recipients can identify the
impacted population as the general
public and, as with all enumerated
eligible uses, presume that all programs
and services are reasonably proportional
responses to the harm identified unless
a response is grossly disproportionate to
the type or extent of harm experienced.
In contrast, capital expenditures are not
77Hotlines or warmlines, crisis intervention,
overdose prevention, infectious disease prevention,
and services or outreach to promote access to
physical or behavioral health primary care and
preventative medicine.
4356 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
considered "programs and services" and
are not presumed to be reasonably
proportional responses to an identified
harm except as provided in section
Capital Expenditures in General
Provisions: Other.
In other words, recipients can provide
behavioral health services to members
of the general public without any
further analysis of impacts of the
pandemic on those individuals and
whether the service is responsive.
Recipients may also use this eligible use
category to respond to increased rates of
behavioral health challenges at a
population level or, at an individual
level, new behavioral health challenges
or exacerbation of pre-existing
challenges, including new barriers to
accessing treatment.
Services that respond to these impacts
of the public health emergency may
include services across the continuum
of care, including both acute and
chronic care, such as prevention,
outpatient treatment, inpatient
treatment, crisis care, diversion
programs (e.g., from emergency
departments or criminal justice system
involvement), outreach to individuals
not yet engaged in treatment, harm
reduction, and supports for long-term
recovery (e.g., peer support or recovery
coaching, housing, transportation,
employment services).
Recipients may also provide services
for special populations, for example,
enhanced services in schools to address
increased rates of behavioral health
challenges for youths, mental health
first responder or law enforcement -
mental health co -responder programs to
divert individuals experiencing mental
illness from the criminal justice system,
or services for pregnant women with
substance use disorders or infants born
with neonatal abstinence syndrome.
Finally, recipients may use funds for
programs or services to support
equitable access to services and reduce
racial, ethnic, or socioeconomic
disparities in access to high -quality
treatment.
Eligible uses of funds may include
services typically billable to
insurance 78 or services not typically
billable to insurance, such as peer
support groups, costs for residence in
supportive housing or recovery housing,
and the 988 National Suicide Prevention
Lifeline or other hotline services.
Recipients may also use funds in
conjunction with other federal grants or
programs (see section Program
Administration Provisions), though
78However, SURF funds may not be used to
reimburse a service that was also billed to
insurance.
eligible services under SURF are not
limited to those eligible under existing
federal programs.
Given the public health emergency's
exacerbation of the ongoing opioid and
overdose crisis, Treasury highlights
several ways that funds may be used to
respond to opioid use disorder and
prevent overdose mortality.79
Specifically, eligible uses of funds
include programs to expand access to
evidence -based treatment like
medications to treat opioid use disorder
(e.g., direct costs or incentives for
emergency departments, prisons, jails,
and outpatient providers to offer
medications and low -barrier treatment),
naloxone distribution, syringe service
programs, outreach to individuals in
active use, post -overdose follow up
programs, programs for diversion from
the criminal justice system, and
contingency management interventions.
Finally, for clarity, Treasury has
addressed the eligibility standard for
capital expenditures, or investments in
property, facilities, or equipment, in one
section of this Supplementary
Information; see section Capital
Expenditures in General Provisions:
Other. Examples of capital expenditures
related to behavioral health that
Treasury recognizes as eligible include
behavioral health facilities and
equipment (e.g., inpatient or outpatient
mental health or substance use
treatment facilities, crisis centers,
diversion centers), as long as they
adhere to the standards detailed in the
Capital Expenditures section.
d. Preventing and Responding to
Violence
Background: The interim final rule
highlighted that some types of violence
had increased during the pandemic and
that the ability of victims to access
services had decreased, noting as an
example the challenges that individuals
affected by domestic violence face in
accessing services. Accordingly, the
interim final rule enumerated as an
eligible use, in disproportionately
impacted communities, evidence -based
community violence intervention
programs. Following the release of the
interim final rule, Treasury received
several recipient questions regarding
whether and how funds may be used to
respond to an increase in crime,
79In line with the Department of Health and
Human Services, Overdose Prevention Strategy,
https://www.hhs.gov/overdose-prevention/, and the
Office of National Drug Control Policy,
Administration's Statement on Drug Policy
Priorities for Year One (April 1, 2021), https://
www. whi teh ouse.govlwp-content/uploads/2021 /03I
BidenHarris-Statement-of-Drug-Policy-Priori ti es-
April-1. pdf.
violence, or gun violence in some
communities during the pandemic.
Treasury released further guidance
identifying how enumerated eligible
uses and eligible use categories under
the interim final rule could support
violence reduction efforts, including
rehiring public sector staff, behavioral
health services, and services to address
negative economic impacts of the
pandemic that may aid victims of crime.
The guidance also identified an
expanded set of enumerated eligible
uses to address increased gun violence.
Public Comment: Several commenters
expressed support for this use of funds.
Treasury Response: In the final rule,
Treasury is maintaining enumerated
eligible uses in this area and clarifying
how to apply eligibility standards.
Throughout the final rule, enumerated
eligible uses should respond to an
identified impact of the COVID-19
public health emergency in a reasonably
proportional manner to the extent and
type of harm experienced. Many of the
enumerated eligible uses —like
behavioral health services, services to
improve employment opportunities, and
services to address educational
disparities in disproportionately
impacted communities that respond to
the public health and negative economic
impacts of the pandemic may also have
benefits for reducing crime or aiding
victims of crime. For example, the
pandemic exacerbated the impact of
domestic violence, sexual assault, and
human trafficking; enumerated eligible
uses like emergency housing assistance,
cash assistance, or assistance with food,
childcare, and other needs could be
used to support survivors of domestic
violence, sexual assault, or human
trafficking who experienced public
health or economic impacts due to the
pandemic.
Public Comment: Several commenters
expressed support for community
violence intervention programs or
argued that traditional public safety
approaches had negatively impacted the
social determinants of health in their
communities. Several commenters
recommended inclusion of approaches
like mental health or substance use
diversion programs.
Treasury Response: Treasury
recognizes the importance of
comprehensive approaches to
challenges like violence. The final rule
includes an enumerated eligible use for
community violence intervention
programs in all communities, not just
the disproportionately impacted
communities eligible under the interim
final rule. Given the increased rate of
violence during the pandemic, Treasury
has determined that this enumerated
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4357
eligible use is responsive to the impacts
of the pandemic in all communities.
The final rule incorporates guidance
issued after the interim final rule on
specifically types of services eligible,
including:
• Evidence -based practices like
focused deterrence, street outreach,
violence interrupters, and hospital -
based violence intervention models,
complete with wraparound services
such as behavioral therapy, trauma
recovery, job training, education,
housing and relocation services, and
financial assistance; and
• Capacity -building efforts at
community violence intervention
programs like funding more
intervention workers, increasing their
pay, providing training and professional
development for intervention workers,
and hiring and training workers to
administer the programs.
Public Comment: Some commenters
sought further clarification on whether
some of the enumerated eligible uses are
considered responsive to all crime,
violent crime, or gun violence.
Treasury Response: Enumerated
eligible uses that respond to an increase
in gun violence may be pursued in
communities experiencing an increase
in gun violence associated with the
pandemic, specifically: (1) Hiring law
enforcement officials —even above pre -
pandemic levels —or paying overtime
where the funds are directly focused on
advancing community policing
strategies for gun violence, (2)
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, and (3)
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, for example technology to
assist in the identification of guns
whose serial numbers have been
damaged.
3. Negative Economic Impacts
a. Assistance to Households
Background
While the U.S. economy is now on the
path to a strong recovery, the public
health emergency, including the
necessary measures taken to protect
public health, resulted in significant
economic and financial hardship for
many Americans. As businesses closed,
consumers stayed home, schools shifted
to remote education, and travel declined
precipitously, over 22 million jobs were
lost in March and April 2020.80 One
year later, in April 2021, the economy
still remained over 8 million jobs below
its pre -pandemic peak,81 and the
unemployment rate hovered around 6
percent.82
In the months since Treasury issued
the interim final rule in May 2 02 1, the
economy has made large strides in its
recovery. The economy gained over 4
million jobs in the seven months from
May to November 2 02 1;83 the
unemployment rate fell more than 1.5
percentage points to 4.2 percent, which
is the lowest rate since February 2020; 84
and the size of the nation's economy
surpassed the pre -pandemic peak in the
second quarter of 2021.85
While the economy has made
immense progress in its recovery since
May 2021, the economy has also faced
setbacks that illustrate the continued
risks to the recovery. As the Delta
variant spread across the country this
summer and fall, the United States faced
another severe wave of cases, deaths,
and strain on the healthcare system,
which contributed to a slowdown in the
pace of recovery in the third quarter.86
Supply chain disruptions have also
demonstrated the difficulties of
restarting a global economy.87
Moreover, although many Americans
have returned to work as of November
2021, the economy remains 3.9 million
jobs below its pre -pandemic peak,88 and
2.4 million workers have dropped out of
the labor market altogether relative to
February 2020.89 Thus, despite much
80 U.S. Bureau of Labor Statistics, All Employees,
Total Nonfarm [PAYEMS], retrieved from FRED,
Federal Reserve Bank of St. Louis; https://
fred.stlouisfed.org/series/P`AYEMS (last visited
December 7, 2021).
81 Id.
82 U.S. Bureau of Labor Statistics, Unemployment
Rate [UNRATE], retrieved from FRED, Federal
Reserve Bank of St. Louis; https.Ilfred.
stlouisfed.org/series/UNRATE (last visited
December 7, 2021).
83 U.S. Bureau of Labor Statistics, supra note 80.
84U.S. Bureau of Labor Statistics, supra note 82.
85 U.S. Bureau of Economic Analysis, Real Gross
Domestic Product [GDPC1], retrieved from FRED,
Federal Reserve Bank of St. Louis, https.Ilfred.
st1ouisfed.org/series/GDPC1 (last visited December
7, 2021).
86 U.S. Department of the Treasury, Economy
Statement by Catherine Wolfram, Acting Assistant
Secretary for Economy Policy, for the Treasury
Borrowing Advisory Committee (November 1,
2021), available at https.Ilhome.treasury.gov/news/
press-releasesljy0453.
87Yuka Hayashi, IMF Cuts Global Growth
Forecast Amid Supply -Chain Disruptions,
Pandemic Pressures, Wall Street Journal (October
12, 2021), available at https://www.wsj.com/
articles/imf--cuts-global-growth forecast-amid-
suppl y-chain-disru pti ons-warns-of-inflation-risks-
11634043601.
88 U.S. Bureau of Labor Statistics, supra note 80.
89 U.S. Bureau of Labor Statistics, Civilian Labor
Force Level [CLF160VI, retrieved from FRED,
progress, there is a continued need to
respond to the pandemic's economic
effects to ensure a full, broad -based, and
equitable recovery.
Indeed, the pandemic's economic
impacts continue to affect some
demographic groups more than others.
Rates of unemployment remain
particularly severe among workers of
color and workers with lower levels of
educational attainment; for example, the
overall unemployment rate in the
United States was 4.2 percent in
November 2021, but certain groups saw
much higher rates: 6.7 percent for Black
workers, 5.2 percent for Hispanic or
Latino workers, and 5.7 percent for
workers without a high school
diploma.90 Job losses have also been
particularly steep among low -wage
workers, with these workers remaining
furthest from recovery as of the end of
2020.91 A severe recession, and its
concentrated impact among low-income
workers, has amplified food and
housing insecurity, with an estimated
nearly 20 million adults living in
households where there is sometimes or
often not enough food to eat and an
estimated 12 million adults living in
households that were not current on
rent.92
While economic effects have been
seen across many communities, there
are additional disparities by race and
income. For example, approximately
Federal Reserve Bank of St. Louis, https.Ilfred.
stlouisfed.org/series/CLF160V (last visited
December 7, 2021).
90U.S. Bureau of Labor Statistics, Labor Force
Statistics from the Current Population Survey:
Employment status of the civilian population by sex
and age (December 6, 2021), https://www.bls.govl
news.release%mpsit.tOl.htm (last visited December
7, 2021); U.S. Bureau of Labor Statistics, Labor
Force Statistics from the Current Population
Survey: Employment status of the civilian
noninstitutional population by race, Hispanic or
Latino ethnicity, sex, and age (December 6, 2021),
https://www.bls.gov/weblempsiticpseea04.htm (last
visited December 7, 2021); U.S. Bureau of Labor
Statistics, Labor Force Statistics from the Current
Population Survey: Employment status of the
civilian noninstitutional population 25 years and
over by educational attainment (December 6, 2021),
https://www.bls.gov/weblempsiticpseea05.htm (last
visited December 7, 2021).
91 Elise Gould & Jori Kandra, Wages grew in 2020
because the bottom fell out of the low -wage labor
market, Economic Policy Institute (Feb. 24, 2021),
https.Ilfiles.epi.orglpdfl2l9418.pdf. See also,
Michael Dalton et al., The K-Shaped Recovery:
Examining the Diverging Fortunes of Workers in the
Recovery from the COVID-19 Pandemic using
Business and Household Survey Microdata, U.S.
Bureau of Labor Statistics Working Paper Series
(July 2021), https://www.bls.govlosmrlresearch-
papers120211pdf1ec210020.pdf.
92 Center on Budget and Policy Priorities,
Tracking the COVID-19 Recession's Effects on
Food, Housing, and Employment Hardships,
https://www. cbpp. org/research/poverty-and-
in eq uali ty/tra cking-the-covi d-19-econ om ys-effects-
on food -housing -and (last visited December 17,
2021).
4358 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
half of low-income, Black, and Hispanic
parents reported difficulty covering
costs related to food, housing, utility, or
medical care.93 Over the course of the
pandemic, inequities also manifested
along gender lines, as schools closed to
in -person activities, leaving many
working families without childcare
during the day.94 Women of color have
been hit especially hard: The labor force
participation rate for Black women has
fallen by 3.6 percentage points 95 during
the pandemic as compared to 1.3
percentage points for Black men96 and
1.7 percentage points for White
women.97
As the economy recovers, the effects
of the pandemic -related recession may
continue to impact households,
including a risk of longer -term effects on
earnings and economic potential. For
example, unemployed workers,
especially those who have experienced
longer periods of unemployment, earn
lower wages over the long term once
rehired.98 In addition to the labor
market consequences for unemployed
workers, recessions can also cause
longer -term economic challenges
93 Michael Karpman, Dulce Gonzalez, Genevieve
M. Kenney, Parents Are Struggling to Provide for
Their Families during the Pandemic, Urban
Institute (May 2020), https://www.urban.org/
research/p ubli cati on/paren ts-are-struggling-
provide-their-families-during-pandemic?utm_
source=urban researcher&utm_
medi um=email&utm_com paign=covid_
parents&utm_term=lh p.
94 Women have carried a larger share of childcare
responsibilities than men during the COVID-19
crisis. See, e.g., Gema Zamarro & Maria J. Prados,
Gender differences in couples' division of
childcare, work and mental health during COVID-
19, Rev. Econ. Household 19:11-40 (2021),
available at https.Illink.springer.com/article/
10.1007/s11150-020-09534-7, Titan Alan at al., The
Impact of COVID-19 on Gender Equality, National
Bureau of Economic Research Working Paper 26947
(April 2020), available at https://www.nber.org/
papers/w26947.
95 U.S. Bureau of Labor Statistics, Labor Force
Participation Rate-20 Yrs. & Over, Black or African
American Women [LNS11300032], retrieved from
FRED, Federal Reserve Bank of St. Louis; https://
fred.stlouisfed.org/series/LNS11300032 (last visited
December 7, 2021).
96 U.S. Bureau of Labor Statistics, Labor Force
Participation Rate-20 Yrs. & Over, Black or African
American Men [LNS11300031], retrieved from
FRED, Federal Reserve Bank of St. Louis; https://
fred.stlouisfed.org/series/LNS11300031 (last visited
December 7, 2021).
97 U.S. Bureau of Labor Statistics, Labor Force
Participation Rate-20 Yrs. & Over, White Women
[LNS11300029], retrieved from FRED, Federal
Reserve Bank of St. Louis; https.Ilfred.stlouis
fed.org/series/LNS11300029 (last visited December
7, 2021).
98 See, e.g., Michael Greenstone & Adam Looney,
Unemployment and Earnings Losses: A Look at
Long -Term Impacts of the Great Recession on
American Workers, Brookings Institution (Nov. 4,
2011), https://www.brookings.edu/blog/jobs/2011/
11 /04/unemployment-and-earnings-losses-a-look-
at-long-term-im pacts-of-the-great-recession-on-
american-workers/.
through, among other factors, damaged
consumer credit scores 99 and reduced
familial and childhood wellbeing.100
These potential long-term economic
consequences underscore the continued
need for robust policy support.
Low- and moderate -income
households, those with income levels at
or below 300 percent of the federal
poverty level (FPL), face particular
hardships and challenges. These
households report much higher rates of
food insecurity and housing hardships
than households with higher incomes.
For example, households with incomes
at or below 300 percent FPL are several
times more likely to have reported
struggling with food insecurity
compared to households with income
above 300 percent FPL.101 Similarly,
low- and moderate -income households
reported being housing insecure 102 at
rates more than twice as high as higher -
income households, and low- and
moderate -income households reported
housing quality hardship 103 at rates
statistically significantly greater than
the rate for higher -income
households.104 The economic crisis
caused by the pandemic worsened
economic outcomes for workers in many
low- and moderate -income households.
Industries that employed low -wage
workers experienced a disproportionate
level of job loss. For example, from
February 2020 to February 2021, the
hospitality and leisure industry lost
nearly 3.5 million jobs.105 While the
99 Chi Chi Wu, Solving the Credit Conundrum:
Helping Consumers' Credit Records Impaired by the
Foreclosure Crisis and Great Recession, National
Consumer Law Center (Dec. 2013), https://
www.ncic. org/images/pdf/credit_repoi is/report-
credi t-con undrum-2013. pdf.
100Irwin Garfinkel, Sara McLanahan, Christopher
Wimer, eds., Children of the Great Recession,
Russell Sage Foundation (Aug. 2016), available at
h ttps://www.russellsage. org/publications/chil dren-
great-recession.
101 Kyle J. Casewell and Stephen Zuckerman,
Food Insecurity, Housing Hardship, and Medical
Care Utilization, Urban Institute (June 2018),
available at https://www.urban.org/sites/default/
files/publication/98701/2001896 foodinsecurity_
housinghardshi p_medi cal careutilization_
finalized. pd f.
102 Housing insecurity is defined as not paying
the full amount of rent or mortgage and/or utility
bills (gas, oil, or electricity) sometime in the
previous 12 months.
103 Housing quality hardship is defined as an
affirmative response to one or more questions
related to problems with a respondent's physical
dwelling: Pests and/or insects; leaking roof or
ceiling; windows that are broken or cannot shut;
exposed electrical wires; broken plumbing (toilet,
hot water, other); holes in walls, ceiling, or floor;
no appliances (refrigerator or stove); and no phone
(of any kind).
104 Id.
105 Elise Gould and Melat Kassa. Low -wage, low -
hours workers were hit hardest in the COVID-19
recession: The State of Working America 2020
employment report, Economic Policy Institute (May
entire industry was impacted, 72
percent of the job losses occurred in the
lowest wage service occupations
compared to only a 6 percent rate of job
loss in the highest wage management
and finance jobs.106 Similar trends exist
in other heavily impacted industries. In
public education, the lowest wage
occupations, service and transportation
jobs, saw a job loss rate of 20 and 26
percent, respectively.107 During that
same time period, the highest wage
occupations in public education,
management, actually saw jobs increase
by 7 percent.108
While many households suffered
negative economic outcomes as a result
of the COVID-19 pandemic and
economic recession, households with
low incomes were impacted in
disproportionate and exceptional ways.
From January 2020 to March 2 02 1, low -
wage workers experienced job loss at a
rate five times higher than middle -wage
workers, and high -wage workers
actually experienced an increase in job
opportunities.109 Because workers in
low-income households were more
likely to lose their job or experience
reductions in pay, those same
households were also more likely to
experience economic hardships like
trouble paying utility bills, affording
rent or mortgage payments, purchasing
food, and paying for medical
expenses.110 The disproportionate
negative impacts the pandemic has had
on low-income families extend beyond
financial insecurity. For example, low-
income families have reported higher
levels of social isolation, stress, and
other negative mental health outcomes
during the pandemic. While over half of
all U.S. adults report that their mental
health was negatively affected by the
pandemic, adults with low incomes
reported major negative mental health
impacts at a rate nearly twice that of
adults with high incomes."'
2021), available at https://www.epi.org/publication/
swo-2020-employment-report/.
106Id.
107 Id.
108 M.
109R. Chatty, J. Friedman, N. Hendren, M.
Stepner, & Team, T. O. I., The Economic Impacts
of COVID-19: Evidence from a New Public Database
Built Using Private Sector Data (No. w27431; p.
w27431) (2020), National Bureau of Economic
Research. https.Ildoi.orgliO.3386lw27431.
110M. Despard, Michal Grinstein-Weiss, Yung
Chun, and Stephen Roll, COVID-19 job and income
loss leading to more hunger and financial hardship,
Brookings Institute (July 13, 2020), https://
www.brookings.edu/bloglupfront/202O/O7/l3/
covid-19-job-and-income-loss-leading-to-more-
hunger-and financial -hardship/.
"IN. Panchal, R. Kamal, C. Mufiana, & P.
Chidambaram, The Implications of COVID-19 for
Mental Health and Substance Use, Kaiser Family
Foundation (February 10, 2021), https://
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4359
Summary of Interim Final Rule and
Final Rule Structure
Summary. The interim final rule
provided a non -exhaustive list of
enumerated eligible uses to respond to
the negative economic impacts of the
pandemic through assistance to
households, as well as a standard for
assessing whether uses of funds beyond
those enumerated are eligible.
The interim final rule described
enumerated eligible uses for assistance
to households in several categories: (1)
Assistance to unemployed workers, (2)
state Unemployment Insurance Trust
Funds, (3) assistance to households, and
(4) expenses to improve the efficacy of
economic relief. Note that the interim
final rule posed several questions to the
public on enumerated eligible uses for
assistance to households; comments on
these questions are addressed in the
relevant subject matter section below.
In addition, in recognition that pre-
existing health, economic, and social
disparities contributed to
disproportionate pandemic impacts in
certain communities, the interim final
rule also provided a broader list of
enumerated eligible uses to respond to
the pandemic in disproportionately
impacted communities, specifically: (1)
Building stronger communities through
investments in housing and
neighborhoods, (2) addressing
educational disparities, and (3)
promoting healthy childhood
environments. In the interim final rule,
under the Public Health section,
recipients could also provide services to
address health disparities and increase
access to health and social services;
these eligible uses have been re-
organized into the Assistance to
Households section to consolidate
responses in disproportionately
impacted communities and enhance
clarity.
This section addresses enumerated
eligible uses in the final rule to respond
to negative economic impacts to
households. As a reminder, recipients
may presume that a household or
population that experienced
unemployment, experienced increased
food or housing insecurity, or is low or
moderate income experienced negative
economic impacts resulting from the
pandemic, and recipients may provide
services to them that respond to these
impacts, including these enumerated
eligible uses.
For guidance on how to determine
whether a particular use, beyond those
enumerated, is eligible; further detail on
www.kff. org/coronavirus-covid-19/issue-brief/th e-
implications-of-covid-19-for-mental-health -and-
substance-usel.
which households and communities are
presumed eligible for services; and how
to identify eligible households and
communities beyond those presumed
eligible, see section General Provisions:
Structure and Standards.
Reorganizations and Gross -
References: The final rule reorganizes
all enumerated eligible uses for
impacted and disproportionately
impacted households into the section
Assistance to Households, with the
exception that expenses to improve the
efficacy of economic relief has been re -
categorized into a different section of
the final rule for increased clarity; for
discussion of that use category, see
section General Provisions: Other.
Note that in conducting this
reorganization, and based on further
analysis and in response to comments,
Treasury has determined that several
enumerated uses included in the
interim final rule for disproportionately
impacted communities are directly
responsive to negative economic
impacts experienced by impacted
households. In the final rule, these uses
have been moved from
"disproportionately impacted" to
"impacted" households accordingly,
making these services available to both
disproportionately impacted and
impacted households. These uses
include assistance applying for public
benefits or services; programs or
services that address or mitigate the
impacts of the COVID-19 public health
emergency on childhood health or
welfare, including childcare, early
learning services, programs to provide
home visits, and services for families
involved in the child welfare system
and foster youth; programs to address
the impacts of lost instructional time for
students; 112 and programs or services
that address housing insecurity, lack of
affordable housing, or homelessness.
The following activities remain
enumerated eligible uses for
disproportionately impacted
households: Remediation of lead paint
or other lead hazards; housing vouchers
and assistance relocating to
neighborhoods with higher levels of
economic opportunity; and programs or
services that address educational
disparities, including assistance to high -
poverty school districts to advance
equitable funding across districts and
geographies and evidence -based
services to address the academic, social,
emotional, and mental health needs of
students.
112 For which recipients may presume that any
student who did not have access to in -person
instruction for a significant period of time was
impacted by the pandemic.
Enumerated Eligible Uses for Impacted
Households
The interim final rule included
several enumerated eligible uses to
provide assistance to households or
populations facing negative economic
impacts due to COVID-19. Enumerated
eligible uses included: Food assistance;
rent, mortgage, or utility assistance;
counseling and legal aid to prevent
eviction or homelessness; emergency
assistance for burials, home repairs,
weatherization, or other needs; internet
access or digital literacy assistance; cash
assistance; or job training to address
negative economic or public health
impacts experienced due to a worker's
occupation or level of training. It also
posed a question as to what other types
of services or costs Treasury should
consider as eligible uses to respond to
the negative economic impacts of
COVID-19.
This section addresses each of these
enumerated eligible uses in turn, with
the exception of job training, which has
been re -categorized for increased clarity
to the eligible use for "assistance to
unemployed and underemployed
workers." In general, commenters
supported inclusion of these
enumerated eligible uses to address key
economic needs among households due
to the pandemic, and Treasury is
maintaining these eligible uses in the
final rule, in line with commenters'
recommendations.
1. Food assistance. The interim final
rule included an enumerated eligible
use for food assistance. Some
commenters expressed support for this
eligible use and emphasized the
importance of aid to address food
insecurity. Some commenters raised
questions as to whether food assistance
funds could be used to augment services
provided through organizations like
food banks, churches, and other food
delivery services, or generally be sub -
awarded to these organizations.
Treasury Response: Treasury is
maintaining this enumerated eligible
use without change. Recipients may, as
was the case under the interim final
rule, administer programs through a
wide range of entities, including
nonprofit and for -profit entities, to carry
out eligible uses on behalf of the
recipient government (see section
Distinguishing Subrecipients versus
Beneficiaries). Further, Treasury is
clarifying that capital expenditures
related to food banks and other facilities
primarily dedicated to addressing food
insecurity are eligible; recipients
seeking to use funds for capital
expenditures should refer to the section
Capital Expenditures in General
4360 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
Provisions: Other for additional
eligibility standards that apply to uses
of funds for capital expenditures.
2. Emergency housing assistance. The
interim final rule included an
enumerated eligible use for rent,
mortgage, or utility assistance and
counseling and legal aid to prevent
eviction or homelessness.
Public Comment: Several commenters
supported the inclusion of eviction
prevention activities as an eligible use
given the high number of households
behind on rent and potentially at risk of
eviction. Following release of the
interim final rule, Treasury had also
received requests for elaboration on the
types of eligible services in this
category. Some commenters also
recommended including assistance to
households for delinquent property
taxes, for example to prevent tax
foreclosures on homes, as an
enumerated eligible use.
Treasury Response: In response to
requests for elaboration on the types of
eligible services for eviction prevention,
Treasury has provided further guidance
that these services include "housing
stability services that enable eligible
households to maintain or obtain
housing, such as housing counseling,
fair housing counseling, case
management related to housing stability,
outreach to households at risk of
eviction or promotion of housing
support programs, housing related
services for survivors of domestic abuse
or human trafficking, and specialized
services for individuals with disabilities
or seniors that support their ability to
access or maintain housing," as well as
"legal aid such as legal services or
attorney's fees related to eviction
proceedings and maintaining housing
stability, court -based eviction
prevention or eviction diversion
programs, and other legal services that
help households maintain or obtain
housing." 113 Treasury also emphasized
that recipients may work with court
systems, nonprofits, and a wide range of
other organizations to implement
strategies to support housing stability
and prevent evictions.
In the final rule, Treasury is
maintaining these enumerated eligible
uses, including those described in the
interim final rule and later guidance, in
line with commenters'
recommendations. To enhance clarity,
Treasury is also elaborating on some
types of services included under this
eligible use category; this remains a
113 See FAQ 2.21. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home. treasury.gov/system/files/136/SLFRPFAQ. pdf.
non -exhaustive list of eligible services.
For example, eligible services under this
use category include: Rent, rental
arrears, utility costs or arrears (e.g.,
electricity, gas, water and sewer, trash
removal, and energy costs, such as fuel
oil), reasonable accrued late fees (if not
included in rental or utility arrears),
mortgage payment assistance, financial
assistance to allow a homeowner to
reinstate a mortgage or to pay other
housing -related costs related to a period
of forbearance, delinquency, or default,
mortgage principal reduction,
facilitating mortgage interest rate
reductions, counseling to prevent
foreclosure or displacement, relocation
expenses following eviction or
foreclosure (e.g., rental security
deposits, application or screening fees).
Treasury is clarifying that assistance to
households for delinquent property
taxes, for example to prevent tax
foreclosures on homes, was permissible
under the interim final rule and
continues to be so under the final rule.
In addition, Treasury is also clarifying
that recipients may administer utility
assistance or address arrears on behalf
of households through direct or bulk
payments to utility providers to
facilitate utility assistance to multiple
consumers at once, so long as the
payments offset customer balances and
therefore provide assistance to
households.
This eligible use category also
includes emergency assistance for
individuals experiencing homelessness,
either individual -level assistance (e.g.,
rapid rehousing services) or assistance
for groups of individuals (e.g., master
leases of hotels, motels, or similar
facilities to expand available shelter).
Further, Treasury is clarifying that
transitional shelters (e.g., temporary
residences for people experiencing
homelessness) are eligible capital
expenditures. Recipients seeking to use
funds for capital expenditures should
refer to the section Capital Expenditures
in General Provisions: Other for
additional eligibility standards that
apply to uses of funds for capital
expenditures.
Note that this enumerated eligible use
describes "emergency housing
assistance," or assistance for responses
to the immediate or near -term negative
economic impacts of the pandemic. The
final rule also clarifies and expands the
ability of recipients to use SURF funds
to address the general lack of affordable
housing and housing challenges
underscored by the pandemic. For
discussion of affordable housing eligible
uses, including services that primarily
increase access to affordable, high -
quality housing and support stable
housing and homeownership over the
long term, see the eligible use for
"promoting long-term housing security:
Affordable housing and homelessness."
3. Emergency assistance for pressing
needs: Burials, home repairs,
weatherization, or other needs. The
interim final rule included an
enumerated eligible use for emergency
assistance for burials, home repairs,
weatherization, and other needs; these
types of programs may provide
emergency assistance for pressing and
unavoidable household needs. Treasury
did not receive comments on this
eligible use and is maintaining it in the
final rule.
Background on Home Repairs and
Weatherization: The economic
downturn has meant fewer households
had the resources needed to make
necessary home repairs and
improvements. In May 2021, 28 percent
of landlords reported deferring
maintenance and 27 percent of tenants
reported maintenance requests going
unanswered.114 While small and
cosmetic repairs can often wait,
deferring major repairs, such as
plumbing needs, can result in unsafe
and unhealthy living environments and,
eventually, the need for more expensive
repairs and fixes.
In addition to repairs, many homes
are in need of weatherization.
Weatherization assistance helps low -
and moderate -income Americans save
energy, reduce their utility bills, and
keeps them and their homes safe. One
in three households is energy
insecure,115 meaning they do not have
the ability to meet their energy needs.116
Weatherization efforts are particularly
important for low- and moderate -
income households. Households of
color, renters, and households with low
or moderate incomes are all more likely
to report energy insecurity.117 These
114 Jung Hyun Choi, Laurie Goodman, and Daniel
Pang, The Pandemic Is Making It Difficult for Mom -
and -Pop Landlords to Maintain Their Properties,
Urban Institute (July 23, 2021), https://
www. urban.org/urban-wire/pandemic-making-it-
diffi cult -mom -and -pop -landlords -maintain -their -
properties.
11s U.S. Energy Information Administration,
Residential Energy Consumption Survey (2017),
Retrieved from https://www.eia.gov/consumption/
residential/data/2015/hc/php/hc11.1. php.
D. Hernandez, Understanding `energy insecurity'
and why it matters to health, Social Science &
Medicine, 167, 1-10 (2016), https.Ildoi.orgl
10.1016/j. socscim ed.2016.08.029.
1161lernandez, D. (2016). Understanding `energy
insecurity' and why it matters to health. Social
Science & Medicine, 167, 1-10. https.Ildoi.orgl
10.1016/j. socscim ed.2016.08.029.
117 U.S. Energy Information Administration,
Residential Energy Consumption Survey (RECS)
https://www.eia.govlconsumptionlresidentialldatal
2015/hc/php/hc11.1.php. (last visited November 9,
2021)
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4361
disparities are partially a result of
economic hardship but are also caused
by inequitable access to housing with
proper insulation, up to date heating,
cooling, and ventilation systems, and
functioning and up to date lighting and
appliances."" While programs that
address the effects of energy hardships,
like the Low -Income Home Energy
Assistance Program (LIHEAP), are
critical, weatherization attempts to
address root causes by addressing issues
that lead to energy insecurities.
4. Internet access or digital literacy
assistance. The interim final rule
included an enumerated eligible use for
assistance to households for internet
access or digital literacy assistance. This
enumerated eligible use, which
responds to the negative economic
impacts of the pandemic on a household
by providing assistance that helps them
secure internet access or increase their
ability to use computers and the
internet, is separate from the eligible use
category for investments in broadband
infrastructure, under Sections
602(c)(1)(D) and 603(c)(1)(D), which is
used to build new broadband networks
through infrastructure construction or
modernization. For discussion of
broadband infrastructure investment in
the final rule, see section Broadband
Infrastructure in Infrastructure.
Background: The COVID-19 public
health emergency has underscored the
importance of universally available,
high-speed, reliable, and affordable
broadband coverage as millions of
Americans rely on the internet to
participate in, among other critical
activities, school, healthcare, and work.
Recognizing the need for such
connectivity, SLFRF funds can be used
to make necessary investments in
broadband infrastructure that increase
access over the long term, as well as the
necessary supports to purchase internet
access or gain digital literacy skills
needed to complete activities of daily
living during the pandemic.
The National Telecommunications
and Information Administration (NTIA)
highlighted the growing necessity of
broadband in daily lives through its
analysis of NTIA internet Use Survey
data, noting that Americans turn to
broadband internet service for every
facet of daily life including work, study,
and healthcare.119 With increased use of
118 A. Drehobl, & L. Ross, Lifting the high energy
burden in America's largest cities: How energy
efficiency can improve low income and
underserved communities, American Council for an
Energy Efficient Economy (2016), https://
www. a ceee. org/sites/default/files/publications/
researchreports/u1602. pdf.
119 See, e.g., Nation Telecommunications and
Information Administration, More than Half of
technology for daily activities and the
movement by many businesses and
schools to operating remotely during the
pandemic, broadband has become even
more critical for people across the
country to carry out their daily lives.
However, even in areas where
broadband infrastructure exists,
broadband access may be out of reach
for millions of Americans because it is
unaffordable, as the United States has
some of the highest broadband prices in
the Organisation for Economic Co-
operation and Development (OECD).120
According to a 2021 Pew Research
Center study, 20 percent of non -
broadband users say that the monthly
cost of home broadband is the primary
reason they do not have broadband at
home, and 40 percent say that cost is
one reason for their lack of home
broadband.121 Further, according to
another survey, 22 percent of parents
with homebound schoolchildren during
the COVID-19 pandemic say that it is
very or somewhat likely that their
children will have to rely on public wi-
fi to finish their schoolwork because
there is no reliable internet connection
at home; this percentage nearly doubles
for lower -income parents, 40 percent of
whom noted that their children will
have to rely on public wi-fi.122 The
same survey showed that 36 percent of
lower -income parents with homebound
children say their child will not be able
to complete their schoolwork because
they do not have access to a computer
at home. 123
Public Comment: Many commenters
highlighted the importance of
broadband access during the pandemic,
including for remote work and
American Households Used the Internet for Health -
Related Activities in 2019, NTIA Data Show
(December 7, 2020), https://www.ntio.govlblogl
2020/m ore -half -am eri can-households-used-
internet-health-related-activities-2019-ntia-data-
show,• Nation Telecommunications and Information
Administration, Nearly a Third of American
Employees Worked Remotely in 2019, NTIA Data
Show (September 3, 2020) https://www.ntia.govl
blogl2020/nearly-third-ameri can-employees-
worked-remotely-2019-ntia-data-show; and
generally, Nation Telecommunications and
Information Administration, Digital Nation Data
Explorer (June 10, 2020), https://www.ntia.govl
data/digital-nation-data-explorer.
120 BroadbandSearch Blog Post, How Do U.S.
Internet Costs Compare To The Rest Of The World?,
available at https://www.broadbandsearch.net/blog/
internet-costs-compared-worldwide.
121 Pew Research Center, Mobile Technology and
Home Broadband 2021 (June 3, 2021), https://
www. pewresearch.org/internet/2021/06/03/mobile-
technology-and-home-broadband-2021 /.
122 Pew Research Center, 53% of Americans Say
the internet Has Been Essential During the COVID-
19 Outbreak (April 30, 2020), https://www.pew
research. org/internet/202O/04/3O/53-of-americans-
say-the-internet-has-been-essential-during-the-
covid-19-outbreak/.
123 Id.
education, and argued that affordability
presents a major barrier to broadband
adoption by households; in other words,
many households live in areas that have
broadband infrastructure and service
available but are unable to purchase
service for their household due to the
high cost. These commenters argued
that broadband must be affordable to be
accessible.
Commenters proposed several
potential responses to affordability
concerns. Some commenters
recommended that building "gap
networks," or broadband networks built
at low cost to provide affordable service
in areas where it is lacking, be eligible
as assistance to households to respond
to the negative economic impacts of the
pandemic, even if they do not meet the
technical standards for eligibility under
the eligible use category of broadband
infrastructure investment, especially the
required speed standards for new
service. These commenters argued that
the networks have shown promise as a
timely means to expand access to
affordable broadband internet during
the pandemic, even if they may not
provide service speeds needed for more
intensive internet uses. Another
commenter requested eligible uses
include funding cellular towers to
decrease costs. One commenter
recommended that affordability should
be addressed through other programs
but not SLFRF given that affordability
and availability may require nuanced
solutions that would be complex to
combine.
Treasury Response: The interpretive
framework and enumerated eligible uses
allow recipients flexibility to address
identified pandemic impacts, including
through solutions that take into account
the particularized issues in their
community. Given extensive commenter
feedback on the importance of
affordability to achieving broadband
access, and the centrality of broadband
to participating in work, education,
healthcare, and other activities during
the pandemic, affordability programs
are an appropriate eligible use to
respond to the negative economic
impacts of the pandemic and Treasury
is maintaining the enumerated eligible
use for assistance to households for
internet access and digital literacy
programs in the final rule.
Building or constructing new
broadband networks is an infrastructure
investment and is governed by a
separate clause in the statute. Treasury
has addressed comments on "gap
networks" that require infrastructure
build -out in the section Broadband
Infrastructure in Infrastructure.
4362 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
Public Comment: Some commenters
also use the term "gap networks" to
refer to equipment installed as part of
wi-fi systems, such as routers, repeaters,
and access points; this equipment
provides consumer access to an existing
broadband network and does not require
new network build -out or construction.
These commenters recommended that
Treasury permit, as assistance to
households for internet access,
investments in public wi-fi networks,
free wi-fi in public housing
communities, and other equipment that
offers internet access to end users by
utilizing existing broadband networks.
Other commenters recommended that
eligible uses in this category include
providing devices and equipment
necessary to access the internet, like
computers and routers, directly to low-
income households.
Treasury Response: Treasury has
determined that these services, which
expand internet access without
constructing new networks, are an
appropriate enumerated eligible use as
assistance to households to respond to
a negative economic impact, and they
are permitted under the final rule.
Treasury is clarifying that eligible uses
under this category can also include a
wide range of programs and services to
expand internet access and digital
literacy, such as subsidies for the cost of
internet service, other programs that
support adoption of internet service
where available, digital literacy
programs, or programs that provide
devices and equipment to access the
internet (e.g., programs that provide
equipment like tablets, computers, or
routers) to households. Recipients
seeking to use funds for equipment
should refer to the section Capital
Expenditures in General Provisions:
Other for additional eligibility standards
that apply to uses of funds for capital
expenditures (e.g., equipment, property,
and facilities).
5. Cash assistance. The interim final
rule included as an enumerated eligible
use cash assistance and provided that
cash transfers must be "reasonably
proportional" to the negative economic
impact they address and may not be
"grossly in excess of the amount needed
to address" the impact. In assessing
whether a transfer is reasonably
proportional, recipients may "consider
and take guidance from the per person
amounts previously provided by the
Federal Government in response to the
COVID-19 crisis," and transfers
"grossly in excess of such amounts" are
not eligible.
Public Comment: Several commenters
expressed support for this eligible use,
noting that this is a common policy tool
for some governments to support the
well-being of households and
individuals in their communities. Some
commenters requested that Treasury set
a specific dollar amount for permissible
cash transfers, and Treasury has also
received recipient questions on whether
specific types of transfers, such as those
to a substantial share of the population
in the jurisdiction, would be a
permissible use of funds.
Treasury Response: Treasury is
maintaining this enumerated eligible
use in the final rule, in line with
commenters' recommendations. Because
the final rule is intended to provide
flexibility to recipients to respond to the
particularized pandemic impacts in
their communities, which may vary in
type and intensity, setting a specific
dollar threshold for eligible cash
transfers would fail to recognize the
particularized needs of communities
and limit recipients' flexibility to tailor
their response to those needs.
To provide greater clarity, Treasury is
elaborating on the analysis that
recipients may undertake to assess the
eligibility of specific cash assistance
programs or transfers. Cash transfers,
like all eligible uses in this category,
must respond to the negative economic
impacts of the pandemic on a household
or class of households. For the reasons
discussed above, recipients may
presume that low- and moderate -income
households (as defined in the final rule),
as well as households that experienced
unemployment, food insecurity, or
housing insecurity, experienced a
negative economic impact due to the
pandemic.
Recipients may also identify other
households or classes of households
that experienced a negative economic
impact of the pandemic and provide
cash assistance that is reasonably
proportional to, and not grossly in
excess of, the amount needed to address
the negative economic impact. For
example, in the ARPA, Congress
authorized Economic Impact Payments
to households at certain income levels,
identifying and responding to a negative
economic impact of the pandemic on
these households.
Finally, Treasury has reiterated in the
final rule that responses to negative
economic impacts should be reasonably
proportional to the impact that they are
intended to address. Uses that bear no
relation or are grossly disproportionate
to the type or extent of harm
experienced would not be eligible uses.
Reasonably proportional refers to the
scale of the response compared to the
scale of the harm. It also refers to the
targeting of the response to beneficiaries
compared to the amount of harm they
experienced; for example, it may not be
reasonably proportional for a cash
assistance program to provide assistance
in a very small amount to a group that
experienced severe harm and in a much
larger amount to a group that
experienced relatively little harm.
6. Survivor's benefits. The interim
final rule included an enumerated
eligible use for survivor's benefits to
surviving family members of
individuals who have died from
COVID-19, including cash assistance to
widows, widowers, or dependents.
Public Comment: Treasury did not
receive any comments on the inclusion
of survivor's benefits as an enumerated
use for impacted households in the
interim final rule.
Treasury Response: This use of funds
remains eligible under the final rule.
Consistent with the general
reorganization noted above, the final
rule organizes survivor's benefits under
assistance to households to clarify that
households are the intended
beneficiaries of survivor's benefits.
7. Assistance accessing or applying
for public benefits or services.
Recognizing that eligible households
often face barriers to accessing public
benefits or services that improve health
and economic outcomes, the interim
final rule included as an enumerated
eligible use in disproportionately
impacted communities, public benefits
navigators to assist community members
with navigating and applying for
available federal, state, and local public
benefits or services. Treasury also
clarified in subsequent guidance after
the interim final rule that this eligible
use category would include outreach
efforts to increase uptake of the Child
Tax Credit.
Background: The under -enrollment of
eligible households in social assistance
programs is a well -recognized and
persistent challenge. There are many
reasons why a household may not be
receiving a particular benefit even
though they are eligible. For many
federal programs, enrollment processes
vary from state -to -state. Sometimes,
households are simply unaware that
they are eligible for a particular
benefit.124 For example, despite having
one of the highest rates of participation
of any benefits program, nearly 20
percent of eligible individuals do not
participate in the Supplementary
Nutritional Assistance Program
124Amy Finkelstein & Matthew J Notowidigdo,
Take -Up and Targeting: Experimental Evidence
from SNAP, The Quarterly Journal of Economics,
vol 134(3), pages 1505-1556 (2019), https://
wwwnber.org/Papers/w24652.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4363
(SNAP).125 In other cases, policies like
public charge and asset testing can
discourage otherwise eligible
households.126 While the gap between
households that need assistance and the
number of households participating in
public benefit programs has always
existed, narrowing that gap and
ensuring households receive the support
they need is critical in mitigating the
negative economic impacts of the
pandemic.
Public Comment: Treasury has also
received feedback from recipients and
stakeholders noting the need to increase
awareness and uptake of assistance
programs, including gaps that remain in
enrollment of eligible households in
programs to address the negative
economic impacts of the pandemic.127
Treasury Response: Treasury has
determined that this impact of the
pandemic is widely experienced across
many jurisdictions and programs or
services to increase awareness and
uptake of assistance programs would
respond to the pandemic's negative
economic impact in all communities. As
such, in the final rule, this use is eligible
for any impacted household or class of
households, not only in
disproportionately impacted
communities.
8. Promoting healthy childhood
environments. The interim final rule
included programs and services that
promote healthy childhood
environments as an enumerated eligible
use for disproportionately impacted
households. The interim final rule listed
three programs or services included
under this use: Childcare; programs to
provide home visits by health
professionals, parent educators, and
social service professionals to
individuals with young children to
provide education and assistance for
economic support, health needs, or
child development; and services for
child welfare -involved families and
foster youth to provide support and
125 United States Department of Agriculture,
Trends in Supplemental Nutrition Assistance
Program Participation Rates: Fiscal Year 2016 to
Fiscal Year 2018 (May 2021), https://fns-prod.
azureedge.net/sites/default/f"iles/resource-files/
Trends2016-2018. pdf.
126 Jeremy Barofsky et al., Spreading Fear: The
Announcement Of The Public Charge Rule Reduced
Enrollment In Child Safety -Net Programs, Health
Affairs (October 2020), https.11www.health
affairs. org/d oi/full/l 0.1377/KI th o f f.2020.00763.
127 See, e.g., U.S. Department of the Treasury, By
ZIP Code: Number of Children under Age 18 with
a Social Security Number Who Are Not Found on
a Tax Year 2019 or 2020 Tax Return but who
Appear on a Tax Year 2019 Form 1095 and
Associated Number of Policy Holders (June 2021),
https.Ilh ome. treasury.gov/system/files/131 /
Estimated-Counts-of-Children-Unclaimed-for-CTC-
by-ZIP-Code-2019. pdf.
education on child development,
positive parenting, coping skills, or
recovery for mental health and
substance use. The interim final rule
also included an enumerated eligible
use for early learning services in
disproportionately impacted
communities, to address disparities in
education.
Public Comment: Childcare and Early
Learning: Treasury received multiple
comments that were supportive of the
provision of childcare. Treasury has also
received multiple comments and
questions indicating that recipients have
identified a need for childcare for a
broader range of households and
communities, for example those that
may need childcare in order to return to
work, in addition to households and
communities disproportionately
impacted by the pandemic. Several
commenters expressed uncertainty
about how childcare facilities should
interact with the boundaries of a QCT.
Finally, one commenter recommended
that pre-K or early learning services
encompass care for infants and toddlers,
arguing that these types of care are often
more expensive or challenging to access
for families.
Background: Childcare and Early
Learning: As daycares and schools
closed in -person activities during the
pandemic, many working families were
left without childcare during the day.128
Although daycare centers and schools
have since reopened in many
communities, there remains a persistent
childcare shortage as childcare
employment levels have not fully
rebounded since the sharp decline in
childcare employment at the beginning
of the pandemic.129 As a result, working
parents in communities across the
country, and more specifically women,
may face challenges entering or
reentering the labor force.130
126 Women have carried a larger share of
childcare responsibilities than men during the
COVID-19 crisis. See, e.g., Gems Zamarro & Mans
J. Prados, Gender differences in couples' division of
childcare, work and mental health during COVID-
19, Rev. Econ. Household 19:11-40 (2021),
available at https://link.springer.com/article/
10.10071s11150-020-09534-7, Titan Alan et al., The
Impact of COVID-19 on Gender Equality, National
Bureau of Economic Research Working Paper 26947
(April 2020), available at https://www.nber.org/
papers/w26947.
129 See, e.g., Center For The Study Of Child Care
Employment (CSCCE), Child Care Sector Jobs: BLS
Analysis (November 8, 2021), https.11cscce.
berkeley.edu/child-care-sectorjobs-bls-analysis/;
Emma K. Lee, and Zachary Parolin. The Care
Burden during COVID-19: A National Database of
Child Care Closures in the United States, Socius
(January 2021), doi:10.1177/23780231211032028.
130 Jason Furman, Melissa Schettini Kearney, and
Wilson Powell, The Role of Childcare Challenges in
the US Jobs Market Recovery During the COVID-
19 Pandemic, NBER Working Paper No. 28934 (June
2021), https://www.nber.org/papers/w28934.
Low-income households are also more
likely to lose access to quality
childcare.131 The widespread closure of
childcare centers combined with a lack
of access to paid family leave means
parents in low-income households are
more likely to experience a reduction of
income or leave their jobs due to a lack
of childcare options.132
Additionally, childcare providers
serving primarily low-income families
were less likely to remain open during
the pandemic because of tighter profit
margins and general community
financial insecurity, compared to
childcare providers serving primarily
high -income families.133134
In addition to disruptions to
childcare, early learning services were
also significantly impacted by the
pandemic, and the disruption of these
services had widespread ramifications
for learning loss, parental support, and
equity. Early learning centers have seen
declined enrollment across the board,
though there was a larger dip in
enrollment for low-income
households. 135This lower enrollment
coincides with a diminishing workforce,
as similarly to childcare, early
childhood educators have been leaving
the profession due to long hours, low
pay,136 and health and safety
concerns.137 As a result, children's
school readiness has suffered, leading to
potential long-term impacts on life
outcomes.138 The impact also extended
131 U.S. Census Bureau, Phase 3.2 Household
Pulse Survey: Table 2. Childcare Arrangements in
the Last 4 Weeks for Children Under 5 Years Old,
by Selected Characteristics, (Washington: 2021),
available at https://www.census.govlprograms-
surveys/household-p ulse-survey/data.html.
132 Id.
133 N. Kalluri, C. Kelly, & A. Garg, Child Care
During the COVID-19 Pandemic: A Bad Situation
Made Worse. Pediatrics (2021), https.Ildoi.orgl
10.1542/p eds.2020-041525.
134National Association for the Education of
Young Children, Am I Next? Sacrificing to Stay
Open, Child Care Providers Face a Bleak Future
Without Relief (December 2020), https://
www. na eyc. org/si tes/d e fa ul t/files/gl o ball y-shared /
downloads/PDF.
135 G. G. Weisenfeld, Impacts of Covid-19 on
Preschool Enrollment and Spending, New
Brunswick, NJ: National Institute for Early
Education Research (2021), https.Ilnieer.org/wp-
contentluploadsl202llO3lNIEER_Policy_Brief
Im pacts-c f-Covid-19on_Preschool_Enrollment_and_
Spending_3_16_21. pdf.
136Heather Long, `The pay is absolute crap':
Child-care workers are quitting rapidly, a red flag
for the economy, Washington Post (September 19,
2021), https://www.washingtonpost.com/business/
2021 /09/19/chil daare-workers-quit/.
137 Monash University, The emotional toll of
COVID-19 among early childhood educators
(August 5, 2020) https.Illens.monash.edu/@
educationl2020/08/05ll381001 /the-emotional-toll-
of-covid-l9-among-early-childhood-educators.
136 Daphna Bassok and Anna Shapiro,
Understanding COVID-19-era enrollment drops
Continued
4364 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
to parents. Parents, especially mothers,
may face challenges reentering or
remaining in the workforce if early
learning services are unavailable.
Treasury Response: Childcare and
Early Learning Services: Treasury agrees
with commenters' analysis that
challenges accessing or affording
childcare have been widespread during
the pandemic, affecting many
jurisdictions and populations across the
country. Disruptions to early care and
learning services similarly have had
broad impact and likely result in
negative impacts for young children and
their parents. As such, these
enumerated eligible uses are generally
responsive to the negative economic
impacts of the pandemic in all
communities, not just in
disproportionately impacted
communities. Under the final rule,
childcare and early learning services are
available to impacted households or
classes of households, not just those
disproportionately impacted. These
eligible uses can include new or
expanded services, increasing access to
services, efforts to bolster, support, or
preserve existing providers and services,
and similar activities.
Further, Treasury is clarifying that
improvements to or new construction of
childcare, daycare, and early learning
facilities are eligible capital
expenditures. Recipients seeking to use
funds for capital expenditures should
refer to the section Capital Expenditures
in General Provisions: Other for
additional eligibility standards that
apply to uses of funds for capital
expenditures.
Public Comment: Home Visiting:
Treasury has also received questions
about whether the provision of home
visiting services would be responsive to
the health and mental health needs of
impacted new mothers, citing the
positive mental health impacts shown
on the mother as well as improved
outcomes for children.
Background: Home Visiting: Pregnant
and recently pregnant individuals are at
an increased risk for serious illness from
COVID-19.139 Furthermore, pregnant
individuals with COVID-19 are more
likely to experience preterm birth
(delivering the baby earlier than 37
among early -grade public school students,
Brookings Institution (February 22, 2021), https://
www.brookings.edu/bloglbrown-center-chalkboard/
2021 /02/22/understanding-covid-19-era-
enrollment-drops-among-early-grade-public-school-
students/.
139 Centers for Disease Control and Prevention,
Pregnant and Recently Pregnant People, https://
www. cdc.gov/coronavirus/2019-ncov/need-extra-
precautions/pregnant-people.html (last visited
November 9, 2021).
weeks).140 In addition to heightened
health risks from COVID-19, pregnant
individuals may have experienced
significant changes to their prenatal care
during the pandemic 141 or may also
have experienced increased mental
health challenges, including high levels
of depression, anxiety, loneliness, and
post -traumatic stress during the
pandemic.142
Home visiting services provided to
families, particularly new mothers and
newborns, feature regular home visits
from trained nurses, social workers,
and/or counselors who provide health
care, mental health resources, positive
parenting support, support in making
personal health decisions, and
awareness of other potentially helpful
services. These functions have become
even more essential at mitigating
negative factors associated with the
pandemic. Home visits give
professionals a chance to flag potential
domestic violence, which has risen
worldwide over the course of the
pandemic.143 Racial health disparities
can also be driven down by home visits.
For example, Black women are more
likely to avoid hospitals during the
pandemic, and home visitors can help
either assuage concerns around
hospitals or give effective advice for
alternative methods of childbirth.144
Given the disproportionate effect of the
pandemic on people of color, home
visits are an essential equity tool that
tackle major negative effects of the
pandemic. These are just a few
selections from the evidence that
suggests many home visiting models can
have a positive effect on maternal
physical and mental health.145
Treasury Response: Home Visiting:
Given the widespread impact of
140 Id.
141 Sarah Javaid, Sarah Barringer, Sarah D
Compton, Elizabeth Kaselitz, Maria Muzik, Cheryl
A. Moyer, The impact of COVID-19 on prenatal
care in the United States: Qualitative analysis from
a survey of 2519 pregnant women, Midwifery,
Volume 98, 2021, 102991, ISSN 0266-6138, https://
doi. org/10.1016/j.midw.2021.102991.
142 A Basu, HH Kim, R Basaldua, KW Choi, L
Charron, et al., A cross -national study of factors
associated with women's perinatal mental health
and wellbeing during the COVID-19 pandemic,
PLOS ONE 16(4): e0249780, (2021), https.Ildoi.orgl
10.1371 /journal. pone.0249780.
143 Amanda Taub, A New Covid-19 Crisis:
Domestic Abuse Rises Worldwide, New York Times
(April 6, 2020), https://www.nytimes.com/202O/04/
06/worl d/coronavirus-domestic-violence.html.
144 Xenia Shih Bion, Efforts to Reduce Black
Maternal Mortality Complicated by COVID-19,
California Health Care Foundation (April 20, 2020),
https://www. chcf. org/blog/efforts-red uce-black-
maternal-mortali ty-com plicated-covid-19/.
145 U.S. Department of Health and Human
Services, Home Visiting Evidence of Effectiveness,
https.Ilhomvee.acf.hhs.gov/outcomes/maternal`/`20
health/In %20Brief.
COVID-19 on pregnant and recently
pregnant individuals, Treasury is re -
categorizing home visiting services as an
eligible use for impacted communities,
not just disproportionately impacted
communities. Under the final rule, these
eligible uses are available to impacted
households or classes of households.
Public Comment: Child Welfare:
While the interim final rule noted that
certain types of assistance, particularly
around child development and
parenting, were eligible for child
welfare -involved families, Treasury has
received some recipient questions
asking whether financial, educational,
housing, or other supports and services
are eligible uses for foster youth,
including those aging out of the system,
and child welfare -involved families.
Other commenters asked about whether
funding for kinship care would be
eligible.
Background: Child Welfare: The
COVID-19 pandemic placed meaningful
strain on the child welfare and foster
care system. Court hearings were
delayed,146 essential mental health care
was shifted to a virtual environment,
and attendance and performance in
school among foster children dropped
sharply.147 Additionally, there was a
nationwide rise of new children
entering the foster care system and
many states placed temporary moratoria
on children aging out of the foster care
system.148 As these temporary moratoria
expire, additional support will be
needed to assist children exiting the
system.
Additionally, financial and material
hardship are causal factors in the
increase of new children entering the
foster care system, whether through loss
of a caregiver, domestic violence,149 or
other associated costs of the pandemic.
Therefore, support to decrease these
hardships will support families and
increase positive outcomes for youth
146National Conference of State Legislatures,
Criminal Justice System Responses to COVID-19
(November 16, 2020), https://www.ncsl.orgl
research/ci vil-and-criminal-justice/criminal-justice-
and-covid-19.aspx.
147 John Burton Advocates for Youth, The
Cumulative Impact of the Pandemic on Youth Who
Have Been in Foster Care or Homeless (May 2020)
https.11 jbay. org/wp-content/uploads/2021 /04/JBAY-
COVID-19-Impa ct. pdf.
148 John Kelly, Next Week, Thousands of Foster
Youth Will Age Out on the Same Day (September
21, 2021), https.Ilimprintnews.org/subscriber-
content/tho usands-of-foster-youth-will-age-out-on-
the-same-day/59006.
149 Conrad-Hiebner, Aislinn, and Elizabeth
Byram, The Temporal Impact of Economic
Insecurity on Child Maltreatment: A Systematic
Review. Trauma, Violence, & Abuse, vol. 21, no. 1,
Jan. 2020, pp. 157-178, doi:10.1177/
1524838018756122.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4365
and families that may otherwise become
involved in the child welfare system.
Treasury Response: In the final rule,
Treasury is clarifying that services to
foster youth, including those aging out
of the system, and child welfare -
involved families may encompass a
wide array of financial, educational,
child development, or health supports,
or other supports necessary, including
supports for kinship care.
9. Addressing the impacts of lost
instructional time.
Public Comment: The interim final
rule included an enumerated eligible
use to address educational disparities in
disproportionately impacted
communities, recognizing that
underserved students have been more
severely impacted by the pandemic and
including responsive services for early
learning, enhance funding to high -
poverty districts, and providing
evidence -based services to address the
academic, social, emotional, and mental
health needs of students. Some
commenters expressed concerns that
learning loss or the negative impacts of
lost instructional time due to school
closures or remote education during the
pandemic had affected a significant
share of students in grades kindergarten
through twelve (K-12), including
students who may not fall within a
disproportionally impacted group.
Background: The COVID-19
pandemic resulted in the widespread
closure of schools across the nation.
While many schools and districts
reopened to in -person instruction or
implemented remote learning, the shift
was not immediate or without
consequence. Children who received
virtual only or combined remote and in -
person instruction were more likely to
report experiencing negative mental -
and physical health outcomes than
children who received in -person
instruction.150
Treasury Response: Under the final
rule, addressing the impact of lost
instructional time and/or learning loss
is an enumerated eligible use for
impacted households. When providing
services to address lost instructional
time, recipients may presume that any
K-12 student who lost access to in -
person instruction for a significant
period of time has been impacted by the
pandemic and is thus eligible for
responsive services.
15o Verlenden JV, Pampati S, Rasberry CN, et al.
Association of Children's Mode of School
Instruction with Child and Parent Experiences and
Well -Being During the COVID-19 Pandemic—
COVID Experiences Survey, United States, October
8—November 13, 2020. MMWR Morb Mortal Wkly
Rep 2021;70:369-376. DOI: http://dx.doi.org/
10.15585/mmwr.mm7011a1external icon.
Interventions or services that address
the impact of lost instructional time
may include offering high -quality
tutoring and other extended learning
opportunities, providing differentiated
instruction, implementing activities to
meet the comprehensive needs of
students, expanding and improving
language access for parents and families,
providing information and assistance to
parents and families on how they can
effectively support students, including
in a distance learning environment,
improving student engagement in
distance education, and administering
and using high -quality assessments to
assess students' academic progress,
among others. In designing services
under this eligible use, recipients may
wish to reference guidance from the
Department of Education on strategies
for addressing lost instructional time.151
The final rule also maintains a
separate enumerated eligible use for
addressing educational disparities in
disproportionately impacted
communities. This eligible use includes
services to address disparities in
educational outcomes that predate the
pandemic and amplified its impact on
underserved students; these include, for
example, enhanced funding to high -
poverty districts and providing
evidence -based services to address the
academic, social, emotional, and mental
health needs of students.
Finally, as described in the section
Public Health, recipients can provide a
broad range of behavioral health
services, including services for children
and youth in schools, to respond to the
impacts of the pandemic on mental
health and other behavioral health
issues. When providing behavioral
health services, recipients may presume
that the general public was impacted by
the pandemic and provide behavioral
health services to members of the
general public, including children and
youth in schools, without any further
analysis of impacts of the pandemic on
those individuals and whether the
service is responsive.
10. Promoting long-term housing
security. affordable housing and
homelessness. Under the interim final
rule, recipients may use SLFRF funds to
provide a set of housing services to
communities that have been
disproportionately impacted by the
pandemic. Specifically, the interim final
rule provided that programs or services
that address housing insecurity, lack of
affordable housing, or homelessness,
151 U.S. Department of Education, Strategies for
Using American Rescue Plan Funding to Address
the Impact of Lost Instructional Time, August 2021.
Retrieved from https://www2.ed.gov/documents/
coronavirus/lost-instructional-time. pdf.
were responsive to the negative
economic impacts of the pandemic
when provided to disproportionately
impacted households and communities.
The enumerated uses included
supportive housing or other programs or
services to improve access to stable,
affordable housing among individuals
who are homeless and development of
affordable housing to increase supply of
affordable and high -quality living units.
Many recipients have already
announced plans to use SLFRF funds
for affordable housing interventions in
all of these categories. Treasury received
many comments asking for additional
clarity or flexibility in these uses.
As detailed below, based on multiple
public comments and questions and
Treasury's subsequent analysis,
Treasury has determined that
supportive housing or other programs or
services to improve access to stable,
affordable housing among individuals
who are homeless, and the development
of affordable housing to increase supply
of affordable and high -quality living
units are responsive to the needs of
impacted populations, not only
disproportionately impacted
populations. This final rule reflects this
clarification and builds on the
objectives stated in the interim final rule
to improve access to stable, affordable
housing, including through
interventions that increase the supply of
affordable and high -quality living units,
improve housing security, and support
durable and sustainable
homeownership.
Finally, note that "emergency housing
assistance," or assistance for responses
to the immediate negative economic
impacts of the pandemic through
services like financial assistance for
rental arrears or mortgage payments, is
also an eligible use category for
assistance to households under the final
rule; see the eligible use for "emergency
housing assistance" above. The
provision of housing vouchers and
assistance relocating to neighborhoods
with higher levels of economic
opportunity remains an eligible use
under assistance to disproportionately
impacted households; for discussion,
see the eligible use for "housing
vouchers and assistance relocating"
below.
Background: Affordable Housing: It is
clear that the ongoing pandemic and
resulting economic crisis are having a
profound, long-term negative effect on
the pre-existing affordable housing
crisis facing low-income households.152
152 Consumer Financial Protection Bureau,
Housing insecurity and the COVID-19 pandemic
Continued
4366 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
The combination of a large number of
higher -income households who have
weathered the pandemic without
significant income losses, low interest
rates, and housing supply constraints
exacerbated by the pandemic, have
driven a sharp increase in the sale price
of homes.153 Meanwhile, many low-
income renters and homeowners are
struggling with lost employment and
income and are behind on their housing
payments.154
Public Comment: Affordable Housing
Outside of Low -Income Geographies: A
major theme in comments was that
affordable housing interventions,
especially development of affordable
housing, should be allowed outside of
QCTs, as concentrating the supply of
affordable housing in low-income
geographies can have the effect of
increasing both concentrated poverty
and racial and economic segregation,
while locking lower -income households
in need of housing support out of high -
opportunity neighborhoods with access
to employment and amenities.
Treasury Response: Affordable
Housing Outside Low -Income
Geographies: As previously stated,
affordable housing is not confined to
low-income geographies under the
interim final rule. As discussed
elsewhere, the interim final rule
presumed that QCTs, as well as
communities served by Tribal
governments, were disproportionately
impacted for administrative
convenience, but recipients may
identify other populations, households,
or geographic areas with disparate
impacts of COVID-19 and provide
affordable housing services to them. For
example, under the interim final rule, a
city could determine that its low-
income residents faced disproportionate
impacts of COVID-19 and develop
affordable housing targeted to these
households. Such a scenario could
include, for example, affordable projects
(March 2020), https.Ilfiles.consumerfinance.govlfl
documents/cf p b_Ho u sing_in s e c uri ty_an d_ th e_
COVID-19_pandemic. pdf.
153 Joint Center For Housing Studies Of Harvard
University, The State of the Nation's Housing (June
2021), https://www.jchs.harvard.edu/sites/default/
files/reports/files/Harvard JCHS_State_Nations_
Housing_2021. pdf.
154 Davin Reed and Eileen Divringi, Household
Rental Debt During COVID-19: Update for 2021,
Federal Reserve Bank of Philadelphia (2020),
available at: https://www.philadelphiafed.org/
Comm unity-development/housing-and-
neighborh oods/household-rental-debt-d wring-covid-
19-update-for-2021. Further, some research suggests
that liquidity may be a more important predictor of
default than other factors, including income or
equity. See Trading Equity for Liquidity (June
2019), available at https://www.jpmorganchase.
com/con ten t/dam/jpm c/jpm organ -chase -and -co/
institute/pd f/insti tute-trading-equity-for-
liquidity. pdf.
in higher -income neighborhoods that
would allow residents to live closer to
jobs and well-resourced schools.
Additionally, as noted above,
Treasury is finalizing the rule with some
changes to the treatment of affordable
housing development designed to
clarify that permanent supportive
housing or other programs or services to
improve access to stable, affordable
housing among individuals who are
homeless, and the development of
affordable housing to increase supply of
affordable and high -quality living units,
are responsive to individuals and
households that were impacted by the
pandemic in addition to those that were
disproportionately impacted. This shift
is in line with commenters'
recommendations and consistent with
the facts described above, which
demonstrate that lack of supply of
affordable housing units contributed to
the pandemic's impact on housing
insecurity and unsustainable housing
cost burdens and that these impacts
were experienced broadly across the
country.
Public Comment: Eligible Activities:
Many commenters asked for clarity on
what types of activities (e.g., land
acquisition, construction, pre -
construction costs, operating costs, etc.)
are eligible uses of SURF, and what
affordability criteria must be applied to
affordable housing development.
Commenters encouraged Treasury to
allow the full array of affordable
housing activities, including particular
requests for broad flexibility for Tribal
communities, and to specify that
"development" should include
construction, preservation,
rehabilitation, and operation. Other
commenters requested clarification
about permissible program
administration approaches for
affordable housing, such as contracting
methods and distribution of funds.
Some commenters asked that
Treasury require SURF funds to be
focused on the lowest -income
households, who suffer the most severe
rent burdens and risks of housing
instability, and whose housing situation
has left them particularly vulnerable to
COVID-19. For example, one
commenter argued that SURF funds
should only be used to support
affordable housing for households
making 50 percent of AMI or less and
that recipients should be required to set
aside significant portions of any
developments for renters making 30
percent of AMI or less and persons with
physical and sensory disabilities. Other
commenters requested a more flexible
approach to affordable housing
definitions.
Treasury Response: Eligible Activities:
The final rule clarifies eligibility of
affordable housing development for
recipients; these uses were eligible
under the interim final rule, but
Treasury is providing further guidance
to enhance clarity and respond to
recipient and commenter questions.
As with all interventions to address
the negative economic impacts of the
pandemic, affordable housing projects
must be responsive and proportional to
the harm identified. This test may be
met by affordable housing development
projects —which may involve large
expenditures and capital investments —
if the developments increase the supply
of long-term affordable housing for low-
income households. While there may be
less costly (or non -capital) alternatives
to affordable housing development, a
comprehensive response to the
widespread housing challenges
underscored by the pandemic will
require the production of additional
affordable homes, and targeted
affordable housing development is a
cost-effective and proportional response
to this need.
For purposes of this test, Treasury
will presume that any projects that
would be eligible for funding under
either the National Housing Trust Fund
(HTF) or the Home Investment
Partnerships Program (HOME) are
eligible uses of SURF funds. Note that
these programs use different income
limits than the definition of low- and
moderate -income adopted by Treasury.
Given the severity of the affordable
housing shortage, and the ways in
which the pandemic has exacerbated
the need for affordable, high -quality
dwelling units, Treasury has determined
that the households served by these
federal housing programs have been
impacted by the pandemic and its
negative economic impacts and that
development of affordable housing
consistent with these programs is a
related and reasonably proportional
response to those impacts. Additionally,
affordable housing projects provided by
a Tribal government are eligible uses of
SURF if they would be eligible for
funding under the Indian Housing Block
Grant program, the Indian Community
Development Block Grant program, or
the Bureau of Indian Affairs Housing
Improvement Program. Alignment with
these programs, which define
"affordable housing" in a manner
consistent with a proportionate
response to the affordable housing
challenges faced by low- and moderate -
income households as a result of the
negative economic impacts of the
pandemic, is intended to give recipients
comfort and clarity as they design a
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4367
wide variety of affordable housing
interventions, including production,
rehabilitation, and preservation of
affordable rental housing and, in some
cases, affordable homeownership units.
These programs allow the financing of
a wide range of affordable housing
activities and set clear eligibility criteria
that many recipients are already familiar
with.
Finally, to further support sustainable
and durable homeownership, recipients
may consider offering down payment
assistance, such as through
contributions to a homeowner's equity
at origination or that establish a post -
closing, mortgage reserve account on
behalf of the borrower that may be
utilized to make a missed or partial
mortgage payment at any point during
the life of the loan (e.g., if the borrower
faces financial stress). Homeownership
assistance that would be eligible under
the Community Development Block
Grant (at 24 CFR 507.201(n)) is also an
eligible use of SLFRF funds.
Public Comment: Permanent
Supportive Housing: Treasury has
received comments encouraging the use
of SLFRF funds for permanent
supportive housing. This is an eligible
use under the interim final rule: Both
the development of affordable housing
(including operating subsidies) and
wraparound services such as behavioral
health services, employment services,
and other supportive services, are
eligible responses to the public health
crisis or its negative economic impacts.
Treasury Response: The final rule
maintains the eligibility of permanent
supportive housing as an enumerated
use. Treasury is also clarifying that
other affordable housing developments
targeted to specialized populations are
also eligible, for example recovery
housing for individuals in recovery from
substance use.
Public Comment: Operating Expenses:
Commenters specifically asked that
Treasury allow the use of SLFRF funds
for operating expenses of affordable
housing units, as operating subsidies are
typically required to reach extremely
low-income households, whose
affordable rents may be lower than the
ongoing cost of operating their unit.
Treasury Response: Operating
expenses for eligible affordable housing
were an eligible use of funds under the
interim final rule and the final rule
maintains this treatment. This may
include capitalized operating reserves.
Rehabilitation and repair of public
housing will also be considered an
eligible use of SLFRF funds.
Public Comment: Affordable Housing
Loans and Revolving Loan Funds: Some
commenters requested that loans with
maturities beyond the period of
performance or revolving loan funds
that revolve beyond the period of
performance be eligible uses of SLFRF
funds if used for affordable housing.
Some commenters pointed out that for -
profit developers of low-income housing
through the Low -Income Housing Tax
Credit (LIHTC) may be deterred from
accepting grants to bridge funding gaps
in current LIHTC deals by the treatment
of grants to for -profit entities in the
calculation of eligible basis for the
LIHTC.
Treasury Response: The final rule
does not change the treatment of loans
from the interim final rule. For more
details see section Treatment of Loans
in Program Administration Provisions.
Similarly, the final rule does not change
the treatment of grants to support
affordable housing development,
including developments supported by
the LIHTC: such grants are an eligible
use of funds.
Additional enumerated eligible uses
for assistance to impacted households.
As noted above, the interim final rule
posed a question on what other types of
services or costs Treasury should
consider as eligible uses to respond to
the negative economic impacts of
COVID-19. In response, commenters
proposed a wide variety of additional
recommended enumerated eligible uses
to assist households, ranging from
general categories of services (e.g., legal
and social services) to services that
respond to needs widely experienced
across the country (e.g., access to and
affordability of health insurance) to
services that are most applicable to the
particularized needs of certain
populations or geographic areas of the
United States (e.g., senior citizens,
SNAP recipients, immigrants, formerly -
incarcerated individuals, responding to
environmental issues in certain
geographic regions). Other commenters
generally requested a high degree of
flexibility to respond to the particular
needs of their communities.
Treasury Response: Given the large
number and diversity of SLFRF
recipients, Treasury's approach to
assistance to households in the final
rule aims to clarify additional
enumerated eligible uses that respond to
negative economic impacts of the
pandemic experienced widely in many
jurisdictions across the country, making
it clear and simple for recipients to
pursue these enumerated eligible uses
under the final rule. In the final rule,
Treasury is clarifying several additional
uses, which generally respond to
pandemic impacts experienced broadly
across jurisdictions and populations, are
eligible under the interim final rule as
assistance to households and continue
to be so under the final rule, as outlined
below.
11. Paid sick, medical, or family
leave.
Public Comment: Some commenters
argued that the pandemic increased the
need for paid sick or medical leave, as
staying home when ill is recommended
by the CDC to prevent spread of the
virus but lack of access to paid sick
leave often prevents workers from
staying home. Other commenters
recommended paid family leave as an
eligible use, arguing that shortages in
access to childcare or home health
assistance, as well as school closures,
may increase the need for family
members to serve as caretakers.
Background: The COVID-19
pandemic highlighted the importance of
paid leave as well as the number of
workers who do not have access to paid
sick and/or family leave. When workers
have access to paid leave, they are less
likely to report to work sick, and
therefore less likely to spread illnesses
in the workplace: One study
demonstrates that the emergency sick
leave provision of the Families First
Coronavirus Response Act (FFCRA)
reduced the spread of COVID-19.155
The lack of paid leave exacerbates
financial hardships experienced as a
result of the public health emergency. A
2018 survey by the Department of Labor
found that two-thirds of employees that
took unpaid or partial -paid leave
experienced financial hardship.156
Furthermore, because the Family and
Medical Leave Act (FMLA) excludes
small employers, part-time workers, and
workers who have been with their
employer for less than a year, 44 percent
of workers do not have access to even
unpaid leave.157 Workers of color and
workers with lower incomes are less
likely to have access to paid leave.158 159
155 Stefan Pichler, Katherine Wen, and Nicolas R.
Ziebarth, COVID-19 Emergency Sick Leave Has
Helped Flatten The Curve In The United States:
Study examines the impact of emergency sick leave
on the spread of COVID-19, Health Affairs 39, no.
12 (2020): 2197-2204, https://www.health
affairs.org/doi/l0.13771hlthaff.2020.00863.
156 Scott Brown et al., Employee and Worksite
Perspectives of the Family and Medical Leave Act:
Results from the 2018 Surveys, Abt Associates (July
2020), https://www.dol.gov/sitesldolgov/files/
OASP/eval uation/pd f/WHD_FMLA2018Survey
Results_FinalReport_Aug2020. pdf.
157Id.
158Ann P. Bartel et al., Racial and ethnic
disparities in access to and use of paid family and
medical leave: evidence from four nationally
representative datasets, U.S. Bureau of Labor
Statistics (BLS) (January 2019), https://www.bls.govl
op ub/mlr/2019/article/racial-and-ethnic-
dispari ties -in -access -to -and -use -of -paid -family -
an dm edi cal -1 ea ve. h tm.
Continued
4368 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
For workers that are also caregivers
for children, seniors, or other family
members, there may be a similar need
for —and benefits of —paid family leave.
For example, some workers may have
struggled during the pandemic to
balance caring for children, as schools
and daycares closed, and working. For
new parents, paid parental leave results
in fewer infant hospitalizations,
lowering parental stress, increasing
parental involvement, and improving
the overall health of parent and child.l"o
COVID-19 has also increased the levels
of "caregiving intensity" 161 and
"caregiving burden" 162 for those
providing care to seniors or older family
members.163164 When surveyed, more
than half of caregivers reported that
COVID-19 increased both the amount of
caregiving responsibilities they had as
well as the negative physical and mental
impacts their caregiving responsibilities
had on themselves.165
Treasury Response: Treasury agrees
that these constitute impacts of the
pandemic, and accordingly, under the
final rule, creating, expanding, or
financially supporting paid sick,
medical, or family leave programs is an
enumerated eligible use of funds to
respond to the negative economic
impacts of the pandemic.
12. Health insurance.
Public Comment: Several commenters
recommended that uses of funds to
expand access to health insurance be
enumerated eligible uses; commenters
believed that the heightened risk of
159U.S. Bureau of Labor Statistics, Employee
Benefits in the United States (March 2019), https://
www. bls.gov/ncs/ebs/benefits/2019/ownership/
civilian/table3l a. pdf.
160Maya Rossin-Slater et al., Local exposure to
school shootings and youth antidepressant use,
Proceedings of the National Academy of Sciences,
vol 117(38), pages 23484-23489 (2020), https://
www.pnas.org/content/I17/38/23484;Ariel Marek
Pihl and Gaetano Basso, Did California Paid Family
Leave Impact Infant Health?, Journal of Policy
Analysis and Management, https.Ilonlinelibrary.
wiley.com/doi/abs/lO.1002/Pam.2210.
161 J.C. Jacobs, A. Laporte, C.H. Van Houtven, P.C.
Coyte, Caregiving intensity and retirement status in
Canada. Social Science & Medicine, 102, 74-82
(2014), https://www.sciencedirect.com/science/
arti cl e/abs/pii/S0277953613006631.
162 E. Lightfoot, R.P. Moone, Caregiving in times
of uncertainty: Helping adult children of aging
parents find support during the COVID-19
outbreak, Journal of Gerontological Social Work,
63(6-7), 542-552 (2020), https://www.tandfon
line.com/doi/abs/l0.1080/01634372.2020.1769793.
163 Note: "Caregiving intensity" is defined as the
amount and type of care provided by informal
caregivers; "Caregiving burden" is defined as the
impacts on physical and mental health, and health -
related quality of life of informal caregivers.
164 SA Cohen, ZJ Kunicki, MM Drohan, ML
Greaney, Exploring Changes in Caregiver Burden
and Caregiving Intensity due to COVID-19,
Gerontology and Geriatric Medicine (January 2021),
doi:10.1177/ 23337214219992 79.
165Id.
illness or hospitalization due to COVID-
19 had increased the negative economic
impacts of lacking health insurance.
Background: In 2019, prior to the
pandemic, it was estimated that 11
percent of nonelderly adults lacked
health insurance.'", By mid-2020, job
loss had resulted in an estimated 3.3
million people losing their employer
sponsored insurance, resulting in an
additional 2 million uninsured
adults. 167 Participation in Medicaid, the
Children's Health Insurance Program
(CHIP), and the Affordable Care Act
(ACA) marketplace played an important
role in minimizing the number of
people who completely lost health
insurance during the early phases of the
pandemic; Medicaid and CHIP
enrollment increased by 9 percent from
February to September 20201fi8 and 8.3
million people enrolled in insurance
through the ACA marketplace.169
Although the ACA, CHIP, and
Medicaid have significantly reduced the
number of uninsured Americans
through the pandemic and the economic
downturn, adequate coverage and
affordability still remains an issue for
many. In 2020, 21 percent of working -
age adults were inadequately insured,
meaning even if they had insurance,
they incurred a significant amount of
out-of-pocket costs.17O Additionally, 37
percent of adults reported struggling
with medical bills or medical debt and
71 percent of adults who did not
purchase insurance cited affordability as
the main factor.171
166 Jennifer Tolbert et al., Key Facts about the
Uninsured Population, Kaiser Family Foundation
(November 6, 2020), https://www.kff.org/uninsured/
issue-brief/key facts -about -the -uninsured -
population/.
167 Joshua Aarons et. al., As the COVID-19
Recession Extended into the Summer of 2020, More
Than 3 Million Adults Lost Employer -Sponsored
Health Insurance Coverage and 2 Million Became
Uninsured, Urban Institute (September 18, 2020),
https://www. urban. org/research/publication/covid-
19-recession-extend ed-summer-2020-more-3-
milli on -adults -lost -employer -sponsored -health -
ins uran ce-coverage-and-2-milli on -became -
uninsured.
163 Centers for Medicare and Medicaid Services,
Medicaid and CHIP Enrollment Trends Snapshot
through September 2020 (Washington: 2021),
available at https://www.medicaid.gov/sites/
default/files/202l-01lseptember-medicaid-chi p-
enrollment-trend-snapshot. pdf.
169 Centers for Medicare and Medicaid Services,
2021 Federal Health Insurance Exchange Weekly
Enrollment Snapshot: Final Snapshot (January 12,
2021) available at https://www.cros.gov/newsroom/
fact-sheets/2021 federal-health-insurance-
exchange-weekl y-enrollm ent-sna psho t- final -
snapshot.
170 Sara R. Collins, Munira Z. Gunja, and
Gabriella N. Aboulafia, U.S. Health Insurance
Coverage in 2020: A Looming Crisis in Affordability
(New York: Commonwealth Fund, 2020), available
at https://www.commonwealthfund.orgl
p ubli cati onsliss u e-bri efsl2020/a ug/1 ooming-crisis-
h eal th-coverage-2020-biennial.
171 Id.
Treasury Response: Treasury agrees
that loss of health insurance, increased
financial risk from lacking health
insurance, or excessive out-of-pocket
healthcare costs constitute negative
economic impacts of the pandemic.
Under the final rule, programs or
services to expand access to health
insurance coverage are an enumerated
eligible use as assistance to households,
for example, subsidies for health
insurance premiums or expansion of a
recipient's health insurance plan to
cover additional employees who
currently lack coverage.
13. Services for the unbanked and
underbanked.
Public Comment: One commenter
expressed support for the inclusion of
services to increase banking access as an
allowable expense under SLFRF. The
commenter recommended that states be
encouraged to offer opportunities for
consumers to open safe and affordable
accounts capable of receiving direct
payments. The commenter emphasized
that allowing unbanked and
underbanked households to receive
funds securely through no -fee, direct
deposit will help connect or reconnect
consumers to the mainstream financial
system.
Background: Banking inequities can
make it difficult for unbanked or
underbanked households to access
housing, jobs, and other important
economic opportunities. Being
unbanked or underbanked can also
make it challenging for households to
apply for and receive financial
assistance, including services like
pandemic emergency housing
assistance.
Safe, affordable, and accessible
financial services play a critical role in
assisting households in the United
States in managing income volatility
and cash flow shortages.172 Currently,
over 5 percent of families, or 7 million
households are "unbanked," meaning
they do not have a bank account.173
Low-income households, non -white
households, and households with
individuals with disabilities were even
more likely to be unbanked. In 2019, 16
percent of Native American households,
14 percent of Black households, and 12
percent of Hispanic households were
unbanked, compared to 2.5 percent of
white households. Additionally,
172 Federal Deposit Insurance Corporation, FDIC
National Survey of Unbanked and Underbanked
Households (2015), https://www.fdic.gov/household
survey/2015/2015execsumm. pdf.
173 Federal Deposit Insurance Corporation, How
America Banks: Household Use of Banking and
Financial Services 2019 FDIC Survey, https.11
www. fdic.gov/analysis/household-survey/
2019report. pd f.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4369
underbanked households —those that
have a bank account but rely on
alternative financial services, such as
money orders, payday loans, and check
cashing services— account for 16
percent of all households in the United
States.174 As a result of the COVID-19
pandemic, new social distancing
protocols have, in some instances, made
it more difficult to perform financial
transactions with paper instruments,
like banknotes, coinage, paper checks,
or money orders. Households
constrained to these payment methods
may face challenges receiving
government assistance. Additionally,
businesses have transitioned to cashless
payments systems to promote
contactless payments.175 As a result,
unbanked individuals may face
additional challenges conducting
financial transactions.
Treasury Response: Recognizing these
challenges, Treasury is clarifying that
recipients may use SLFRF funds to
provide financial services that facilitate
the delivery of federal, state, or local
benefits (e.g., Child Tax Credit, Earned
Income Tax Credit, tax refunds, or
emergency housing or food assistance
funds). The following includes a non -
exhaustive list of uses to provide
financial services to unbanked and
underbanked households:
• Provide low or no cost financial
services, including in conjunction with
administration of benefits, such as pre-
paid debit cards, e.g., via Economic
Impact Payment or General Purpose
Reloadable pre -paid cards or for the
development of public banking
infrastructure that can support benefit
delivery.
• Provide transitional services to
facilitate long-term access to banking
and financial services.
• Provide financial literacy programs
and conduct community outreach and
deploy engagement resources to
increase awareness about low-cost, no -
overdraft fee accounts, pilot new
strategies and approaches that help
overcome barriers to banking access and
support the gathering and sharing of
information in ways that improve
equity, such as community meetings,
partnerships with community -based
organizations, online surveys, focus
groups, human -centered design
174Board of the Governors of the Federal Reserve
System, Report on the Economic Well -Being of U.S.
Households in 2018—May 2019, https://www.federal
reserve.gov/p ubli cati ons/2019-econ omi c-well-b Bing-
o f-us-h o usehol ds-in-2018-banking-and-credi t.h tm.
175 Zaheer Allam, The Forceful Reevaluation of
Cash -Based Transactions by COVID-19 and Its
Opportunities to Transition to Cashless Systems in
Digital Urban Networks. Surveying the Covid-19
Pandemic and its Implications (2020): 107-117.
doi:10.1016/B978-0-12-824 313-8.00008-5.
activities, and other community
engagement activities.
Assistance to Unemployed and
Underemployed Workers
The interim final rule included
assistance to unemployed workers as an
enumerated eligible use, including
"services like job training to accelerate
rehiring of unemployed workers."
Treasury provided further guidance,
based on recipient questions after the
interim final rule, that eligible uses
under this section also include "other
efforts to accelerate rehiring and thus
reduce unemployment, such as
childcare assistance, assistance with
transportation to and from a jobsite or
interview, and incentives for newly
employed workers[,]" as well as
assistance to unemployed workers
seeking to start small businesses.
Finally, further guidance also provided
that "public jobs programs, subsidized
employment, combined education and
on-the-job training programs, or job
training to accelerate rehiring or address
negative economic or public health
impacts experienced due to a worker's
occupation or level of training" are all
enumerated eligible uses as assistance to
unemployed or underemployed
workers.
The interim final rule defined eligible
beneficiaries of assistance as
"individuals who want and are
available for work, including those who
have looked for work sometime in the
past 12 months or who are employed
part time but who want and are
available for full-time work." This
definition is based on definitions used
by the Bureau of Labor Statistics to
define individuals currently
unemployed, as well as persons
marginally attached to the labor force
and working part-time for economic
reasons.176 The latter two classifications
are types of labor underutilization, or
"underemployed" workers.177 Finally,
the interim final rule specified that
assistance to unemployed workers
included both workers who lost their
job during the pandemic and resulting
recession and workers unemployed
when the pandemic began who saw
further deterioration of their economic
prospects due to the pandemic.
Public Comment: Commenters
generally supported the inclusion of this
enumerated eligible use. One
commenter recommended including
assistance for underemployed workers
who took jobs due to the pandemic that
176 Bureau of Labor Statistics, Labor Force
Statistics from the Current Population Survey:
Concepts and Definitions, https://www.bls.gov/cps/
definitions.htm (last visited November 9, 2021).
177 Id.
did not fully utilize their skillset or did
not provide the hours, wages, or job
quality desired. Treasury has also
received recipient questions on whether
job fairs or grants to businesses to hire
underserved workers are eligible uses
under this category. Another commenter
recommended flexibility in eligible
workforce development programs,
arguing that rural areas may face
particular challenges.
Treasury Response: Treasury is
maintaining this eligible use in the final
rule, including the enumerated eligible
services in the interim final rule and
subsequent guidance. Treasury is also
confirming that job fairs or grants to
businesses to hire underserved workers
are eligible uses under this section.
Treasury is also enumerating that job
and workforce training centers are
eligible capital expenditures, so long as
they adhere to the standards and
presumptions detailed in the section
Capital Expenditures in General
Provisions: Other.
The final rule maintains the definition
of eligible beneficiaries, which is
aligned with the Bureau of Labor
Statistics' definitions of unemployed
workers and other labor
underutilization, using a common,
widely known definition that
incorporates a broad group of
individuals both unemployed or whose
skills are otherwise underutilized in the
labor market.
In addition, recognizing that the
pandemic has generated broad
workforce disruption, in the final rule,
Treasury is making clear that recipients
may provide job training or other
enumerated types of assistance to
individuals that are currently employed
but are seeking to move to a job that
provides better opportunities for
economic advancement, such as higher
wages or more opportunities for career
advancement.
Recipient Unemployment Insurance
Trust Funds and Related Expenses
Under the interim final rule, a
recipient may use funds to make
deposits into its account of the
Unemployment Trust Fund established
under section 904 of the Social Security
Act (42 U.S.C. 1104) up to the level
needed to restore the pre -pandemic
balance of such account as of January
27, 2020 or to pay back advances
received under Title XII of the Social
Security Act (42 U.S.C. 1321) for the
payment of benefits between January 27,
2020 and May 17, 2021. These costs
support the solvency of the
unemployment insurance system and,
ultimately, unemployment insurance
benefits provided to unemployed
4370 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
workers during the pandemic.178 The
interim final rule also posed the
question of what, if any, conditions
should be considered to ensure that
funds used under this eligible use
category repair economic impacts of the
pandemic and strengthen
unemployment insurance systems.
Public Comment: Inclusion as an
Eligible Use and Conditions:
Commenters expressed mixed
perspectives on this eligible use
category. Some commenters supported
its inclusion, arguing that
unemployment insurance systems have
faced significant costs to support
unemployed workers during the
pandemic and that this constitutes a
negative economic impact that SURF
funds should be able to address. Other
commenters opposed this eligible use
category, arguing that funds used under
this category may not ultimately support
unemployed workers. Some
commenters noted that unemployment
insurance taxes on businesses
automatically increase when trust fund
balances are low and suggested that
permitting the deposit of funds into
unemployment insurance trust funds
prevents a tax increase on businesses,
some of which may not have faced
negative economic impacts from the
pandemic, rather than providing
assistance to unemployed workers.
Other comments suggested that deposits
are better thought of as savings for
future needs than assistance to
unemployed workers in the near term.
Responding to the interim final rule's
question, several commenters suggested
that, if Treasury maintains this eligible
use, the final rule should require
detailed reporting on funds used under
this category or place conditions on this
category to increase the likelihood that
funds ultimately support unemployed
workers. For example, some
commenters suggested that recipients
that deposit SURF funds into their trust
fund should be barred from cutting
unemployment insurance benefits for
workers during the period of
performance or from erecting new
barriers to accessing benefits (e.g.,
through the application process and
ongoing requirements to receive
benefits). One commenter, noting that
unemployment insurance benefits often
provide low rates of wage replacement
and do not cover some types of
unemployed workers, argued that
recipients should not be permitted to
deposit funds into the trust fund unless
178Note that, while the economic harm being
addressed accrued before March 3, 2021, the cost
incurred to address the harm occurs after March 3,
2021 and provides assistance to unemployed
workers, an eligible use of SLFRF funds.
the recipient concurrently expands
benefits. Finally, one commenter
suggested a cap on the amount of funds
that can be used for this purpose.
Treasury Response: Inclusion as an
Eligible Use and Conditions: In the final
rule, Treasury is maintaining the
inclusion of this eligible use category.
Because unemployment insurance trust
funds directly fund benefits to
unemployed workers, maintaining the
solvency of the trust fund is critical to
the continued provision of assistance to
unemployed workers. Further, funds
deposited into the trust fund must be
used as assistance to unemployed
workers, an eligible use of SURF funds.
Finally, while, in the absence of the
SURF, trust fund deposits would likely
be funded through increases on
employer payroll taxes, the eligibility of
uses of SURF funds does not depend
on how obligations would otherwise be
satisfied if the SURF were not available
for this use.
While deposits to unemployment
insurance trust funds generally serve as
assistance to unemployed workers,
recipients that make deposits but also
cut unemployment insurance benefits to
workers substantially decrease the
likelihood that the deposited funds will
assist unemployed workers. In other
words, SURF funds deposited into an
unemployment insurance trust fund
generally serve as assistance to
unemployed workers, unless recipients
take policy actions that substantially
decrease the extent to which SURF
funds would flow to unemployed
workers. As such, through December 31,
2024, recipients that deposit SURF
funds into an unemployment insurance
trust fund or use SURF funds to repay
principal on Title XII advances, may not
take action to reduce benefits available
to unemployed workers by changing the
computation method governing regular
unemployment compensation in away
that results in a reduction of average
weekly benefit amounts or the number
of weeks of benefits payable (i.e., the
maximum benefit entitlement).
Finally, until the final rule becomes
effective on April 1, 2022, the interim
final rule remains binding and
effective.179 These requirements were
not in effect under the interim final rule
and do not apply to funds used (i.e.,
obligated or expended) under the
interim final rule while it is in effect. In
addition, recognizing that some
recipients have taken significant steps
199 See, e.g., U.S. Department of the Treasury,
More Information on the Conclusion of the Public
Comment Period and the Interim Final Rule on the
Coronavirus State and Local Fiscal Recovery Funds,
https.Ilhome. treasury.gov/system/files/136/IFR-
Explainer.pdf.
toward making a trust fund deposit or
repaying principal on Title XII advances
under the interim final rule, such as the
legislative appropriation of funds for
this purpose, even if a formal obligation
has not occurred, Treasury will exercise
enforcement discretion to not pursue
violations of this final rule provision
(i.e., the requirement not to reduce
benefits) for recipients that have
appropriated funds for this purpose
prior to the date of adoption of the final
rule consistent with the laws and
procedures in their jurisdiction.
Recipients should refer to Treasury's
Statement Regarding Compliance with
the Coronavirus State and Local Fiscal
Recovery Funds Interim Final Rule and
Final Rule, which provides additional
detail on these issues.
Public Comment and Treasury
Response: Technical Corrections and
Amendments: Following the interim
final rule, Treasury received recipient
questions on whether paying interest on
advances received under Title XII of the
Social Security Act (42 U.S.C. 1321) is
an eligible use of SURF funds; Treasury
is clarifying that such use is
permissible, consistent with Treasury's
treatment of the eligibility of interest on
Title XII advances under the
Coronavirus Relief Fund.
Treasury is further clarifying that
recipients may only use SURF funds
for contributions to unemployment
insurance trust funds and repayment of
the principal amount due on advances
received under Title XII of the Social
Security Act up to an amount equal to
(i) the difference between the balance in
the recipient's unemployment insurance
trust fund as of January 27, 2020 and the
balance of such account as of May 17,
2021, plus (ii) the principal amount
outstanding as of May 17, 2021 on any
advances received under Title XII of the
Social Security Act between January 27,
2020 and May 17, 2021. Further,
recipients may use SURF funds for the
payment of any interest due on such
Title XII advances. In other words,
excluding interest due on Title XII
advances, the magnitude of the decrease
of the balance in the unemployment
insurance trust fund plus the principal
outstanding on any Title XII borrowings
made from the beginning of the public
health emergency to the date of
publication of the SURF interim final
rule sets a cap on the amount of SURF
funds a recipient may use for trust fund
contributions and repayment of
principal on Title XII advances. Further,
a recipient that deposits SURF funds
into its unemployment insurance trust
fund to fully restore the pre -pandemic
balance may not draw down that
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4371
balance and deposit more SLFRF funds,
back up to the pre -pandemic balance.
Enumerated Eligible Uses foi
Disproportionately Impacted
Households
Background
The COVID-19 pandemic has had
disproportionally negative impacts on
many households and communities that
were already experiencing inequality
related to race, gender, age, or income
before the pandemic. People of color,
low-income workers, and women
disproportionately lost their jobs during
the COWD-19 pandemic and
experienced disproportionate rates of
negative health outcomes.180isi
These disproportionate negative
impacts experienced by systemically
underserved communities are not novel
to the COVID-19 pandemic and the
economic downturn. Research shows
that historically underserved
communities that are experiencing
economic and social disparities
typically experience disproportionate
impacts of economic downturns and
natural disasters.182 This pattern held
true for the effects of COVID-19 and the
economic downturn: Historically
undeserved groups experienced
amplified negative impacts, further
widening inequality.183
Many communities facing systemic
barriers had not yet recovered from the
impact of the Great Recession before
experiencing the impacts of COVID-19
and the economic downturn. For
example, in 2009, at the end of the Great
Recession, households without a high
school diploma had an average annual
income of $32,300 (measured in 2018
dollars). By 2018, nine years into the
economic recovery, those same
households saw their average income
increase by $600. During that same time
period, households with a bachelor's
degree saw an increase in their average
180U.S. Department of Health and Human
Services, COVID-19 and Economic Opportunity:
Inequities in the Employment Crisis, April 2021.
Retrieved from https.Ilospe.hhs.gov/sites/default/
files/migrated—legacy—files//199901 /covid-
economi c-eq ui ty-brief. pd f.
181 Adelle Simmons et al., Health disparities by
race and ethnicity during the COVID-19 pandemic:
Current evidence and policy approaches. U.S.
Department of Health and Human Services https.11
aspe.hhs.gov/sites/default/files/migrated—legacy—
files//199516/covid-equity-issue-brief. pdf.
182 Perry, Brea L., Brian Aronson, and Bernice A.
Pescosolido, Pandemic precarity: COVID-19 is
exposing and exacerbating inequalities in the
American heartland, National Academy of Sciences
(Febuary 2021), https://www.pnas.org/content/118/
8/e2020685118.
183 Id.
household income of $6,100 (measured
in 2018 dollars).184
The impact pre-existing inequalities
have on a household or community's
ability to recover is intersectional.
Research shows that pre-existing racial
and gender disparities exacerbated the
disproportionate economic and health
impact COVID-19 and the economic
downturn had on workers of color, and
specifically, women of color.185 Another
study found that during the first six
months of the pandemic counties that
were both high -poverty and majority
non -white experienced COVID-19
infection rates eight times higher than
high -poverty, majority white
counties.186 Many residents in these
communities are still coping with the
negative health and economic impacts.
Summary of the Interim Final Rule and
Final Rule Structure
As described previously, the interim
final rule provided a broader list of
enumerated eligible uses to respond to
the pandemic in disproportionately
impacted communities, in recognition
that pre-existing health, economic, and
social disparities contributed to
disproportionate pandemic impacts in
certain communities and that
addressing the root causes of those
disparities constitutes responding to the
public health and negative economic
impacts of the pandemic. The interim
final rule described eligible uses in
disproportionately impacted
communities in four categories, spread
across public health and negative
economic impacts: (1) Addressing
disparities in public health outcomes,
(2) building stronger communities
through investments in housing and
neighborhoods, (3) addressing
educational disparities, and (4)
promoting healthy childhood
environments. As described above,
Treasury has moved eligible uses related
to community violence intervention,
assistance accessing or applying to
public benefits and services, affordable
housing development, healthy
childhood environments, and
addressing lost instructional time in K-
184 Jesse Bennet & Rakesh Kochhar, Two
Recessions, Two Recoveries, Pew Research Center
(December 13, 2019), https://www.pewresearch.org/
social-tren ds/2019/12/13/two-recessions-two-
recoveries-2/.
185 Darrick Hamilton et al., Building an Equitable
Recovery: The role of Race, Labor Markets, and
Education, The New School's Institute on Race and
Political Economy (February 2021).
186 Adhikari S, Pantaleo NP, Feldman JM,
Ogedegbe O, Thorpe L, Troxel AB. Assessment of
Community -Level Disparities in Coronavirus
Disease 2019 (COVID-19) Infections and Deaths in
Large US Metropolitan Areas. JAMA Netw Open.
2020;3(7):e2016938. doi:10.1001/
j amanetworko pen.202 0.169 38.
12 schools into the category "assistance
to impacted households," recognizing
that these pandemic impacts were
widely shared across the country.
This section discusses enumerated
eligible uses to address health
disparities, to build stronger
communities through investments in
neighborhoods, to address educational
disparities, to provide rental assistance
vouchers or assistance relocating to
areas of greater economic opportunity,
and additional eligible uses to respond
to negative economic impacts in
disproportionately impacted
communities. While many of these
services impact both health and
economic outcomes, Treasury has
consolidated them into a single section
for simplicity and clarity and to reflect
the intertwined nature of these issues.
As a reminder, recipients can
presume these uses are eligible when
provided in a QCT, to families and
individuals living in QCTs, by Tribal or
territorial governments, or to low-
income households or communities. As
provided in section Standards:
Designating Other Disproportionately
Impacted Classes, recipients can also
provide these services to other
populations, households, or geographic
areas disproportionately impacted by
the pandemic. Recipients may also
identify additional disproportionate
impacts of the pandemic and design an
appropriate response to address that
harm. For details on eligibility
standards and presumed eligible
populations, see section General
Provisions: Structure and Standards.
Enumerated Eligible Uses for
Disproportionately Impacted
Households
1. Addressing health disparities.
Public Comment: General: In general,
commenters supported eligible uses to
address health disparities and support
health equity; several commenters
highlighted the disparities faced by
communities of color and low-income
populations, as well as the importance
of community engagement in
developing effective programs to serve
disproportionately impacted
communities. Many commenters
recommended additional enumerated
eligible uses to address health
disparities; these are discussed further
below in this section.
Treasury Response: In line with
commenters' recommendations, the
final rule maintains several enumerated
eligible uses to address health
disparities, specifically:
a. Community health workers.
Treasury received few comments on
community health workers, though one
4372 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
requested further clarification on their
role.187 Treasury is maintaining this
eliggible use in the final rule.
b. Remediation of lead paint or other
lead hazards. The interim final rule
included remediation of lead paint or
other lead hazards as an enumerated
eligible use to address health
disparities.
Public Comment: Treasury received
several comments asking for
clarification on the eligibility of a
particular use that would indirectly
address lead pollution. For example, a
commenter requested the ability to fund
remedial actions, such as filtration and
plumbing procedures to help address
lead pollution. One commenter
requested that private wells be eligible
for funding to address contamination
with substances such as lead. Other
commenters requested that Treasury
allow replacement of lead pipes as an
eligible use of funds.
Treasury Response: Recipients may
make a broad range of water
infrastructure investments under section
602(c)(1)(d) and 603(c)(1)(d), which can
include lead service line replacement
and other activities to identify and
remediate lead in water. These uses are
discussed in greater detail in section
Water and Sewer Infrastructure of this
Supplemental Information.
Treasury has further determined that
several of the services identified by
commenters are appropriate responses
to address health disparities in
disproportionately impacted
households. These services were eligible
under the interim final rule and
continue to be so under the final rule.
These services include remediation to
address lead -based public health risk
factors, outside of lead in water,
including evaluation and remediation of
lead paint, dust, or soil hazards; testing
for blood lead levels; public outreach
and education; and emergency
protection measures, like bottled water
and water filters, in areas with an action
level exceedance for lead in water in
accordance with the Environmental
Protection Agency's Lead and Copper
Rule.188
Further, Treasury had determined that
certain capital expenditures, including
improvements to existing facilities to
remediate lead contaminants (e.g.,
removal of lead paint), are eligible
responses, although this does not
187 See, e.g., Centers for Disease Control and
Prevention, Community Health Worker (CHW)
Toolkit, https://www.cdc.govldhdsp/pubs/toolkitsl
chw-toolkit.htm (last visited November 9, 2021).
188 Environmental Protection Agency, 40 CFR
141.80(c)(1), https://www.ecfr.gov/current/title-40/
chapter-I/subchapter-D/part-141 /subpart-I/section-
141.80.
include construction of new facilities
for the purpose of lead remediation.
Recipients should make sure that all
capital expenditures adhere to the
standards and presumptions detailed in
section Capital Expenditures in General
Provisions: Other.
c. Medical facilities. Treasury
received a few comments from
recipients seeking to use SURF funds
to build new medical facilities, such as
hospitals or public health clinics, to
serve disproportionately impacted
communities. Given the central role of
access to high -quality medical care in
reducing health disparities and
addressing the root causes that led to
disproportionate impact COVID-19
health impacts in certain communities,
the final rule recognizes that medical
equipment and facilities designed to
address disparities in public health
outcomes are eligible capital
expenditures. This includes primary
care clinics, hospitals, or integrations of
health services into other settings.
Recipients should make sure that all
capital expenditures adhere to the
standards and presumptions detailed in
section Capital Expenditures in General
Provisions: Other.
2. Housing vouchers and assistance
relocating. In addition to other housing
services, the interim final rule permitted
a variety of rental assistance approaches
to support low-income households in
securing stable, long-term housing,
including housing vouchers, residential
counseling, or housing navigation
assistance to facilitate household moves
to neighborhoods with high levels of
economic opportunity and mobility for
low-income residents. Examples could
include SLFRF-funded analogues to
Section 8 Housing Choice vouchers;
other kinds of rent subsidies, including
shallow subsidies; and programs to help
residents move to areas with higher
levels of economic mobility.189 Treasury
did not receive public comments on
these enumerated eligible uses.
Treasury Response: Treasury
maintains the eligibility of vouchers and
relocation assistance in the final rule.
3. Building strong, healthy
communities through investments in
neighborhoods. While the interim final
rule included a category of enumerated
eligible uses for "building stronger
communities through investments in
housing and neighborhoods," the
examples of services provided generally
focused on housing uses. In response to
questions following release of the
interim final rule, Treasury issued
189 See, e.g., Opportunity Insights, Creating Moves
To Opportunity (August 2019), https://
opportunityinsights. org/policy/cmto/.
further guidance clarifying that
"investments in parks, public plazas,
and other public outdoor recreation
spaces may be responsive to the needs
of disproportionately impacted
communities by promoting healthier
living environments."
Public Comment: General: A
significant theme across many public
comments was the importance of
neighborhood environment to health
and economic outcomes and the
potential connections between
residence in an underserved
neighborhood and disproportionate
impacts from the pandemic. Many
commenters highlighted the connection
between neighborhoods and health
outcomes, including citing public health
research linking neighborhood traits to
health outcomes. For example, the CDC
states that "neighborhoods people live
in have a major impact on their health
and well-being." 190 As such, CDC
identifies "neighborhoods and built
environment" as one of five key social
determinants of health 191 and includes
"creat[ing] neighborhoods and
environments that promote health and
safety" as one of the agency's goals for
social determinants of health outcomes.
a. Neighborhood features that
promote improved health and safety
outcomes.
Public Comment: Commenters argued
that neighborhoods impact physical
health outcomes in several ways. First,
some commenters reasoned that the
physical environment and amenities in
a community 192 influence a person's
level of physical activity, with features
like parks, recreation facilities, and safe
sidewalks promoting increased physical
activity that improves health outcomes.
Conversely, commenters argued that a
lack of these features in a neighborhood
could dampen physical activity and
contribute to health conditions like
obesity that are risk factors for more
severe COVID-19 health outcomes.
Second, some commenters also
suggested that access to healthy food in
a neighborhood impacts health
outcomes. These commenters reasoned
190U.S. Department of Health and Human
Services, Neighborhood and Built Environment,
h ttps://heal th.govlhealthypeople/objectives-and-
data/browse-objectives/neighborh ood-and-buil t-
environment#citl (last visited November 9, 2021).
191 Social determinants of health are "the
conditions in the places where people live, learn,
work, and play that affect a wide range of health
risks and outcomes." Centers for Disease Control
and Prevention, About Social Determinants of
Health (SDOH), https://www.cdc.gov/social
determinants/about.html (last visited November 9,
2021).
192In public health, this is referred to as "built
environment," or the man-made physical aspects of
a community (e.g., homes, buildings, streets, open
spaces, and infrastructure).
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4373
that lacking adequate access to
affordable, healthy food or living in a
"food desert" may contribute to
disparities in diet that influence health
outcomes, including contributing to pre-
existing conditions that increased risk
for severe COVID-19 outcomes. These
commenters cited public health research
finding "clear evidence for disparities in
food access in the United States by
income and race." 193
Some commenters also suggested that
neighborhood environment is connected
to other public health outcomes, like
mental health and public safety. For
example, some research suggests that
living in neighborhoods with green
space and tree cover correlates with
improved mental health outcomes.194
Finally, some commenters argued that
activities like installing streetlights,
greening or cleanup of public spaces or
land, and other efforts to revitalize
public spaces would support improved
public safety. 195 196
These commenters recommended that
Treasury include as an enumerated
eligible use in disproportionately
impacted communities projects to
develop neighborhood features that
promote improved health and safety
outcomes, such as parks, green spaces,
recreational facilities, sidewalks,
pedestrian safety features like
crosswalks, projects that increase access
to healthy foods, streetlights,
neighborhood cleanup, and other
projects to revitalize public spaces.
Background: Investments in
neighborhood features, including parks,
recreation facilities, sidewalks, and
healthy food access, can work to
improve physical and mental health
outcomes. Allowing people access to
nature, including parks, has been
connected to decreased levels of
193 J Beaulac, E Kristjansson, S Cummins, A
systematic review of food deserts, 1966-2007, Prev
Chronic Dis 2009;6(3):A105, http://www.cdc.govl
pcd/issues/2009/jul/08_0163.h tm.
194 See, e.g., Yijun Zhang et al. The Association
between Green Space and Adolescents' Mental
Well -Being: A Systematic Review. International
journal of environmental research and public health
vol. 17,18 6640 (Sep. 11 2020), doi:10.3390/
ijerph17186640; EC South, BC Hold, MC Kondo, JM
MacDonald, CC Branas, Effect of Greening Vacant
Land on Mental Health of Community -Dwelling
Adults: A Cluster Randomized Trial, JAMA Netw
Open. 2018;1(3):e180298 (2018), available at:
doi:10.1001 / j amanetworkop en. 2018.0298.
195 See, e.g., Yanging Xu, Cong Fu, Eugene
Kennedy, Shanhe Jiang, Samuel Owusu-Agyemang,
The impact of street lights on spatial -temporal
patterns of crime in Detroit, Michigan, Cities,
Volume 79, Pages 45-52, ISSN 0264-2751 (2018),
h ttps. //d oi. org/ i O.10161 j. ci ti es.2018. 02. 021.
196A. Chalfin, B. Hansen, J. Lerner et al.,
Reducing Crime Through Environmental Design:
Evidence from a Randomized Experiment of Street
Lighting in New York City, Journal of Quantitative
Criminology (2021), https.Ildoi.org/10.1007/s10940-
020-09490-6.
mortality and illness and increased
well-being.197 Urban park use during
the COVID-19 pandemic may have
declined among lower -income
individuals.198 Encouraging physical
activity can also play a role in health
outcomes, as a sedentary lifestyle is a
risk factor for chronic diseases and more
severe COVID-19 outcomes.199 Parks,
recreation facilities, and sidewalks can
promote healthier living environments
by allowing for safe and socially
distanced recreation during the COVID-
19 pandemic.
Additionally, food insecurity rates,
which are higher among lower -income
households and households of color,
doubled among all households and
tripled among households with children
during the onset of COVID-19 from
February 2020 to May 2020.200
Improving healthy food access supports
public health, particularly among lower -
income households and households of
color that face disproportionate
outcomes.
Treasury Response: Treasury
recognizes the connection between
neighborhood built environment and
physical health outcomes as discussed
in the research and analysis provided by
commenters, including risk factors that
may have contributed to
disproportionate COVID-19 health
impacts in low-income communities.
The final rule also recognizes that the
public health impacts of the pandemic
are broader than just the COVID-19
disease itself and include substantial
impacts on mental health and public
safety challenges like rates of violent
crime, which are correlated with a
neighborhood's built environment and
features. As such, neighborhood features
that promote improved health and
safety outcomes respond to the pre-
existing disparities that contributed to
COVID-19's disproportionate impacts
on low-income communities.
197 See, e.g., American Public Health Association,
Improving Health and Wellness through Access to
Nature (November 5, 2013), https://www.apha.org/
policies-and-advocacy/public-h eal th-policy-
statem en ts/poli cy-da tabase/2014 /07/08/09/18/
im proving -health -and -wellness -through -access -to -
nature.
190 LR Larson et al., Urban Park Use During the
COVID-19 Pandemic: Are Socially Vulnerable
Communities Disproportionately Impacted?, Front.
Sustain. Cities 3:710243 (2021), https.Ildoi.orgl
10.3389/frsc.2021.71024 3.
199 JP Despres, Severe COVID-19 outcomes —the
role of physical activity. Nat Rev Endocrinol 17,
451-452 (2021). https.Ildoi.org/10.1038/s41574-
021-00521-1.
200 Caroline George and Adie Tomer, Beyond
`food deserts': America needs a new approach to
mapping food, Brookings Institution (August 17,
2021), https://www.brookings.edu/research/beyond-
food-deserts-ameri ca-needs-a-new-approach -to-
mapping food -insecurity/.
The final rule includes enumerated
eligible uses in disproportionately
impacted communities for developing
neighborhood features that promote
improved health and safety outcomes,
such as parks, green spaces, recreational
facilities, sidewalks, pedestrian safety
features like crosswalks,201 projects that
increase access to healthy foods,
streetlights, neighborhood cleanup, and
other projects to revitalize public
spaces. Recipients seeking to use funds
for capital expenditures should refer to
the section Capital Expenditures in
General Provisions: Other, which
describes additional eligibility
standards that apply to uses of funds for
capital expenditures.
b. Vacant or abandoned properties.
As discussed above, the interim final
rule included enumerated eligible uses
for building stronger communities
through investments in housing and
neighborhoods in disproportionately
impacted communities. The interim
final rule also posed a question of
whether other potential uses in this
category, specifically "rehabilitation of
blighted properties or demolition of
abandoned or vacant properties,"
address the public health or economic
impacts of the pandemic.
Public Comment: Several commenters
argued that programs or services to
address vacant or abandoned property
would respond to the public health and
negative economic impacts of the
pandemic in disproportionately
impacted communities. Some
commenters cited research suggesting
that living near such property is
correlated with worse physical health
and mental health outcomes, noted that
such properties pose an environmental
hazard, or argued that such properties
present a barrier to economic recovery.
These commenters suggested that
renovation or demolition of vacant or
abandoned property could benefit
community health and raise property
values. Other commenters
recommended that Treasury include an
enumerated eligible use for the
operation of land banks that redevelop
or renew vacant properties and land.
Treasury Response: As noted
throughout the final rule, the pandemic
underscored the importance of safe,
affordable housing and healthy
201 However, Treasury cautions recipients that
general infrastructure development, including street
or road construction, remains a generally ineligible
use of funds under the final rule. Sidewalks and
pedestrian safety should be the predominant
component of uses of funds in this category. While
projects may include ancillary construction needed
to execute the predominant component, a project
that predominantly involves street construction or
repair to benefit vehicular traffic would be
ineligible.
4374 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
neighborhood environments to public
health and economic outcomes.
Treasury agrees with commenters that
high rates of vacant or abandoned
properties in a neighborhood may
exacerbate public health disparities, for
example through environmental
contaminants that contribute to poor
health outcomes or by contributing to
higher rates of crime. As such, certain
services for vacant or abandoned
properties are eligible to address the
public health and negative economic
impacts of the pandemic on
disproportionately impacted households
or communities. Eligible activities
include:
• Rehabilitation, renovation,
maintenance, or costs to secure vacant
or abandoned properties to reduce their
negative impact
• Costs associated with acquiring and
securing legal title of vacant or
abandoned properties and other costs to
position the property for current or
future productive use
• Removal and remediation of
environmental contaminants or hazards
from vacant or abandoned properties,
when conducted in compliance with
applicable environmental laws or
regulations
• Demolition or deconstruction of
vacant or abandoned buildings
(including residential, commercial, or
industrial buildings) paired with
greening or other lot improvement as
part of a strategy for neighborhood
revitalization
• Greening or cleanup of vacant lots,
as well as other efforts to make vacant
lots safer for the surrounding
community
• Conversion of vacant or abandoned
properties to affordable housing
• Inspection fees and other
administrative costs incurred to ensure
compliance with applicable
environmental laws and regulations for
demolition, greening, or other
remediation activities
Vacant or abandoned properties are
generally those that have been
unoccupied for an extended period of
time or have no active owner.202 Such
202 A state or locality may use its existing
classifications of what is considered vacant or
abandoned property under state law and local
ordinances, as well as any corresponding processes
for demolition, for these eligible uses. A recipient
without a definition of vacant or abandoned
property may refer to definitions used in the
Department of Housing and Urban Development's
Neighborhood Stabilization Program (available at
the citations below); however, recipients should be
aware that other federal, state, or local requirements
may apply such as compliance with the Uniform
Relocation Act (see U.S. Department of Housing and
Urban Development, Real Estate Acquisition and
Relocation Overview in HUD Programs, https://
www.hudexchange.info/programs/relocation/
properties may be in significant
disrepair (e.g., major structural defects;
lack of weather tight conditions; or lack
of useable plumbing, kitchen facilities,
electricity, or heating infrastructure (not
to include utilities currently out of
service or disconnected but able to be
reconnected and used)), or may be
declared unfit for inhabitants by a
government authority.
As noted above, demolition and
greening (or other structure or lot
remediation) of vacant or abandoned
properties, including residential,
commercial, or industrial buildings, is
an eligible use of funds. Treasury
encourages recipients to undertake these
activities as part of a strategy for
neighborhood revitalization and to
consider how the cleared property will
be used to benefit the disproportionately
impacted community. Activities under
this eligible use should benefit current
residents and businesses, who
experienced the pandemic's impact on
the community.
Treasury encourages recipients to be
aware of potential impacts of demolition
of vacant or abandoned residential
properties. Demolition activities that
exacerbate the pandemic's impact on
housing insecurity or lack of affordable
housing are not eligible uses of funds.
This risk is generally more acute in
jurisdictions with low or reasonable
vacancy rates and less acute in
jurisdictions with high or hyper-
vacancy.203
overview/#overview-of-the-ura (last visited
November 9, 2021) and other state and local
requirements like condemnation and code
enforcement. U.S. Department of Housing and
Urban Development, What is the definition of
vacant properties as referenced in NSP Eligible Use
E—Redevelop Demolished or Vacant Properties?
(October 2012), https://www.hudexchange.infol
faqs/programs/neighborh ood-stabilization-program-
nsp/redevelopment/what-is-the-definition-of-
vacan t-pro p erti es-as-referenced-in-ns p-eligible/.
U.S. Department of Housing and Urban
Development, What are the definitions of
abandoned and foreclosed? (October 2012), https://
www. h u dexch ange. in fo/fags/program s/
n eighborh ood-stabilizati on-program-ns p/progrom-
requirements/eligible-acti vitiesuses/what-are-th e-
d efini ti on s- o f-abandoned -and -foreclosed /.
203 For analysis of vacancy rates considered low
or high, see, e.g., page 12 of Alan Mallach, The
Empty House Next Door, Lincoln Institute (May
2018), https://www.lincolninst.edu/publications/
policy-focus-reports/em pty-house-next-door#
:—:text= %E2 %80 %9CAlan %20Mallach %20is %20
the%20sage,through %20data %20and %20
model%20 practices. Recipients may determine the
appropriate geographic unit for which to analyze
vacancy rates (e.g., county, census tract) based on
their circumstances. As needed, recipients may
refer to the Current Population Survey/Housing
Vacancy Survey data series on Housing Vacancies
and Homeownership as one data source to assess
vacancy rates. See https://www.census.gov/housing/
hvs/index.html. Other data sources include the
American Community Survey five-year estimates,
for smaller geographic areas, or tabulations by the
Department of Housing and Urban Development
Treasury presumes that demolition of
vacant or abandoned residential
properties that results in a net reduction
in occupiable housing units for low- and
moderate -income individuals in an area
where the availability of such housing is
lower than the need for such housing
would exacerbate the impacts of the
pandemic on disproportionately
impacted communities and that use of
SLFRF funds for such activities would
therefore be ineligible. This includes
activities that convert occupiable
housing units for low- and moderate -
income individuals into housing units
unaffordable to current residents in the
community. Recipients may assess
whether units are "occupiable" and
what the housing need is for a given
area taking into account vacancy rates
(as described above), local housing
market conditions (including conditions
for different types of housing like multi-
family or single-family), and applicable
law and housing codes as to what units
are occupiable. Recipients should also
take all reasonable steps to minimize the
displacement of persons due to
activities under this eligible use
category, especially the displacement of
low-income households or longtime
residents.
Recipients engaging in these activities
and other construction activities with
SLFRF funds should be mindful of the
provisions of the Uniform Relocation
Assistance and Real Property
Acquisition Policies Act of 1970, as
amended, 42 U.S.C. 4601, and the
Department of Transportation's
implementing regulations, 49 CFR part
24, that apply to projects funded with
federal financial assistance, such as
SLFRF funds. Recipients should also be
aware of federal, state, and local laws
and regulations, outside of SLFRF
program requirements, that apply to this
activity. Recipients must comply with
the applicable requirements of the
Uniform Guidance regarding
procurement, contracting, and conflicts
of interest and must follow the
applicable laws and regulations in their
jurisdictions. Recipients must also
comply with all federal, state, and local
public health and environmental laws
or regulations that apply to activities
under this eligible use category,204 for
example, requirements around the
based on United States Postal Service Vacancy Data.
See, respectively, https.Ildata.census.govlcedscil
table?q=DP04&tid=ACSDP5Y2019.DP04 &
hidePreview=true or https://www.huduser.govl
portal/datasets/usps.h tml.
204 See U.S. Environmental Protection Agency,
Large -Scale Residential Demolition, https://
www. epa.gov/large-scale-residential-demolition
(last visited November 9, 2021) for a primer on
requirements that may apply.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4375
handling and disposal of asbestos -
containing materials, lead paint, and
other harmful materials may apply, as
well as environmental standards for any
backfill materials used at demolition
sites. Treasury encourages recipients to
consult and apply best practices from
the Environmental Protection Agency as
well.
Recipients must evaluate each
subrecipient's risk of noncompliance
with federal statutes, regulations, and
the terms and conditions of the
subaward related to safely and properly
conducting activities under this eligible
use. This may include checking for any
past violations recorded by state or local
environmental, workplace safety,
licensing, and procurement agencies, as
well as regular reviews for suspensions,
debarments, or stop work orders.
Recipients must establish rigorous
oversight and internal controls
processes to monitor compliance with
any applicable requirements, including
compliance by subrecipients.
4. Addressing educational disparities.
The interim final rule included an
enumerated eligible use for addressing
educational disparities in
disproportionately impacted
communities and outlined some
enumerated eligible services under this
use. These enumerated uses included
early learning services, assistance to
high -poverty school districts to advance
equitable funding across districts and
geographies, and educational and
evidence -based services to address the
academic, social, emotional, and mental
health needs of students. Addressing the
many dimensions of resource equity —
including equitable and adequate school
funding; access to a well-rounded
education; well -prepared, effective, and
diverse educators and staff; and
integrated support services —can also
begin to mitigate the impact of COVID-
19 on schools and students and can
close long-standing gaps in educational
opportunity. As discussed above, in the
final rule, early learning services and
addressing the impacts of lost
instructional time for K-12 students are
enumerated eligible uses for impacted
communities, not just
disproportionately impacted
communities.
Public Comment: Treasury received
some comments in this category.
Generally, commenters expressed
agreement with the elements of the
interim final rule regarding use of funds
for addressing educational disparities.
Some commenters had questions about
whether a few specific uses of funds
qualified under this category. For
example, commenters inquired about
whether the funds could be used for
behavioral health in a school setting or
cultural language classes.
Treasury Response: Treasury is
maintaining these enumerated eligible
uses in the final rule, which are now
organized under the heading of
"services to address educational
disparities." Treasury reiterates that
these uses include addressing
educational disparities exacerbated by
COVID-19, including but not limited to:
increasing resources for high -poverty
school districts, educational services
like tutoring or afterschool programs,
summer education and enrichment
programs, and supports for students'
social, emotional, and mental health
needs. This also includes responses
aimed at addressing the many
dimensions of resource equity —
including equitable and adequate school
funding; access to a well-rounded
education; well -prepared, effective, and
diverse educators and staff; and
integrated support services —in order to
close long-standing gaps in educational
opportunity.
Further, Treasury is clarifying that
improvements or new construction of
schools and other educational facilities
or equipment are eligible capital
expenditures for disproportionately
impacted communities. Recipients
seeking to use funds for capital
expenditures should refer to the section
Capital Expenditures in General
Provisions: Other for additional
eligibility standards that apply to uses
of funds for capital expenditures.
Treasury notes that services to
promote healthy childhood
environments, including childcare,
early learning services, and home
visiting programs that serve infants and
toddlers, is a separate category of
enumerated eligible uses for households
impacted by the pandemic (see eligible
uses for "promoting healthy childhood
environments"). Similarly, education
services to address the impact of lost
instructional time during the pandemic
are a separate eligible use category for
households impacted by the pandemic;
when providing these services,
recipients may presume that any K-12
student who lost access to in -person
instruction for a significant period of
time has been impacted by the
pandemic and is thus eligible for
responsive services (see eligible uses for
"addressing the impact of lost
instructional time").
Proposed Additional Enumerated
Eligible Uses Not Incorporated
The interim final rule posed a
question on what other types of services
or costs Treasury should consider as
eligible uses to respond to the
disproportionate public health or
negative economic impacts of COVID-
19 on low-income populations and
communities.
In response, commenters proposed a
wide variety of additional
recommended enumerated eligible uses
to assist disproportionately impacted
households, ranging from general
categories of services (e.g., long-term
investments to remediate long-term
disparities) to highly specific examples
of services (e.g., a specific type of
healthcare equipment). As discussed
above, Treasury is including several
additional categories of enumerated
eligible uses in the final rule in response
to public comments.
Given the large number and diversity
of SLFRF recipients, Treasury's
approach to assistance to households in
disproportionately impacted
communities in the final rule aims to
provide enumerated eligible uses that
respond to disproportionate impacts of
the pandemic experienced widely in
many jurisdictions across the country
and are intended to simplify and clarify
these enumerated eligible uses. At the
same time, Treasury recognizes that the
impacts of the pandemic vary over time,
by jurisdiction, and by population; as
such, the final rule provides flexibility
for recipients to identify additional
disproportionate impacts to additional
households or classes of households and
pursue programs and services that
respond to those disproportionate
impacts.
In the final rule, Treasury has not
chosen to include as enumerated uses
all uses proposed by commenters; given
the significant range, and in some cases
highly specific nature, of the proposed
uses Treasury was not able to assess that
the proposed uses would respond to
disproportionate impacts experienced in
many jurisdictions across the country,
supporting an enumerated eligible use
available to all recipients
presumptively. However, the final rule
continues to provide a framework to
allow recipients to identify and respond
to additional disproportionate impacts
(for details, see section General
Provisions: Structure and Standards).
Some types of proposed additional
enumerated eligible uses for assistance
to households in disproportionately
impacted communities were
recommended by several commenters:
• Capital expenditures. Many
commenters recommended that capital
expenditures on many different types of
public and private facilities be
enumerated eligible uses. For clarity,
Treasury has addressed all comments on
the eligibility of capital expenditures on
property, facilities, or equipment in one
4376 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
section (see section Capital
Expenditures in General Provisions:
Other).
• Equity funds. Several commenters
recommended that Treasury permit
SLFRF funds to be deposited into an
equity fund to support long-term racial
and economic equity investments. The
eligibility of such use would depend on
the specific structure and uses of funds.
Under the statute, SLFRF funds can
only support costs incurred until
December 31, 2024; see section
Timeline for Use of SLFRF Funds in
Program Administration Provisions.
Further, recipients may calculate the
cost incurred with respect to
investments in revolving loan funds
based on the methodology described in
section Treatment of Loans in Program
Administration Provisions. Projects
funded by a revolving loan fund using
SLFRF funds would also need to be
eligible uses of SLFRF funds.
• Environmental quality and climate
resilience. Several commenters
recommended eligible uses to enhance
environmental quality, remediate
pollution, promote recycling or
composting, or increase energy
efficiency or electrical grid resilience.
Whether these projects respond to the
disproportionate impacts of the
pandemic on certain communities
would depend on the specific issue they
address and its nexus to the public
health and economic impacts of the
pandemic.
b. Assistance to Small Businesses
Background
The pandemic has severely impacted
many businesses, with small businesses
hit especially hard. Small businesses
make up nearly half of U.S. private -
sector employment 205 and play a key
role in supporting the overall economic
recovery as they are responsible for two-
thirds of net new jobs.206 Since the
beginning of the pandemic, however,
400,000 small businesses have closed,
with many more at risk.207 Sectors with
a large share of small business
employment have been among those
with the most drastic drops in
205 Board of Governors of the Federal Reserve
System, Monetary Policy Report (June 12, 2020),
https://www.federalreserve.govlmonetarypolicyl
2020-06-m pr-summary.htm.
206U.S. Small Business Administration, Office of
Advocacy, Small Businesses Generate 44 Percent of
U.S. Economic Activity (Jan. 30, 2019), https://
advocacy.sba.gov/2019/01 /30/small-businesses-
gen erate-44 -percent-o f- u-s-economic-activity/.
207 Joseph R. Biden, Remarks by President Biden
on Helping Small Businesses (Feb. 22, 2021),
https://www. whi tehouse.gov/briefing-room/
speechesremarksl202l /02/22/remarks-by-president-
bidenon-hel ping -small -businesses/.
employment.208 The negative outlook
for small businesses has continued: As
of November 2021, approximately 66
percent of small businesses reported
that the pandemic has had a moderate
or large negative effect on their
business, and over a third expect that it
will take over 6 months for their
business to return to their normal level
of operations.209
This negative outlook is likely the
result of many small businesses having
faced periods of closure and having seen
declining revenues as customers stayed
home.210 In general, small businesses
can face greater hurdles in accessing
credit ,211 and many small businesses
were already financially fragile at the
outset of the pandemic.212
While businesses everywhere faced
significant challenges during the
pandemic, minority -owned and very
small businesses have faced additional
obstacles. Between February and April
2020, the number of actively self-
employed Black business owners
decreased by 41 percent. 213 During that
same time period, Asian and Latino
business owners decreased by 26 and 32
percent, respectively, compared to a 17
percent decrease in white business
owners.214 Female business owners also
saw significant impacts, with businesses
owned by women falling by 25
percent.215
Many of the disparities in how
minority business owners experienced
208 Daniel Wilmoth, U.S. Small Business
Administration Office of Advocacy, The Effects of
the COVID-19 Pandemic on Small Businesses, Issue
Brief No. 16 (Mar. 2021), available at https://
cdn.advocacy.sba.gov/wp-content/uploads/2021/
03/02112318/COVID-19-Im pact-On-Small-
Business.pdf.
209 U.S. Census Bureau, Small Business Pulse
Survey, https.Ilpoital.census.gov/pulse/data/ (last
visited December 7, 2021).
210 Olivia S. Kim et al., Revenue Collapses and
the Consumption of Small Business Owners in the
Early Stages of the COVID-19 Pandemic (Nov.
2020), https://www.nber.org/papers/w28151.
211 See, e.g., Board of Governors of the Federal
Reserve System, Report to Congress on the
Availability of Credit to Small Businesses (Sept.
2017), available at https://www.federalreserve.gov/
p ublications/2017-September-availability-of-credit-
to-small-b usin esses.h tm.
212 Alexander W. Bartik et al., The Impact of
COVID-19 on small business outcomes and
expectations, PNAS 117(30): 17656-66 (July 28,
2020), available at https://www.pnas.org/content/
117130117656.
213 Robert Fairlie, The impact of COVID-19 on
small business owners: Evidence from the first
3 months after widespread social -distancing
restrictions, Journal of economics & management
strategy (August 27, 2020), https.Ildoi.org/10.1111/
jems.12400.
214 U.S. Small Business Administration, The
Effects of the COVID-19 Pandemic on Small
Businesses (March 2021), https.11cdn.advocacy.
sba.govlwp-contentluploodsl2021/03/02ll23181
COVID-19-Impact-On-Small-Business. pdf.
215 Robert Fairlie, supra note 213.
the pandemic are rooted in systemic
issues present even before the
pandemic. For example, before the
economic downturn, only 12 percent of
Black -owned businesses and 19 percent
of Hispanic -owned businesses had
annual earnings of over $1 million
compared to 31 percent of white -owned
businesses.216 Minority -owned
businesses were also overrepresented in
industries hit hardest by the economic
downturn (e.g., services, transportation
and warehousing, healthcare and social
assistance, administrative and support
and waste management, and
accommodation and food services).217
Approximately 22 percent of all
minority -owned business fell into the
hardest hit industries compared to 13
percent of nonminority-owned
businesses.218
Although disparities in annual
revenue are not a direct indication of a
business's ability to weather an
economic downturn, they do highlight
other disparities that make it more
challenging for these businesses to
survive the effects of the pandemic.
Black -owned startups, for example, face
larger challenges in raising capital,
including securing business loans.219
Summary of the Interim Final Rule and
Final Rule Structure
Summary of Interim Final Rule: As
discussed above, small businesses faced
significant challenges in covering
payroll, mortgages or rent, and other
operating costs as a result of the public
health emergency and measures taken to
contain the spread of the virus. Under
Sections 602(c)(1)(A) and 603(c)(1)(A),
recipients may "respond to the public
health emergency or its negative
economic impacts," by, among other
things, providing "assistance to . . .
small businesses." Accordingly, the
interim final rule allowed recipients to
provide assistance to small businesses
to address the negative economic
impacts faced by those businesses. A
216 Federal Reserve Bank of Atlanta. 2019. Small
Business Credit Survey 2019 Report on Minority -
Owned Firms. December. fedsmallbusiness.org/
survey/2019/report-on-minority-owned firms.
217Ding, Lei, and Alvaro Sanchez. 2020. What
Small Businesses Will Be Impacted by COVID-19?
Federal Reserve Bank of Philadelphia.
philadel phiafed. org/covid-19/covid-19-equity-in-
recovery/what-small-businesses-will-be-impacted.
210 Lucas Misera, An Uphill Battle: COVID-19's
Outsized Toll on Minority -Owned Firms, Federal
Reserve Bank of Cleveland (October 8, 2020),
https://www. clevelandfed. org/newsroom-and-
events/p ublications/comm unity-development-
briefs/db-20201008-misera-report. aspx.
219 Robert Fairlie, A. Robb, D. Robinson, Black
and White: Access to Capital among Minority -
Owned Startups, NBER Working Paper 28154
(November 2020), https://www.nber.org/papers/
w28154.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4377
"small business" is defined as a
business concern or other organization
that:
(1) Has no more than 500 employees
or, if applicable, the size standard in
number of employees established by the
Administrator of the Small Business
Administration for the industry in
which the business concern or
organization operates; and
(2) Is a small business concern as
defined in section 3 of the Small
Business Act (15 U.S.C. 632).
Specifically, the interim final rule
provided that recipients may provide
assistance to small businesses to adopt
safer operating procedures, weather
periods of closure, or mitigate financial
hardship resulting from the COVID-19
public health emergency, including:
• Loans or grants to mitigate financial
hardship such as declines in revenues
or impacts of periods of business
closure;
• Loans, grants, or in -kind assistance
to implement COVID-19 prevention or
mitigation tactics; and
• Technical assistance, counseling, or
other services to assist with business
planning needs.
The interim final rule further
provided that recipients may consider
additional criteria to target assistance to
businesses in need, including small
businesses. Such criteria may include
businesses facing financial insecurity,
substantial declines in gross receipts
(e.g., comparable to measures used to
assess eligibility for the Paycheck
Protection Program), or other economic
harm due to the pandemic, as well as
businesses with less capacity to weather
financial hardship, such as the smallest
businesses, those with less access to
credit, or those serving underserved
communities. The interim final rule also
indicated that recipients should
consider local economic conditions and
business data when establishing such
criteria. Finally, the interim final rule
posed a question on whether there are
other services or costs that Treasury
should consider as eligible uses to
respond to the disproportionate impacts
of COVID-19 on low-income
populations and communities.
Final Rule Structure: Consistent with
the interim final rule approach, the final
rule provides a non -exhaustive list of
enumerated eligible uses for assistance
to small businesses that are impacted or
disproportionately impacted by the
pandemic. Further, within Assistance to
Small Business, a recipient may also
identify a negative economic impact
experienced by small businesses and
design and implement a response to that
negative economic impact, beyond the
uses specifically enumerated in the final
rule, according to the standard
described in the section Standards:
Identifying a Negative Economic Impact.
A recipient may also identify small
businesses that have been
disproportionately impacted by the
public health emergency and design and
implement a program that responds to
the source of that disproportionate
impact.
Consistent with other eligible use
categories to respond to the public
health and economic impacts of the
pandemic, recipients may identify and
serve small businesses that experienced
a negative economic impact or
disproportionate impact due to the
pandemic, as described in the section
Standards for Identifying Other Eligible
Populations. For example, to identify
impacted small businesses, a recipient
may consider whether the small
businesses faced challenges in covering
payroll, mortgage or rent, or other
operating costs as a result of the public
health emergency and measures taken to
contain the spread of the virus. In order
to ease administrative burden, the final
rule presumes that small businesses
operating in QCTs, small businesses
operated by Tribal governments or on
Tribal Lands, and small businesses
operating in the U.S. territories were
disproportionately impacted by the
pandemic.
Reorganizations and Cross -
References: As detailed above, Treasury
has re -categorized some uses of funds in
the final rule to provide greater clarity.
For discussion of assistance to small
businesses and impacted industries to
implement COVID-19 mitigation and
prevention strategies, see section
COVID-19 Mitigation and Prevention in
Public Health.
Small Businesses Eligible for Assistance
Public Comment: Treasury received
many comments about the general
benefits or drawbacks of use of SLFRF
funds to provide assistance to small
businesses. Some commenters suggested
that SLFRF funds should be available to
assist all small businesses, rather than
only businesses that experienced direct
negative economic impacts due to the
public health emergency. Other
commenters argued that aid to small
businesses should be narrowed in the
final rule, asserting that SLFRF funds
should instead focus on assistance to
households or building public sector
capacity.
Treasury also received comments
requesting clarification of the types of
small businesses eligible for assistance.
For example, some commenters
requested clarification about whether
microbusinesses were included in the
definition of small business. Comments
also suggested that self-employed
individuals and Tribal enterprises be
classified as small businesses,
respectively. Commenters argued that
these types of small businesses are more
common among low-income and
minority businessowners and serve as
important institutions in underserved
communities.
Finally, some commenters suggested
that Treasury permit broader
enumerated eligible uses to assist small
businesses in disproportionately
impacted communities and generally
strengthen economic growth in these
communities. These commenters
recommended that Treasury presume
small businesses operating in QCTs are
disproportionately impacted and
eligible for broader enumerated uses.
Treasury Response: As discussed in
the section Designating a Negative
Economic Impact, in the final rule,
recipients must identify an economic
harm caused or exacerbated by the
pandemic on a small business or class
of small businesses to provide services
that respond.
As discussed above, programs or
services in this category must respond
to a harm experienced by a small
business or class of small businesses as
a result of the public health emergency.
To identify impacted small businesses
and necessary response measures,
recipients may consider impacts such as
lost revenue or increased costs,
challenges covering payroll, rent or
mortgage, or other operating costs, the
capacity of a small business to weather
financial hardships, and general
financial insecurity resulting from the
public health emergency.
Recognizing the difficulties faced by
small businesses in certain
communities, the final rule presumes
that small businesses operating in QCTs,
small businesses operated by Tribal
governments or on Tribal Lands, and
small businesses operating in the U.S.
territories were disproportionately
impacted by the pandemic. This
presumption parallels the final rule's
approach to assistance to households,
reflecting the more severe pandemic
impacts in underserved communities
and creating a parallel structure across
different categories of eligible uses to
make the structure simpler for
recipients to understand and navigate.
Treasury notes that recipients may
also designate a class of small
businesses that experienced a negative
economic impact or disproportionate
negative economic impact (e.g.,
microbusinesses, small businesses in
certain economic sectors), design an
intervention to fit the impact, and
4378 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
document that the individual entity is a
member of the class. Additional
information about this framework is
included in the section General
Provisions: Structure and Standards.
Further, Treasury is maintaining the
interim final rule definition of "small
business," which used the Small
Business Administration's (SBA)
definition of fewer than 500 employees,
or per the standard for that industry, as
defined by SBA. This definition
includes businesses with very few
employees, self-employed individuals,
and Tribally owned businesses.220
Finally, Treasury notes that recipients
may award SLFRF funds to many
different types of organizations,
including small businesses, to function
as a subrecipient in carrying out eligible
uses of funds on behalf of a recipient
government. In this case, a small
business need not have experienced a
negative economic impact in order to
serve as a subrecipient. See section
Distinguishing Subrecipients versus
Beneficiaries for more detailed
discussion of interactions with
subrecipients, in contrast to
beneficiaries of assistance.
Enumerated Eligible Uses for Assistance
to Small Businesses
Public Comment: Treasury received
comments requesting clarification of the
types of assistance available to small
businesses. For example, one
commenter suggested that outdoor
dining be an eligible use for SLFRF
funds as assistance to small businesses.
Other commenters asked for
clarification about how SLFRF funds
could be used to support new
businesses and start-ups.
Several commenters requested
clarification of whether and how
recipients may provide services to
business districts or downtown areas,
particularly those that exist in whole or
in part within a QCT, and requested
reduced documentation of the specific
negative economic impact for the
businesses operating within those areas.
These commenters argued in favor of
allowing redevelopment or other
support, including capital investments,
in business districts that were
220In regard to counting employees, businesses
owned and controlled by a Tribal government are
not considered affiliates of the Tribal government
and are not considered affiliates of other businesses
owned by the Tribal government because of their
common ownership by the Tribal government or
common management, as described in 13 CFR
121.103(b)(2). This definition is consistent with the
Small Business Administration (SBA) HUBZone
definition of a "small business concern" relating to
Tribal governments as well as how Tribal
enterprises are defined for the State Small Business
Credit Initiative (SSBCI).
negatively impacted by COVID-19.
Several commenters also argued that
funds should be available to support
and grow microbusinesses, or
businesses with five or fewer
employees, which are more likely to be
owned by women and people of color.
Treasury Response: In the final rule,
Treasury is maintaining and clarifying
the enumerated eligible uses of funds
for assistance to small businesses that
are impacted or disproportionately
impacted by the pandemic.
Impacted small businesses.
Specifically, Treasury is maintaining
enumerated eligible uses from the
interim final rule for assistance to
impacted small businesses. These
include but are not limited to:
• Loans or grants to mitigate financial
hardship such as declines in revenues
or impacts of periods of business
closure, for example by supporting
payroll and benefits costs, costs to retain
employees, mortgage, rent, or utilities
costs, and other operating costs;
• Loans, grants, or in -kind assistance
to implement COVID-19 prevention or
mitigation tactics (see section Public
Health for details on these eligible uses);
and
• Technical assistance, counseling, or
other services to assist with business
planning needs.
Treasury acknowledges a range of
potential circumstances in which
assisting small businesses could be
responsive to the negative economic
impacts of COVID-19, including for
small businesses startups and
microbusinesses and individuals
seeking to start small or
microbusinesses. For example:
• As noted above, a recipient could
assist small business startups or
microbusinesses with additional costs
associated with COVID-19 mitigation
tactics; see section Public Health for
details on these eligible uses.
• A recipient could identify and
respond to a negative economic impact
of COVID-19 on new small business
startups or microbusinesses; for
example, if small business startups or
microbusinesses in a locality faced
greater difficulty accessing credit than
prior to the pandemic or faced increased
costs to starting the business due to the
pandemic or if particular small
businesses or microbusinesses had lost
expected startup capital due to the
pandemic.
• The interim final rule also
discussed, and the final rule maintains,
eligible uses that provide support for
individuals who have experienced a
negative economic impact from the
COVID-19 public health emergency,
including uses that provide job training
for unemployed individuals. These
initiatives also may support small
business start-ups, microbusinesses, and
individuals seeking to start small or
microbusinesses.
Disproportionately impacted small
businesses. Additionally, Treasury
agrees with commenters that
disproportionately impacted small
businesses may benefit from additional
assistance to address the sources of that
disparate impact.
As such, the final rule provides a
broader set of enumerated eligible uses
for disproportionately impacted small
businesses and/or small businesses in
disproportionately impacted business
districts. Recipients may use SLFRF
funds to assist these businesses with
certain capital investments, such as
rehabilitation of commercial properties,
storefront improvements, and facade
improvements. Recipients may also
provide disproportionately impacted
microbusinesses additional support to
operate the business, including
financial, childcare, and transportation
supports.
Recipients could also provide
technical assistance, business
incubators, and grants for start-ups or
expansion costs for disproportionately
impacted small businesses. Note that
some of these types of assistance are
similar to those eligible to respond to
small businesses that experienced a
negative economic impact ("impacted"
small businesses). However, because the
final rule presumes that some small
businesses were disproportionately
impacted, these enumerated eligible
uses can be provided to those
businesses without any specific
assessment of whether they individually
experienced negative economic impacts
or disproportionate impacts due to the
pandemic.
Cross -References: Recipients
providing assistance to small businesses
for capital expenditures (i.e.,
expenditures on property, facilities, or
equipment) should also review the
section Capital Expenditures in General
Provisions: Other, which describes
eligibility standards that apply to capital
expenditures. Recipients should also
note that services to address vacant or
abandoned commercial or industrial
properties are addressed in section
Vacant or Abandoned Properties in
Assistance to Households.
Loans to Small Businesses
Public Comment: Treasury received
many comments requesting clarification
on using SLFRF funds to establish funds
that provide loans to small businesses.
For example, commenters sought
clarification of how eligible use
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4379
requirements and applicable dates for
SLFRF funds would apply to third party
organizations (like economic
development organizations) who receive
SLFRF funds in order to establish a loan
fund. In addition, commenters
requested clarification on what
requirements apply to loan programs
with available funds remaining after
December 31, 2024.
Treasury Response: SLFRF funds may
be used to make loans, including to
small businesses, provided that the loan
is an eligible use, and the cost of the
loan is tracked and reported in
accordance with Treasury's Compliance
and Reporting Guidance. Funds that are
unobligated after December 31, 2024
must be returned to Treasury. See
section Treatment of Loans for more
information about using SLFRF funds
for loan programs.
c. Assistance to Nonprofits
Background: Nonprofits have faced
significant challenges because of the
pandemic, including increased demand
for services and changing operational
needs .221 Prior to the pandemic, the
median U.S. nonprofit reported that it
had six months of cash on hand .222 This
varied by sector, however, with some
sectors like disaster relief organizations
reporting a median of 17 months cash
on hand, and others, like mental health
and crisis intervention organizations
reporting only three months.223
Evidence suggests that the pandemic
has damaged the financial health of
nonprofits, with small nonprofits,
which tend to rely more heavily on
donations than large nonprofits,
reporting relatively larger declines in
donations — 42 percent versus 29
percent, respectively.224 Among
nonprofits that collect fees for services,
the median revenue amount collected
from such fees fell by 30 percent from
2019 to 2020, with arts organization
experiencing a 50 percent decline.225
Nonprofits also experienced significant
job losses. While employment in the
nonprofit sector has recovered from its
low point in 2020, as of November 2021,
221 See, e.g., Federal Reserve Bank of San
Francisco, Impacts of COVID-19 on Nonprofits in
the Western United States (May 2020), https://
www.frbsf.org/commuiLity-development/f"iles/
impact-of-covid.
222Philanthropy and COVID-19: Measuring one
year of giving, Candid and the Center for Disaster
Philanthropy. (2021), https://www.issuelab.org/
resources/38039/38039.pdf.
223 Id.
224Elizabeth T. Boris et al., Nonprofit Trends and
Impacts 2021, Urban Institute (October 7, 2021),
https://www.urban.org/research/Publication/
nonprofit-trends-and-impacts-2021 /view/full—
report.
225 ICI.
the sector remained 485,000 jobs below
its pre -pandemic level.226 In addition,
some nonprofits may have experienced
declines in volunteer staffing during the
pandemic.227
At the same time, nonprofits provide
a host of services for their communities,
including helping Americans weather
the multitude of challenges presented
by the pandemic. The ARPA and the
interim final rule recognized this
dichotomy —nonprofits as entities that
have themselves been negatively
impacted by the pandemic and as
entities that provide services that
respond to the public health and
negative economic impacts of the
pandemic on households and others
—by creating two roles for nonprofits.
First, under Sections 602(c)(1)(A) and
603(c)(1)(A), recipients may "respond to
the public health emergency or its
negative economic impacts," by, among
other activities, providing "assistance to
. . . nonprofits." The interim final rule
defined assistance to nonprofits to
include "loans, grants, in -kind
assistance, technical assistance or other
services, that responds to the negative
economic impacts of the COVID-19
public health emergency," and
"nonprofit" to mean a tax-exempt
organization under Section 501(c)(3) of
the U.S. Internal Revenue Code.228
Second, as discussed above, ARPA
and the interim final rule provided that
nonprofit organizations may also receive
funds as subrecipients of a recipient
government (i.e., a government that
received SLFRF funds); subrecipients
carry out an eligible use of SLFRF funds
on behalf of a recipient government
(e.g., a recipient government that would
like to provide food assistance to
impacted households may grant funds
to a nonprofit organization to carry out
that eligible use). Recipients generally
have wide latitude to award funds to
many types of organizations, including
nonprofit or for -profit organizations, as
subrecipients to carry out eligible uses
of funds on their behalf. For further
information on distinguishing between
beneficiaries and subrecipients, as well
as the impacts of the distinction on
reporting and other requirements, see
section Transfers of Funds and section
Distinguishing Subrecipients versus
Beneficiaries under the Public Health
226 Chelsea Newhouse, COVID-19 JOBS UPDATE,
NOVEMBER 2021: Nonprofits add just 5,000 jobs in
November, Center for Civil Society Studies at Johns
Hopkins University (December 10, 2021), http://
ccss.jhu.edu/november-2021-jobs/.
227 Elizabeth T. Boris at al. supra note 224 at p.
38.
228 § 35.3 Definitions.
and Negative Economic Impacts eligible
use category.229
Reorganization and Cross -References:
Under the interim final rule, assistance
to disproportionately impacted
communities was a separate, stand-
alone category. The final rule
reorganizes the disproportionate impact
analysis within the sections Assistance
to Households, Assistance to Small
Business, and Assistance to Nonprofits
to better articulate how recipients can
serve disproportionately impacted
beneficiaries in each of those categories.
As detailed above in the Public Health
subsection, in response to public
comments describing uncertainty on
which eligible use category should be
used to assess different potential uses of
funds, Treasury has re -categorized some
uses of funds in the final rule to provide
greater clarity. For discussion of
assistance to nonprofits to implement
COVID-19 mitigation and prevention
strategies, see section COVID-19
Mitigation and Prevention in Public
Health.
Recipients providing assistance via
nonprofits involving capital
expenditures (i.e., expenditures on
property, facilities, or equipment)
should also review the section Capital
Expenditures in General Provisions:
Other, which describes eligibility
standards for these expenditures.
Recipients providing assistances in the
form of loans should review the section
Treatment of Loans.
Public Comment: Eligible Assistance
to Impacted and Disproportionately
Impacted Nonprofits: A few
commenters asked Treasury to be more
explicit in the final rule that recipients
may use funds to provide relief directly
to nonprofit organizations and to
explain how nonprofits might qualify
themselves for assistance and what
expenses SLFRF funds may be used to
cover.230 Commenters requested that
Treasury note that the pandemic is
229 The ARPA also states under "Transfer
Authority" that a Recipient may transfer funds to
a private nonprofit organization such as those
defined in paragraph (17) of section 401 of the
McKinney-Vento Homeless Assistance Act (42
U.S.C. 11360(17). See 602 & 603(c)(3) of the Social
Security Act. See section Transfers of Funds for
additional information on other types of entities,
including other forms of nonprofits, that may
receive transfers.
230 While not stated specifically in the interim
final rule, the Department does not require or have
a preference as to the payment structure for
recipients that transfer funds to subrecipients (e.g.,
advance payments, reimbursement basis, etc.).
Ultimately, recipients must comply with the
eligible use requirements and any other applicable
laws or requirements and are responsible for the
actions of their subrecipients or beneficiaries.
4380 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
leading to a changing financial
landscape for nonprofits.
Treasury Response: Eligible
Assistance to Impacted and
Disproportionately Impacted
Nonprofits: The interim final rule
provided for, and the final rule
maintains, the ability for recipients to
provide direct assistance to nonprofits
that experienced public health or
negative economic impacts of the
pandemic. Specifically, recipients may
provide direct assistance to nonprofits if
the nonprofit has experienced a public
health or negative economic impact as
a result of the pandemic. For example,
if a nonprofit organization experienced
impacts like decreased revenues or
increased costs (e.g., through reduced
contributions or uncompensated
increases in service need), and a
recipient provides funds to address that
impact, then it is providing direct
assistance to the nonprofit as a
beneficiary under Subsection (c)(1) of
Sections 602 and 603. Direct assistance
may take the form of loans, grants, in -
kind assistance, technical assistance, or
other services that respond to the
negative economic impacts of the
COVID-19 public health emergency.
A recipient may identify a negative
economic impact experienced by a
nonprofit, or class of nonprofits, and
design and implement a response to that
negative economic impact, see section
Standards: Designating a Negative
Economic Impact. The final rule
provides a non -exhaustive list of
enumerated eligible uses for assistance
to nonprofits that are impacted or
disproportionately impacted by the
pandemic.
A recipient may also identify a class
of nonprofits that have been
disproportionately impacted by the
public health emergency and design and
implement a program that responds to
the source of that disproportionate
impact. For example, a recipient may
determine that nonprofits offering after -
school programs within its jurisdiction
were disproportionately impacted by
the pandemic due to the previous in -
person, indoors nature of the work and
the nonprofits' reliance on fees received
for services (e.g., attendance fees). The
recipient might then design an
intervention to assist those nonprofits in
adapting their programming (e.g., to
outdoor or online venues), their revenue
structure (e.g., adapting the fee for
service structure or developing expertise
in digital donation campaigns), or both.
Additional information about this
framework is included in General
Provisions: Structure and Standards. In
order to ease administrative burden, the
final rule presumes that nonprofits
operating in QCTs, operated by Tribal
governments or on Tribal Lands, or
operating in the U.S. territories were
disproportionately impacted by the
pandemic.
To summarize, a recipient may
determine that certain nonprofits were
impacted by the pandemic or were
disproportionately impacted by the
pandemic and provide responsive
services.
Public Comment: Beneficiaries and
Subrecipients: As noted elsewhere in
this final rule, Treasury received
multiple comments expressing
uncertainty on how to categorize a
particular activity in the eligible use
categories. For instance, some
commenters requested that recipients be
able to use SLFRF funds for certain
expenses incurred by nonprofits (e.g.,
unemployment charges) as a response to
a public health or negative economic
impact to that nonprofit; others asked if
nonprofits providing certain services
(e.g., social services) made them eligible
for direct assistance. Commenters also
requested that Treasury acknowledge
that engagement directly with nonprofit
organizations in low-income
communities and communities of color
may allow the recipient to better assess
economic harms in these areas.
Treasury Response: Beneficiaries and
Subrecipients: Treasury recognizes that
many nonprofits play important roles in
their communities, and some may have
experienced public health or negative
economic impacts during the pandemic.
As such, under the interim final rule
and the final rule, nonprofits may be
impacted by the pandemic and receive
assistance as a beneficiary, as described
above, and/or be a subrecipient
providing services on behalf of a
recipient.231
Specifically, the interim final rule
also allowed for, and the final rule
maintains, the ability for the recipient to
transfer, e.g., via grant or contract, funds
to nonprofit entities to carry out an
eligible use on behalf of the recipient.
Treasury notes that recipients may
award SLFRF funds to many different
types of organizations to carry out
eligible uses of funds and serve
beneficiaries on behalf of a recipient
government (e.g., assisting in a
vaccination campaign, operating a job
training program, developing affordable
housing). When a recipient provides
funds to an organization to carry out
eligible uses of funds and serve
231 Note, this response is meant to clarify the
difference between nonprofits as beneficiaries and
nonprofits as subrecipients. It is not meant to limit
the types of relationships that a recipient may enter
into with a nonprofit as permitted under the
Uniform Guidance.
beneficiaries, the organization becomes
a subrecipient. In this case, a nonprofit
need not have experienced a negative
economic impact in order to serve as a
subrecipient.
In the context of SLFRF, nonprofits of
all types may be subrecipients. Treasury
is not restricting the types of nonprofits
that can operate as subrecipients, rather
allowing recipients to decide what form
best meets the needs of their
community. Therefore, a "nonprofit"
that is acting as subrecipient could
include, but is not limited to, a
nonprofit as that term is defined in
paragraph (17) of section 401 of the
McKinney-Vento Homeless
Assistance.232 See section
Distinguishing Subrecipients versus
Beneficiaries for further information.
Additional guidance on determining
subrecipient status may be found in the
Uniform Guidance.233
Recipients may transfer funds to
subrecipients in several ways, including
advance payments and on a
reimbursement basis. Ultimately,
recipients must comply with the eligible
use requirements and any other
applicable laws or requirements and are
responsible for the actions of their
subrecipients or beneficiaries.
As part of accepting the Award Terms
and Conditions for SLFRF, each
recipient agreed to maintain a conflict -
of -interest policy consistent with 2 CFR
200.318(c) that is applicable to all
activities funded with the SLFRF award.
Pursuant to this requirement, decisions
concerning SLFRF funds must be free of
undisclosed personal or organizational
conflicts of interest, both in fact and in
appearance. Recipients may avoid
conflicts of interest in providing
assistance to nonprofits or making
subrecipient awards by, inter alia,
making aid available to nonprofits on
generally applicable terms or utilizing a
competitive grant process, respectively.
A recipient may not use control over
SLFRF funds for their own private gain.
Furthermore, no employee, officer, or
agent may participate in the selection,
award, or administration of a contract
supported by a federal award if he or
she has a real or apparent conflict of
interest.
Public Comment: Definition of
Nonprofit: Treasury also received
several requests to expand the definition
of nonprofits so that other tax-exempt
entities (e.g., 501(c)(7)s, 501(c)(9)s,
501(c)(19)s, nonprofits with "historical
232 See sections 602(c)(3) and 603(c)(3) of the
Social Security Act. See also Section 401 of the
McKinney-Vento Homeless Assistance Act (42
U.S.C. 11360(17), which defines a "private
nonprofit organization."
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4381
significance") could be eligible for
direct assistance as beneficiaries.
Treasury Response: Definition of
Nonprofit: The final rule expands the
definition of nonprofits to mean
501(c)(3) organizations and 501(c)(19)
organizations. 234 The 501(c)(3)
classification includes a wide range of
organizations with varying charitable or
public service -oriented goals (e.g.,
housing, food assistance, job training).
As discussed above, these nonprofit
organizations often experienced
hardship due to increased needs for
services combined with decreased
donations and other sources of funding.
In response to comments, Treasury has
expanded the definition of nonprofit to
include 501(c)(19) organizations, which
includes veterans' organizations, to
provide recipients more flexibility and
in alignment with the definition of
nonprofit adopted by the CARES Act,
wherein 501(c)(3)s and 501(c)(19)s were
eligible for assistance.235
Public Comment: Reporting
Requirements: One commenter asked
Treasury to clarify if nonprofits that
receive direct assistance as beneficiaries
are required to comply with guidelines
and reporting requirements.
Treasury Response: Reporting
Requirements: Nonprofits that receive
direct assistance as beneficiaries are not
subrecipients under SLFRF and are
therefore not required to comply with
SLFRF reporting requirements.
However, the recipient must comply
with SLFRF reporting requirements,
which would require reporting
obligations and expenditures for
assistance to nonprofits. The recipient
may also choose to establish other forms
of reporting or accountability as a part
of the recipient's direct assistance
program.
A nonprofit entity that receives a
transfer from a recipient is a
subrecipient. Per the Uniform Guidance,
subrecipients must adhere to the same
requirements as recipients. Therefore, a
nonprofit subrecipient may only receive
funds to carry out an eligible use of
SLFRF funds and must comply with any
reporting and compliance requirements.
Note that recipients are ultimately
responsible for reporting information to
Treasury and must collect any necessary
234 § 35.3 Definitions.
235 Treasury considered expanding the definition
of nonprofit to include 501(c)(6) organizations, as
Congress later did in the Coronavirus Response and
Consolidated Appropriations Act of 2021, but
ultimately decided to retain the original CARES Act
definition. To the extent impacted by the pandemic,
501(c)(6) organizations may be eligible to receive
funds to support eligible uses that align with their
overall purpose (e.g., tourism promotion in aid of
an impacted industry).
information from their subrecipients to
complete required reporting.
d. Aid to Impacted Industries
The interim final rule allowed for
"aid to tourism, travel, and hospitality,
and other impacted industries" that
responds to the negative economic
impacts of the COVID-19 public health
emergency. In designating other
impacted industries, Treasury specified
that recipients should consider the
"extent of the economic impact as
compared to tourism, travel, and
hospitality" and "whether impacts were
due to the COVID-19 pandemic, as
opposed to longer -term economic or
industrial trends unrelated to the
pandemic." 236 Treasury identified
declines in employment and revenue as
possible metrics to compare the
economic impact on a particular
industry relative to the tourism, travel,
and hospitality industries.
Treasury further provided that aid
should be limited to businesses,
attractions, business districts, and Tribal
development districts 237 that were
operating prior to the pandemic and
affected by required closures and other
efforts to contain the pandemic.
Examples of eligible aid include
assistance to implement COVID-19
mitigation and infection prevention
measures, aid to support safe reopening
of businesses in these industries, as well
as aid for a planned expansion or
upgrade of tourism, travel, and
hospitality facilities delayed due to the
pandemic. The interim final rule and
Treasury's subsequent Compliance and
Reporting Guidance also required
governments to publicly report
assistance provided to private -sector
businesses under this eligible use and
maintain records of their assessments to
facilitate transparency and
accountability.
Reorganization and Cross -References:
As detailed above, Treasury has re -
categorized some uses of funds in the
final rule to provide greater clarity. In
the interim final rule, aid to impacted
industries to implement COVID-19
mitigation and prevention strategies was
categorized under Aid to Impacted
Industries; the final rule addresses these
items under the section COVID-19
Mitigation and Prevention in Public
Health. Recipients should also be aware
of the difference between beneficiaries
236 Coronavirus State and Local Fiscal Recovery
Funds, 86 FR at 26795.
237 For a definition of "Tribal development
districts," please see FAQ 2.9 at the following:
Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, as of July 19, 2021;
https.Ilhome. treasury.gov/system/files/136/
SLFRPFAQ. pdf.
of assistance and subrecipients when
working with impacted industries; for
further information, see section
Distinguishing Subrecipients versus
Beneficiaries.
Designating an Impacted Industry
Public Comment: Many commenters
requested greater clarity on how to
designate "other impacted industries"
within their jurisdiction. Commenters
requested greater specificity as to the
metrics used to measure impact, with
some suggesting metrics such as the
change in the size of an industry's
workforce due to the pandemic, as well
as consideration of whether and why
employees are choosing to return to
work at slower rates in certain
industries. One commenter asked if this
meant nearly every industry was
"disproportionately impacted." Some
commenters encouraged Treasury to
focus on industries most negatively
impacted by the pandemic, including
disallowing across-the-board business
subsidies to businesses that were not
negatively impacted by the pandemic
and saw revenue or profit growth. Other
commenters asked for flexibility for
recipients to determine impacted
industries based on their local
knowledge of the economic landscape.
Treasury Response: The final rule
maintains the interim final rule's
approach of allowing recipients to
designate impacted industries outside
the travel, tourism, and hospitality
industries, and, in response to
comments, provides greater clarity as to
how recipients may designate such
impacted industries.
Sections 602(c)(1)(A) and 603(c)(1)(A)
recognize that the tourism, travel, and
hospitality industries are severely
negatively impacted by the pandemic.
Under the final rule, recipients may
provide eligible aid (described in further
detail herein) to the tourism, travel, and
hospitality industries. Treasury
considers Tribal development districts,
which are commercial centers for Tribal
hospitality, gaming, tourism, and
entertainment and can include Tribal
enterprises, as part of the tourism,
travel, and hospitality industries that
have been severely hit by the pandemic.
Therefore, Treasury reaffirms that Tribal
development districts are considered
impacted industries and recipients may
provide eligible aid to them.
To identify other industries
comparably impacted to the tourism,
travel, and hospitality industries,
recipients should undertake a two-step
process: Identifying an industry and
determining whether that industry is
comparably impacted.
4382 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
First, recipients should identify an
industry to be assessed. In identifying
this industry, the final rule provides
recipients the flexibility to define its
substantive or geographic scope.238
Recipients may identify a broad sector
that encompasses a number of sub-
industries, or they may identify a
specific sub -industry to be assessed. For
example, a recipient may identify
"personal care services" as an industry,
or they may identify a more specific
category within the "personal care
services" industry (e.g., barber shops) as
an industry. In defining the industry,
Treasury encourages recipients to define
narrow and discrete industries eligible
for aid. Recipients are not required to
follow, but may consider following,
industry classifications under the North
American Industry Classification
System (NAICS). Treasury notes that the
larger and more diverse the sector, the
more difficult it may be to demonstrate
that the larger and less specific sector is
negatively impacted in the same way
given the scale and diversity of
businesses within it.
State or territory recipients may also
define a constituent industry with
greater geographic precision than state
or territory -wide. For example, a state
may identify a particular industry in a
certain region of the state that was
negatively impacted by the pandemic,
even if the same industry in the rest of
the state did not see a meaningful
negative economic impact from the
pandemic. State recipients oversee large
and diverse industries, sometimes with
differences in economic activity
between geographic regions. Allowing
greater geographic precision allows
recipients to target aid to those that
need it most, ensuring that state
averages do not conceal hard-hit areas
in their state.
Second, to determine whether the
industry is "impacted," recipients
should compare the negative economic
impacts of the public health emergency
on the identified industry to the impacts
observed on the travel, tourism, and
hospitality industries.
1. Simplified test. An industry is
presumed to be impacted if the industry
experienced employment loss of at least
8 percent.
Specifically, a recipient should
compare the percent change in the
238 Once an industry is designated as impacted,
aid should be generally broadly available to
businesses in the industry that qualify. Recipients
should document how they defined the scope of
their industry and how they determined that the
industry was impacted. For states and territories,
this includes documenting their justification for
defining a constituent industry with greater
geographic precision than state or territory -wide.
number of employees of the recipient's
identified industry and the national
Leisure & Hospitality sector in the three
months before the pandemic's most
severe impacts began (a straight three-
month average of seasonally -adjusted
employment data from December 2019,
January 2020, and February 2020) with
the latest data as of the final rule release
(a straight three-month average of
seasonally -adjusted employment data
from September 2021, October 2021,
and November 2021).239 The national
Leisure & Hospitality sector largely
represents the national travel, tourism,
and hospitality industries enumerated
in the statute. According to the Bureau
of Labor Statistics, employment has
fallen by approximately 8 percent for
the national Leisure & Hospitality sector
when comparing the most recent three-
month period available as of the date of
adoption of the final rule to the three-
month period immediately before the
public health emergency. Therefore, if
the identified industry has suffered an
employment loss of at least 8 percent,
the final rule presumes the industry to
be an "impacted industry."
For parity and simplicity, smaller
recipients without employment data
that measure industries in their specific
jurisdiction may use data available for a
broader unit of government for this
calculation (e.g., a county may use data
from the state in which it is located; a
city may use data for the county, if
available, or state in which it is located)
solely for purposes of determining
whether a particular industry is an
impacted industry.
2. If simplified test is not met. If an
industry does not satisfy the test above
or data are unavailable, the recipient
may still designate the industry as
impacted by demonstrating the
following:
a. The recipient can show that the
totality of relevant major economic
indicators demonstrate that the industry
is experiencing comparable or worse
economic impacts as the national
tourism, travel, and hospitality
industries at the time of the publication
of the final rule, and that the impacts
were generally due to the COVID-19
public health emergency. Example
economic indicators include gross
output, GDP, net profits, employment
levels, and projected time to restore
employment back to pre -pandemic
levels. Recipients may rely on available
economic data, government research
239 National Leisure & Hospitality supersector
employment data can be found on the U.S. Bureau
of Labor Statistics website: U.S. Bureau of Labor
Statistics, Leisure and Hospitality, https.11
www.b1s.gov/iag/tgs/iag70.htm (last visited
December 7, 2021).
publications, research from academic
sources, and other quantitative sources
for this determination.
If quantitative data is unavailable, the
recipient can rely on qualitative data to
show that the industry is experiencing
comparable or worse economic impacts
as the national tourism, travel, and
hospitality industries, and the impacts
were generally due to the COVID-19
public health emergency. Recipients
may rely on sources like community
interviews, surveys, and research from
relevant state and local government
agencies.
As the public health emergency and
economic recovery evolves, recipients
should assess how industry impacts
shift over time. Impacted industries may
recover in a short period of time and no
longer face a negative economic impact;
in those circumstances, the recipient
should ensure that the extent and length
of aid is reasonably proportional to the
negative economic impact that is
experienced, as detailed further below
and in section General Provisions:
Structure and Standards. Recipients
may add to their list of impacted
industries by showing that the negative
economic impacts to the industry at the
time of the designation are comparable
to the negative economic impacts to the
national tourism, travel, and hospitality
sectors as of the date of the final rule
adoption, as detailed herein.
Eligible Aid
Public Comment: Commenters asked
for further clarification as to the
definition of eligible aid to an impacted
industry, with many requesting that a
broad range of aid be eligible. Examples
of aid that recipients asked to be
considered eligible include aid to
businesses to cover COVID-19
mitigation costs and planned
renovations or improvements to
tourism, travel, and hospitality
facilities, as well as marketing and in -
kind incentives to attract visitors.
Commenters also asked about the
eligibility of aid to broadly cover losses
incurred by facilities such as convention
centers and hotels due to the
pandemic's economic impact.
Commenters also asked for further
clarification about the requirements
related to private -sector reporting.
Further, some commenters asked for
clarification about eligible aid to
impacted industries owned and
operated by Tribal governments,
including for Tribal construction
projects that have been delayed due to
the pandemic's economic impacts, and
for deference to Tribal determinations of
negative economic impacts.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4383
Treasury Response: In response to
commenters' requests for clarification
on eligible aid, the final rule requires
that aid to impacted industries,
including to Tribal development
districts, be designed to address the
harm experienced by the impacted
industry.
First, recipients should identify a
negative economic impact, i.e., an
economic harm, that is experienced by
businesses in the impacted industry.
Second, recipients should select a
response that is designed to address the
identified economic harm resulting from
or exacerbated by the public health
emergency. Responses must also be
related and reasonably proportional to
the extent and type of harm
experienced; uses that bear no relation
or are grossly disproportionate to the
type or extent of harm experienced
would not be eligible uses. Recipients
should consider the further discussion
of this standard provided in the sections
Standards: Designating a Public Health
Impact and Standards: Designating a
Negative Economic Impact.
These responses may take the form of
direct spending by recipients to promote
an industry or support for businesses
within an "impacted" industry that
experienced a negative economic impact
(e.g., through a grant program).
Examples of eligible responses include:
• Aid to mitigate financial hardship
due to declines in revenue or profits by
supporting payroll costs and
compensation of returning employees
for lost pay and benefits during the
COVID-19 pandemic, as well as support
of operations and maintenance of
existing equipment and facilities, such
as rent, leases, and utilities;
• Aid for technical assistance,
counseling, and other services to assist
with business planning needs; and
• Aid to implement COVID-19
mitigation and infection prevention
measures, such as vaccination or testing
programs, is broadly eligible for many
types of entities, including travel,
tourism, hospitality, and other impacted
industries. Recipients providing aid to
impacted industries for COVID-19
public health measures should review
the section Assistance to Businesses to
Implement COVID-19 Strategies in
Public Health, which describes types of
eligible uses of funds in this category.
To address the identified harms,
responses (e.g., aid through a grant
program) should be generally broadly
available to all businesses within the
impacted industry to avoid the risk of
self -dealing, preferential treatment, and
conflicts of interest.240 Treasury
encourages recipients to design aid
programs such that funds are first used
for operational expenses that are
generally recognized as ordinary and
necessary for the recipient's operation,
such as payroll, before being used on
other types of costs. As noted in the
section General Standards: Structure
and Standards, uses of funds that do not
respond to the negative economic
impacts of the pandemic, such as
excessive compensation to employees,
is ineligible.
The final rule maintains the interim
final rule's requirement that aid may
only be considered responsive to the
negative economic impacts of the
pandemic if it supports businesses,
attractions, and Tribal development
districts operating prior to the pandemic
and affected by required closures and
other efforts to contain the pandemic.
Further, to facilitate transparency and
accountability, the final rule maintains
the interim final rule's requirement that
recipients publicly report assistance
provided to private -sector businesses
under this eligible use, including
tourism, travel, hospitality, and other
impacted industries, and its connection
to negative economic impacts of the
public health emergency. Recipients
also should maintain records to support
their assessment of how businesses
receiving assistance were affected by the
negative economic impacts of the public
health emergency and how the aid
provided responds to these impacts.
Recipients providing aid to impacted
industries for capital expenditures (i.e.,
expenditures on property, facilities, or
equipment), including Tribal
governments providing aid to Tribal
development districts, should also
review the section Capital Expenditures
in General Provisions: Other, which
describes eligibility standards that are
applicable to these expenditures,
depending on the type of aid. Recipients
providing assistance in the form of loans
should review the section Treatment of
240 As part of accepting the Award Terms and
Conditions for SURF, each recipient agreed to
maintain a conflict -of -interest policy consistent
with 2 CFR 200.318(c) that is applicable to all
activities funded with the SURF award. Pursuant
to this policy, decisions concerning SURF must be
free of undisclosed personal or organizational
conflicts of interest, both in fact and in appearance.
Recipients may avoid conflicts of interest in
awarding aid to impacted industries by, inter alia,
making aid available to businesses in the industry
on generally applicable terms or utilizing a
competitive grant process. A recipient may not use
control over SURF for their own private gain.
Furthermore, no employee, officer, or agent may
participate in the selection, award, or
administration of a contract supported by a federal
award if he or she has a real or apparent conflict
of interest.
Loans in Program Administration
Provisions.
4. General Provisions: Other
As noted above, the final rule
consolidates into a General Provisions
section several types of uses of funds; in
the interim final rule, the eligibility of
these uses of funds was discussed
within specific categories of eligible
uses for public health and negative
economic impacts. Treasury anticipates
that this re -organization will enhance
recipient clarity in assessing eligible
uses of funds. These General Provisions
apply across all uses of funds under
public health and negative economic
impacts.
Specifically, this section considers
eligible uses for:
• Public Sector Capacity and
Workforce, which includes several
separate and non -mutually exclusive
categories articulated in the interim
final rule: public health and safety staff;
rehiring state, local, and Tribal
government staff, expenses for
administering COVID-19 response
programs; expenses to improve the
efficacy of public health or economic
relief programs; and administrative
expenses caused or exacerbated by the
pandemic. Treasury recognizes that
these are closely related and frequently
overlapping categories. The final rule
treats them as a single purpose,
supporting public sector capacity, and
provides coordinated guidance on the
standards and presumptions that apply
to them.
• Capital Expenditures, which was
addressed only under Public Health in
the interim final rule. The final rule
moves this expense to General
Provisions and provides more clarity on
the eligibility of capital expenditures
across all aspects of the public health
and negative economic impacts eligible
use category.
• Distinguishing Sub -recipients versus
Beneficiaries, which describes the
differences between these two
categories. Recipient governments
responding to the public health and
negative economic impacts of the
pandemic may provide assistance to
beneficiaries or execute an eligible use
of funds through a subrecipient; some
types of entities (e.g., nonprofits) could
fit into either category depending on the
specific purpose of the use of funds.
• Uses Outside the Scope of this
Category, which addresses uses of funds
that are ineligible or generally ineligible
under this eligible use category in the
interim final rule. These uses of funds
remain ineligible under the final rule,
but Treasury has re -categorized where
they are addressed, as described below.
4384 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
This section also addresses enumerated
eligible uses proposed by commenters
that Treasury has not incorporated into
the final rule.
Recipients should also note that the
Office of Management and Budget's
(OMB) Uniform Administrative
Requirements, Cost Principles, and
Audit Requirements for Federal Awards
(commonly called the "Uniform
Guidance") generally applies to SLFRF.
a. Public Sector Capacity and Workforce
Public Safety, Public Health, and
Human Services Staff
Summary of Interim Final Rule:
Under the interim final rule, funds may
be used for payroll and covered
benefits 241 for public safety, public
health, health care, human services, and
similar employees242 of a recipient
government, for the portion of the
employee's time that is spent
responding to COVID-19. For
administrative convenience, the
recipient may consider public health
and safety employees to be entirely
devoted to responding to COVID-19,
and therefore their full payroll and
covered benefits eligible to be covered,
if the employee, or his or her operating
unit or division, is "primarily
dedicated" to responding to COVID-19,
meaning that more than half of the
employee, unit, or division's time is
dedicated to responding to COVID-19.
Recipients may consider other
presumptions for assessing the extent to
which an employee, division, or
operating unit is responding to COVID-
19. Recipients must periodically
reassess their determination and
maintain records to support their
assessment, such as payroll records,
attestations from supervisors or staff, or
regular work product or
241 In general, if an employee's wages and salaries
are an eligible use of SLFRF funds, recipients may
treat the employee's covered benefits as an eligible
use of SLFRF funds. For purposes of SLFRF funds,
covered benefits include costs of all types of leave
(vacation, family -related, sick, military,
bereavement, sabbatical, jury duty), employee
insurance (health, life, dental, vision), retirement
(pensions, 401(k)), unemployment benefit plans
(federal and state), workers compensation
insurance, and Federal Insurance Contributions Act
(FICA) taxes (which includes Social Security and
Medicare taxes). As described further in the section
Deposits into Pension Funds in Restrictions on Use,
that limitation on use does not apply to pension
contributions that are part of regular payroll
contributions for employees whose wages and
salaries are an eligible use of SLFRF funds.
242 Note that the interim final rule adapted prior
guidance issued for CRF that described these four
categories of employees; however, when listing the
specific occupations or types of employees in each
of these categories, the guidance collapses health
care and public health into one category titled
"public health." Therefore, the presumption
described around public health employees also
covers health care employees.
correspondence; recipients need not
track staff hours. The interim final rule
also posed a question on how long
recipients should be able to use funds
for staff responding to COVID-19 and
what other measures or presumptions
might Treasury consider to assess the
extent to which public sector staff are
engaged in COVID-19 response in an
easily administrable manner.
Treasury also provided further
guidance on the types of employees
covered by this category of eligible use,
specifically: "Public safety employees
would include police officers (including
state police officers), sheriffs and deputy
sheriffs, firefighters, emergency medical
responders, correctional and detention
officers, and those who directly support
such employees such as dispatchers and
supervisory personnel. Public health
employees 243 would include employees
involved in providing medical and other
health services to patients and
supervisory personnel, including
medical staff assigned to schools,
prisons, and other such institutions, and
other support services essential for
patient care (e.g., laboratory technicians,
medical examiner, or morgue staff) as
well as employees of public health
departments directly engaged in matters
related to public health and related
supervisory personnel. Human services
staff include employees providing or
administering social services; public
benefits; child welfare services; and
child, elder, or family care, as well as
others."
Public Comment: Measuring Time
Spent on COVID-19 Response: Treasury
received public comments on several
components of this eligible use category.
Many commenters argued that it poses
an administrative burden to identify the
extent to which staff are responding to
COVID-19 and to maintain records to
support that assessment. Largely citing
administrative burden in assessing
eligibility, several commenters
recommended revisions to the
administrative convenience that the full
payroll and covered benefits for public
health and safety staff "primarily
dedicated" to responding to COVID-19
may be paid with SLFRF funds. Some
commenters recommended presuming
that all public health and safety staff are
primarily dedicated to COVID-19
response, while others proposed that
public health and safety workers who
primarily serve QCTs or low- and
moderate -income areas be presumed to
be primarily dedicated to COVID-19
243 Note that this category encompasses both
public health and health care employees; both are
treated as public health employees for the purposes
of this eligible use category.
response, given the disproportionate
impacts of the pandemic in those
communities. Similarly, Tribal
communities recommended that their
public health staff be presumed eligible
due to the disproportionate impact of
the pandemic on their communities.
Some commenters proposed that they be
able to use the administrative
convenience for staff outside of public
health and safety that are responding to
COVID-19 (i.e., to be able to pay the full
payroll and covered benefits for any
staff "primarily dedicated" to COVID-
19 response).
Treasury Response: In the final rule,
Treasury is maintaining the approach in
the interim final rule, including
elaborations issued in further guidance,
but providing additional clarification on
its application, including methods to
apply the approach to minimize
administrative burden. Treasury notes
that recipients may assess the extent to
which staff are dedicated to responding
to COVID-19 through a variety of
means, including establishing
presumptions or assessing public health
and safety staff at the division or
operating unit level. For example, a
recipient could consider the amount of
time spent by employees in its public
health department's epidemiology
division in responding to COVID-19
and, if a majority of its employees are
dedicated to responding to COVID-19,
determine that the entire division is
primarily dedicated to responding to
COVID-19. Treasury also clarifies that
recipients may use reasonable estimates
to establish administrable
presumptions; for example, a recipient
could estimate, based on discussions
with staff, the general share of time that
employees in a specific role or type of
position spend on COVID-19 related
tasks and apply that share of time to all
employees in that position.
Recipients are generally required to be
able to support uses of SLFRF funds as
eligible, including, in this instance,
maintenance of records to support an
assessment that public health and safety
staff are primarily dedicated to
responding to COVID-19. As noted
above, recipients may use reasonable
estimates to implement this provision.
Recipients should maintain records on
how they developed these estimates and
need not track staff hours. Treasury
notes that records retained can include
payroll records (e.g., the number and
type of staff in various positions),
attestations from supervisors or staff
(e.g., self -attestation of share of time
spent on COVID-19), or regular work
product or correspondence (e.g.,
calendars, email correspondence,
documents, and other electronic
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4385
records). Treasury anticipates that these
types of records are generally retained
in many government settings; recipients
should also consult the Award Terms
and Conditions for SLFRF funds for
requirements on length of record
retention. For example, a recipient
could establish a reasonable
presumption about the share of time
that an employee, division, or operating
unit is responding to COVID-19 and
simply retain those employees'
electronic records as a record to support
their assessment.
Public Comment: Public Health and
Safety Staff Primarily Dedicated to
COVID-19 Response: Some commenters
recommended expanding the
administrative convenience for public
health and safety staff primarily
dedicated to COVID-19 response to
further types of staff, to all public health
and safety staff, or to public health and
safety staff serving underserved areas.
Treasury Response: The interim final
rule recognized that COVID-19 response
continues to require substantial staff
resources and provides an
administrative convenience to make it
relatively simpler to identify the
eligibility of the types of workers —
public health and safety workers —
generally most involved in COVID-19
response. At the same time, many
public health and safety workers
perform roles unrelated to COVID-19;
coverage of all roles would be overbroad
compared to the workers responding to
COVID-19 in actuality. For this reason,
the final rule maintains the interim final
rule's approach to permitting SLFRF
funds to be used for public health and
safety staff primarily dedicated to
responding to COVID-19. Finally, to the
extent that a greater proportion of public
health and safety staff time is needed to
respond to COVID-19 in
disproportionately impacted
communities, the "primarily dedicated"
approach recognizes this increased
need.
Public Comment: Eligible Types of
COVID-19 Response: Some public
commenters also sought further
clarification on how to identify eligible
types of "COVID-19 response." For
example, commenters requested
clarification on delineating COVID-19
response from general public health
response and defining COVID-19
response for public safety employees.
Treasury Response: Treasury is
clarifying that "responding to" COVID-
19 entails work needed to respond to
the public health or negative economic
impacts of the pandemic, apart from the
typical pre -pandemic job duties or
workload of an employee in a
comparable role, if one existed. For
example, responding to COVID-19 for a
public safety worker may entail working
in an emergency operations center to
coordinate pandemic -related supply
distribution, responding to an increased
volume of 911 calls, or implementing
COVID-19 prevention and mitigation
protocols in a carceral setting.
Public Comment: Eligible Employees:
Some commenters requested
clarification on the types of eligible
employees or expansion of eligible
employees to include additional types
of staff, including in behavioral health;
administrative, management, or
financial management positions; social
services; morgue staff; and nonprofit
staff supporting projects to undertake
eligible uses of funds under SLFRF.
Treasury Response: Treasury
provided further guidance on eligible
types of employees following the
interim final rule, which expressly
included social services and morgue
staff, and incorporates that guidance
into the final rule. In addition, Treasury
is clarifying that public health
"employees involved in providing
medical and other health services to
patients and supervisory personnel"
includes behavioral health services as
well as physical health services.
Treasury also is clarifying that this
provision only addresses employees of
the recipient government responding to
COVID-19. For discussion of eligible
expenses to administer SLFRF,
including eligible costs for subrecipients
performing eligible activities on behalf
of a recipient government, see section
Administrative Expenses in Program
Administration Provisions.
Finally, Treasury is clarifying that
indirect costs for administrative,
management, and financial management
personnel to support public health and
safety staff responding to COVID-19 are
not permissible under this provision,
given the relatively greater challenge of
differentiating the marginal increase in
staff time and workload due to
pandemic response for indirect versus
direct costs.
Public Comment: Time Period:
Finally, some commenters made
recommendations on the time period
during which this eligible use should be
available. Some commenters
recommended eligibility begin before
March 3, 2 02 1, the period when
Treasury's interim final rule permitted
recipients to begin to incur costs using
SLFRF funds; for discussion of this
topic, see section Timeline for Use of
SLFRF Funds in Program
Administration Provisions. As noted
above, Treasury also posed a question in
the interim final rule asking for how
long Treasury should maintain the
administrative convenience that SLFRF
funds may be used for the full payroll
and covered benefits of public health
and safety staff primarily dedicated to
COVID-19 response. Several
commenters recommended that
Treasury maintain this approach
throughout the program or through
December 31, 2024. Other commenters
requested clarification on whether
eligibility for this use of funds was tied
to the length of the state of emergency
or whether a jurisdiction has an active
state of emergency.
Treasury Response: In the final rule,
Treasury is clarifying that recipients
will be permitted to fund the full
payroll and covered benefits of public
health and safety staff primarily
dedicated to COVID-19 response
throughout the period of performance
for the SLFRF program, though
recipients should periodically reassess
their determination of primarily
dedicated staff, including as the public
health emergency and response evolves.
Government Employment and Rehiring
Public Sector Staff
The interim final rule permitted use
of funds for costs associated with
rehiring state, local, and Tribal
government staff in order to bolster the
government's ability to effectively
administer services. Specifically,
recipients may pay for payroll, covered
benefits, and other costs associated with
the recipient increasing the number of
its employees up to the pre -pandemic
baseline, or the number of employees
that the recipient government employed
on January 27, 2020.
Public Comment: Many commenters
requested greater flexibility and
additional clarification on the
provision's requirements, including the
pre -pandemic baseline and re -hiring
process. Some commenters requested
that the final rule allow for hiring above
the pre -pandemic baseline given
historic underinvestment in the public
sector workforce. Commenters suggested
a number of adjustments to the pre -
pandemic baseline, including adjusting
based on population or revenue growth,
while some recommended allowing
recipients to set their own hiring levels.
Others requested clarification on the
definition of the baseline and the re-
hiring process, including whether the
pre -pandemic baseline referred to
budgeted or filled positions and
whether new hires had to fill the same
roles as the previous hires. Commenters
also asked whether recipients need to
show if the reduction in number of
employees was due to the pandemic in
order to qualify for funding and
requested that workers dedicated to
4386 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
COVID-19 response be exempted from
the calculation of number of employees.
Many commenters also requested an
expanded set of eligible uses beyond
restoring their workforce up to the pre -
pandemic baseline. Commenters
requested that funding be able to be
used to avoid layoffs, provide back pay,
retain employees through pay increases
and other retention programs, or
reimburse salaries and benefits already
paid. Some commenters also requested
clarification as to whether recipients
can fund re -hired positions through the
period of performance and on the
definition of payroll and benefits. Other
commenters requested preferential
hiring for workers laid off, a strong
commitment to equity, and a
requirement that funds would not be
used to pay for contract or temporary
replacement workers during a labor
dispute.
Treasury Response: The final rule
allows for an expanded set of eligible
uses to restore and support public sector
employment. Eligible uses include
hiring up to a pre -pandemic baseline
that is adjusted for historic
underinvestment in the public sector,
providing additional funds for
employees who experienced pay cuts or
were furloughed, avoiding layoffs,
providing worker retention incentives,
and paying for ancillary administrative
costs related to hiring.
Restoring pre -pandemic employment.
In response to comments and
recognizing underinvestment in public
sector employment, the final rule
expands the ability to use SLFRF funds
to restore pre -pandemic employment.
Treasury is also clarifying how, and the
extent to which, recipients may use
SLFRF funds to rehire public
employees.
The final rule provides two options to
restore pre -pandemic employment,
depending on recipient's needs. Under
the first and simpler option, recipients
may use SLFRF funds to rehire staff for
pre -pandemic positions that were
unfilled or were eliminated due the
pandemic without undergoing further
analysis. Under the second option, the
final rule provides recipients an option
to hire above the pre -pandemic baseline,
by adjusting the pre -pandemic baseline
for historical growth in public sector
employment over time, as well as
flexibility on roles for hire. Recipients
may choose between these options but
cannot use both.
To pursue the first option, recipients
may use SLFRF funds to hire employees
for the same positions that existed on
January 27, 2020 but that were unfilled
or eliminated as of March 3, 20219
without undergoing further analysis. For
these employees, recipients may use
SLFRF funds for payroll and covered
benefit costs that are obligated by
December 31, 2024 and expended by
December 31, 2026, consistent with the
Uniform Guidance's Cost Principles at 2
CFR part 200 Subpart E. This option
provides administrative simplicity for
recipients that would simply like to
restore pre -pandemic positions and
would not like to hire above the pre -
pandemic baseline.
To pursue the second option,
recipients should undergo the analysis
provided below. In short, this option
allows recipients to pay for payroll and
covered benefits associated with the
recipient increasing its number of
budgeted full-time equivalent
employees (FTEs) up to 7.5 percent
above its pre -pandemic employment
baseline, which adjusts for the
continued underinvestment in state and
local governments since the Great
Recession. State and local government
employment as a share of population in
2019 remained considerably below its
share prior to the Great Recession in
2007, which presented major risks to
recipients mounting a response to the
COVID-19 public health emergency.
The adjustment factor of 7.5 percent
results from estimating how much larger
2019 state and local government
employment would have needed to be
for the share of state and local
government employment to population
in 2019 to have been back at its 2007
level and is intended to correct for this
gap.
Recipients should complete the steps
described below. Recipients may choose
whether to conduct this analysis on a
government -wide basis or for an
individual department, agency, or
authority.
• Step One: Identify the recipient's
budgeted FTE level on January 27, 2 02 0.
This includes all budgeted positions,
filled and unfilled. This is called the
pre -pandemic baseline.
• Step Two: Multiply the pre -
pandemic baseline by 1.075 (that is, 1
+ adjustment factor). This is called the
adjusted pre -pandemic baseline.
• Step Three: Identify the recipient's
budgeted FTE level on March 3, 20219
which is the beginning of the period of
performance for SLFRF funds.
Recipients may, but are not required to,
exclude FTEs dedicated to responding
to the COVID-19 public health
emergency.244 This is called the actual
number of FTEs.
244 Recipients may determine that a portion of an
FTE's time is dedicated to responding to the
COVID-19 public health emergency. Further, for
administrative convenience, the recipient may
• Step Four: Subtract the actual
number of FTEs from the adjusted pre -
pandemic baseline to calculate the
number of FTEs that can be hired and
covered by SLFRF funds.
Recipients may use SLFRF funds to
cover payroll and covered benefit costs
obligated by December 31, 2024, and
expended by December 31, 2026, up to
the number of FTEs calculated in Step
Four, consistent with the Uniform
Guidance's Cost Principles at 2 CFR part
200 Subpart E. Recipients may only use
SLFRF funds for additional FTEs hired
over the March 3, 2021 level of
budgeted FTEs (i.e., the actual number
of FTEs; note again that recipients may
choose whether to conduct the analysis
of FTEs that can be covered by SLFRF
funds on a government -wide basis or for
an individual department, agency, or
authority.
These FTEs must have begun their
employment on or after March 3, 2021,
which is the beginning of the period of
performance. For administrative
convenience, recipients do not need to
demonstrate that the reduction in
number of FTEs was due to the COVID-
19 pandemic, as Treasury assumes the
vast majority of employment reductions
during this time were due to pandemic
fiscal pressures on state and local
budgets. Recipients do not need to hire
for the same roles that existed pre -
pandemic.
For illustration, consider a
hypothetical recipient with 1,000
budgeted FTEs on January 27, 2020 (950
filled FTE positions and 50 unfilled FTE
positions). The recipient's pre -
pandemic baseline is 1000 FTEs; its
adjusted pre -pandemic baseline is 1,000
* 1.075 = 1075 FTEs. Now, assume that
on March 3, 2021, the recipient had 800
budgeted FTEs in total (795 filled FTE
positions and 5 unfilled FTE positions),
with 50 FTEs primarily dedicated to
responding to the COVID-19 public
health emergency. The recipient would
have the option of using either 800 FTEs
or 750 FTEs as its actual number of
FTEs for the calculation; assuming it
chooses the lower number, it would be
able to fund up to 325 FTEs with SLFRF
funds (that is, 1,075 — 750 = 325 FTEs).
consider public health and safety FTEs to be
entirely devoted to mitigating or responding to the
COVID-19 public health emergency if the FTE, or
his or her operating unit of division, is primarily
dedicated to responding to the COVID-19 public
health emergency. Recipients may also consider
other presumptions for assessing the extent to
which an FTE, division, or operating unit is
engaged in activities that respond to the COVID-19
public health emergency, provided that the
recipient reassesses periodically and maintains
records to support its assessment, such as payroll
records, attestations from supervisors or staff, or
regular work product or correspondence
demonstrating work on the COVID-19 response.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4387
Specifically, the recipient would be able
to use SLFRF to fund payroll and
covered benefits for up to 325 FTEs that
begin their employment on or after
March 3, 2021, for costs obligated by
December 31, 2024, and expended by
December 31, 2026, consistent with the
Uniform Guidance's Cost Principles, as
long as SLFRF funds are used for
additional FTEs hired over the
recipient's 750 FTE level (which is its
March 3, 2021 budgeted FTE level).
In hiring new employees, the final
rule encourages recipients to ensure a
diverse workforce. The final rule also
prohibits recipients from using funds to
temporarily fill positions during a labor
dispute, as this would not constitute
responding to the public health or
negative economic impacts of the
pandemic. Further, recipients must
ensure that its hiring practices do not
violate conflict -of -interest policies.245
Total compensation for a hired
employee that is substantially in excess
of typical compensation for employees
of their experience and tenure within
the recipient's government, without a
corresponding business case, may
indicate a potential conflict -of -interest
in fact or appearance.
Providing additional funding for
employees who experienced pay cuts
and furloughs. In recognition of the
economic hardship caused by pay cuts
and furloughs, additional funds may be
provided to employees who experienced
pay cuts or were furloughed since the
onset of the pandemic on January 27,
2020. Recipients must be able to
substantiate that the pay cut or furlough
was substantially due to the public
health emergency or its negative
economic impacts (e.g., fiscal pressures
on state and local budgets) and should
document their assessment. As a
reminder, this additional funding must
be reasonably proportional to the
negative economic impact of the pay cut
or furlough on the employee, which
would include taking into account
unemployment insurance (UI) benefits
that a furloughed employee may have
received during the furloughed period.
Treasury presumes that additional funds
beyond the difference in pay had the
245 As part of accepting the Award Terms and
Conditions for SLFRF, each recipient agreed to
maintain a conflict -of -interest policy consistent
with 2 CFR 200.318(c)112 that is applicable to all
activities funded with the SLFRF award. Pursuant
to this policy, decisions concerning SLFRF must be
free of undisclosed personal or organizational
conflicts of interest, both in fact and in appearance.
A recipient may not use control over SLFRF for
their own private gain. Furthermore, no employee,
officer, or agent may participate in the selection,
award, or administration of a contract supported by
a federal award if he or she has a real or apparent
conflict of interest.
employee not received a pay cut or been
furloughed would not be reasonably
proportional.
Recipients may also provide premium
pay to certain employees, as detailed
further in section Premium Pay.
Avoiding layoffs. Funds may be used
to maintain current compensation
levels, with adjustments for inflation, in
order to prevent layoffs that would
otherwise be necessary. Recipients must
be able to substantiate that layoffs were
likely in the absence of SLFRF funds
and would be substantially due to the
public health emergency or its negative
economic impacts (e.g., fiscal pressures
on state and local budgets) and should
document their assessment.
Retaining workers. Funds may be
used to provide worker retention
incentives, which are designed to
persuade employees to remain with the
employer as compared to other
employment options. Recipients must
be able to substantiate that the
employees were likely to leave
employment in the absence of the
retention incentive and should
document their assessment. For
example, a recipient may determine that
a retention bonus is necessary based on
the presence of an alternative
employment offer for an employee.
All worker retention incentives must
be narrowly tailored to need and should
not exceed incentives traditionally
offered by the recipient or compensation
that alternative employers may offer to
compete for the employees. Further,
because retention incentives are
intended to provide additional incentive
to remain with the employer, they must
be entirely additive to an employee's
regular rate of wages and other
remuneration and may not be used to
reduce or substitute for an employee's
normal earnings. Treasury will presume
that retention incentives that are less
than 25 percent of the rate of base pay
for an individual employee or 10
percent for a group or category of
employees are reasonably proportional
to the need to retain employees, as long
as the other requirements are met.
Ancillary administrative costs. Funds
may be used to pay for ancillary
administrative costs associated with
administering SLFRF-funded hiring and
retention programs detailed above,
including costs to publish job postings,
review applications, and onboard and
train new hires. For additional
information on administrative expenses,
see section Administrative Expenses in
Program Administration Provisions.
Effective Service Delivery:
Administrative Expenses
The interim final rule provided that
funds could be used for: "Expenses to
improve efficacy of public health or
economic relief programs:
Administrative costs associated with the
recipient's COVID-19 public health
emergency assistance programs,
including services responding to the
COVID-19 public health emergency or
its negative economic impacts, that are
not federally funded." In the final rule,
Treasury is clarifying that there are
several categories of eligible
administrative expenses.
First, recipients may use funds for
administrative costs to improve the
efficacy of public health or economic
relief programs through tools like
program evaluation, data analysis, and
targeted consumer outreach (see section
Effective Service Delivery: Program
Evaluation, Data, and Outreach).
Second, recipients may use funds for
administrative costs associated with
programs to respond to the public
health emergency and its negative
economic impacts, including programs
that are not funded by SLFRF or not
federally funded. In other words,
Treasury recognizes that responding to
the public health and economic impacts
of the pandemic requires many
programs and activities, some of which
are not funded by SLFRF. Executing
these programs effectively is a
component of responding to the public
health and negative economic impacts
of the pandemic.
Finally, recipients may use funds for
direct and indirect administrative costs
for administering the SLFRF program
and projects funded by the SLFRF
program. See section Administrative
Expenses in Program Administration
Provisions for details on this eligible use
category.
Effective Service Delivery: Program
Evaluation, Data, and Outreach
The Supplementary Information of
the interim final rule provided that
state, local and Tribal governments may
use SLFRF funds to improve the design
and execution of programs responding
to the COVID-19 pandemic and to
improve the efficacy of programs
addressing negative economic impacts.
The interim final rule included high-
level guidance about how SLFRF funds
could be used in this eligible use
category, including the use of targeted
consumer outreach, improvements to
data or technology infrastructure,
impact evaluations, and data analysis.
Since the publication of the interim
final rule, Treasury has also released
4388 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
supplementary information on data
analysis, evidence building, and
program evaluation in the Compliance
and Reporting Guidance.
Public Comment: Treasury received
positive comments about the
opportunity to invest in data and
technology upgrades with SLFRF funds.
For example, one commenter noted that
investing in technology for better
connectivity, coupled with software and
hardware upgrades, will allow the
workforce to be more productive.
Treasury also received comments
seeking clarification on using funds for
investments in data and technology,
including whether upgrading
government websites to improve
community outreach and investing in
technologies that support social
distancing were eligible uses.
Treasury Response: Governments
with high capacity to use data and
evidence to administer programs are
more likely to be responsive to the
needs of their community, more
transparent about their community
impact, and more resilient to
emergencies such as the pandemic and
its economic impacts.246 Treasury
recognizes that collecting high -quality
data and developing community -driven,
evidence -based programs requires
resources to hire and build the capacity
of staff, adopt new processes and
systems, and use new technology and
tools in order to effectively develop,
execute, and evaluate programs. As
such, Treasury is clarifying that
recipients may use SLFRF funds toward
the following non -exhaustive list of uses
to address the data, evidence, and
program administration needs of
recipients. Additional information may
be provided in the Compliance and
Reporting Guidance.
• Program evaluation and evidence
resources to support building and using
evidence to improve outcomes,
including development of Learning
Agendas 247 to support strategic
evidence building, selection of
evidence -based interventions, and
program evaluations including impact
evaluations (randomized control trials
246Results for America, Invest in What Works
State Standard of Excellence (August 2020), https://
2020state.results4americo. org/2020—State-
Standard-of-Excellence. pdf.
247 Learning Agendas are systematic plans to
identify, prioritize, answer important questions
about programs and policies using analytic
techniques that are appropriate to the type of
question asked. For more information on learning
agendas, please see OMB Memorandum M-19-23,
available at: https://www.whitehouse.govlwp-
content/uploads/2019/07/M-19-23.pdf and OMB
Memorandum M-21-27, available at: https://
www. whi tehouse.govlwp-content/u ploads/202l /06/
M-21-27. pdf.
and quasi -experimental designs) as well
as rapid -cycle evaluations, process or
implementation evaluations, outcome
evaluations, and cost -benefit analyses.
Recipients are encouraged to undertake
rigorous program evaluations when
practicable, assess the impact of their
programs by beneficiary demographics
(including race, ethnicity, gender,
income, and other relevant factors), and
engage with community stakeholders
(including intended beneficiaries) when
developing Learning Agendas and
designing evaluations to ensure that
programmatic, cultural, linguistic, and
historical nuances are accurately and
respectfully addressed.
Recipients are also encouraged to use
relevant evidence Clearinghouses,248
among other sources, to assess the level
of evidence for their interventions and
identify evidence -based models that
could be applied in their jurisdiction
(meaning models with strong or
moderate evidence; see Compliance and
Reporting Guidance for details on these
terms).
• Data analysis resources to gather,
assess, and use data for effective policy -
making and real-time tracking of
program performance to support
effective implementation of SLFRF-
funded programs and programs that
respond to the public health emergency
and its negative economic impacts, or
which households, small businesses, or
impacted industries are accessing
during the pandemic that are funded by
other sources. These resources include
but are not limited to data gathering,
data cleaning, data analysis, data
infrastructure, data management, data
sharing, data transparency, performance
management, outcomes -based
budgeting, outcomes -based
procurement, and other data needs.
Treasury encourages the disaggregation
of data to identify disparate program
impacts and the use of cross -
jurisdictional data sharing to better
measure and implement government
programs.
248 Evidence Clearinghouses are databases of
research in particular program areas. Frequently
these Clearinghouses identify evidence -based
programs, the strength of the evidence for those
programs, and provide contextual or supporting
information in easy to understand formats. Many
federal departments have developed rigorous and
helpful Clearinghouses that cover a wide range of
uses enumerated in this final rule as well as other
programs that may be responsive to public health
or negative economic impacts of the pandemic. For
more information on Clearinghouses, please see the
Compliance and Reporting Guidance: U.S.
Department of the Treasury, Recipient Compliance
and Reporting Responsibilities, as of November 5,
2021; https.Ilhome.treasury.gov/policy-issues/
coronavirus/assistance-for-state-local-and-tribal-
governments/state-and-local fiscal -recovery -funds/
recipient -compliance -and -reporting -responsibilities.
• Technology infrastructure resources
to improve access to and the user -
experience of government information
technology systems, including upgrades
to hardware and software as well as
improvements to public -facing websites
or to data management systems, to
increase public access and improve
public delivery of government programs
and services (including in the judicial,
legislative, or executive branches).
• Community outreach and
engagement resources to support the
gathering and sharing of information in
ways that improve equity and effective
implementation of SLFRF-funded
programs and programs that respond to
the public health emergency and its
negative economic impacts, or which
households, small businesses, or
impacted industries are accessing
during the pandemic that are funded by
other sources. These methods include
but are not limited to community
meetings, online surveys, focus groups,
human -centered design activities,
behavioral science techniques, and
other community engagement tools.
• Capacity building resources to
support using data and evidence in
designing, executing, and evaluating
programs, including hiring public sector
staff, contractors, academics,
consultants, and others with expertise
in evaluation, data, technology, and
community engagement as well as
technical assistance support for public
sector staff, staff of subrecipients, and
community partners to support effective
implementation of SLFRF-funded
programs and programs that respond to
the public health emergency and its
negative economic impacts, or which
households, small businesses, or
impacted industries are accessing
during the pandemic that are funded by
other sources.
Administrative Needs Caused or
Exacerbated by the Pandemic
As described in guidance and the
interim final rule, SLFRF funds may be
used to address administrative needs of
recipient governments that were caused
or exacerbated by the pandemic.
Guidance following the interim final
rule included several examples of this,
for example, uses of funds to address
backlogs resulting from pandemic -
related shutdowns (e.g., backlogs in
court systems).249 This also includes
249 See FAQ 2.19. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home.treasury.gov/system/files/136/SLFRPFAQ. pdf.
In the case of courts specifically, this includes
"implementing COVID-19 safety measures to
facilitate court operations, hiring additional court
staff or attorneys to increase speed of case
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4389
using funds for increased repair or
maintenance needs to respond to
significantly greater use of public
facilities during the pandemic (e.g.,
increased use of parks resulting in
damage or increased need for
maintenance). Some commenters
expressed support for the ability to use
funds for these purposes. Treasury is
maintaining these enumerated eligible
uses in the final rule and clarifying that
capital expenditures such as technology
infrastructure to adapt government
operations to the pandemic (e.g., video-
conferencing software, improvements to
case management systems or data
sharing resources), reduce government
backlogs, or meet increased
maintenance needs are eligible.
Capital Expenditures
The interim final rule expressly
permitted use of funds for a limited
number of capital expenditures that
mostly pertained to COVID-19
prevention and mitigation. These
included capital investments in public
facilities to meet pandemic operational
needs, such as physical plant
improvements to public hospitals and
health clinics; adaptations to public
buildings to implement COVID-19
mitigation tactics; ventilation
improvements in congregate settings,
health care settings, or other key
locations; assistance to small businesses
and nonprofits and aid to impacted
industries to implement COVID-19
prevention or mitigation tactics, such as
physical plant changes to enable social
distancing. For disproportionately
impacted populations and communities,
the interim final rule also expressly
permitted development of affordable
housing to increase the supply of
affordable and high -quality living units.
Public Comment: Many commenters
supported the interim final rule's
allowance of capital expenditures in
facilities to meet pandemic operational
needs but requested that the final rule
explicitly allow for a broader range of
capital expenditures. Commenters
expressed an interest in investing in
equipment, real property, and facilities
that they argued will yield lasting
benefits beyond the SURF period of
performance. Some commenters stated
that the approach in the interim final
rule limited the vast majority of capital
expenditures to governments that
experienced revenue loss under
Sections 602(c)(1)(C) and 603(c)(1)(C)
and that this approach may prevent
some governments from fully meeting
the needs of their residents. A few
resolution, and other expenses to expedite case
resolution are eligible uses."
commenters argued that Treasury
should limit use of funds on capital
expenditures not related to addressing a
direct pandemic harm, such as general
economic development or workforce
development, and some expressed
support for generally limiting capital
expenditures to those that address the
needs of low-income communities and
communities of color.
Many commenters requested that
capital expenditures related to direct
COVID-19 public health response be
included as enumerated eligible uses.
The requested types of expenditures
include improvements and construction
of hospitals and health clinics
(including behavioral health clinics), as
well as other health -related
infrastructure improvements, such as
improvements to medical equipment or
public health information technology.
These commenters stated that
investments in health and public health
systems are vital to ensuring critical
infrastructure necessary to respond to
continued impacts of COVID-19 or to
address disparities in health, due to lack
of access to health care, that contributed
to disproportionate impacts of COVID-
19 on some communities. Further, some
commenters requested that construction
or improvements of emergency
management and public safety facilities
be deemed eligible, citing that some of
these sites serve as remote vaccination
sites or are otherwise crucial to the
pandemic public health response.
Commenters also requested use of
funds for capital expenditures that
support community needs apart from
health care, such as new construction or
improvements to schools, affordable
housing (beyond presumed
disproportionately impacted
communities), childcare facilities, and
community centers; some suggested that
all types of projects permissible under
the Community Development Block
Grant Program should be eligible both
for policy and administrability reasons.
Further, some commenters also asked
for clarification as to whether parks and
recreational facilities are eligible if built
in certain disproportionately impacted
areas, as well as public transportation
infrastructure.
Finally, some commenters also
requested use of funds for capital
expenditures in government
administration buildings, such as public
courthouses, as well as technology
infrastructure that would allow for
remote delivery of public benefits.
Others also asked about whether funds
could be used to renovate vacant
business district buildings or
commercial spaces to spur economic
recovery.
Treasury Response: Capital
expenditures, in certain cases, can be
appropriate responses to the public
health and economic impacts of the
pandemic, in addition to programs and
services. Like other eligible uses of
SURF funds in this category, capital
expenditures should be a related and
reasonably proportional response to a
public health or negative economic
impact of the pandemic. The final rule
clarifies and expands how SURF funds
may be used for certain capital
expenditures, including criteria and
documentation requirements specified
in this section, as applicable.
Treasury provides presumptions and
guidelines for capital expenditures that
are enumerated earlier in sections
Public Health, Negative Economic
Impacts, and General Provisions: Other
under the Public Health and Negative
Economic Impact eligible use category
("enumerated projects"), along with
capital expenditures beyond those
enumerated by Treasury. In addition to
satisfying the two-part framework in
Standards: Designating a Public Health
Impact and Standards: Designating a
Negative Economic Impact for
identifying and designing a response to
a pandemic harm, Treasury will require
projects with total expected capital
expenditure costs of $1 million or
greater to undergo additional analysis to
justify their capital expenditure.
Increased reporting requirements will be
required for projects that are larger in
size, as well as projects that are not
enumerated as eligible by Treasury,
with certain exceptions for Tribal
governments discussed below. Smaller
projects with total expected capital
expenditures below $1 million will not
be required to undergo additional
analysis to justify their capital
expenditure, as such projects will be
presumed to be reasonably proportional,
provided that they are responding to a
harm caused or exacerbated by the
public health emergency. These
standards and documentation
requirements are designed to minimize
administrative burden while also
ensuring that projects are reasonably
proportional and supporting Treasury's
risk -based approach to overall program
management and monitoring.
This section provides (1) an overview
of general standards governing capital
expenditures; (2) presumptions on
capital expenditures, which help guide
recipients in determining whether the
expenditure meets the standards and the
associated documentation requirements;
and (3) additional standards and
requirements that may apply.
4390 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
Overview of General Standards
In considering whether a capital
expenditure would be eligible under the
public health and negative economic
impacts eligible use category, recipients
must satisfy the requirements for all
uses under the public health and
negative economic impacts eligible use
category, including identifying an
impact or harm and designing a
response that addresses or responds to
the identified impact or harm.
Responses must be reasonably designed
to benefit the individual or class that
experienced the impact or harm and
must be related and reasonably
proportional to the extent and type of
impact or harm. Recipients should
consult further details on this standard
provided in the sections Standards:
Designating a Public Health Impact and
Standards: Designating a Negative
Economic Impact under General
Provisions: Structure and Standards.
In addition to the framework
described above, for projects with total
expected capital expenditures of $1
million or greater, recipients must
complete and meet the substantive
requirements of a Written Justification
for their capital expenditure, except for
Tribal governments as discussed below.
This Written Justification helps clarify
the application of this interpretive
framework to capital expenditures,
while recognizing that the needs of
communities differ. In particular, this
justification reflects the fact that the
time required for a large construction
project may make capital expenditures
less responsive to pandemic -related
needs relative to other types of
responses. In addition, as discussed in
section Timeline for Use of SLFRF
Funds of this Supplemental
Information, SLFRF funds must be
obligated by December 31, 2024 and
expended by December 31, 2026.
Capital expenditures may involve long
lead-times, and the Written Justification
may support recipients in analyzing
proposed capital expenditures to
confirm that they conform to the
obligation and expenditure timing
requirements. Further, such large
projects may be less likely to be
reasonably proportional to the harm
identified. For example, construction of
a new, larger public facility for the
purpose of increasing the ability to
socially distance generally would not be
considered a reasonably proportional
response compared to other less time -
and resource -intensive options that may
be available and would be equally or
more effective. Other solutions, such as
improvements in ventilation, could be
made more quickly and are typically
more cost effective than construction of
a new, larger facility. The needs of
communities differ, and recipients are
responsible for identifying uses of
SLFRF funds that best respond to these
needs. The Written Justification
recognizes this while also establishing
consistent documentation and reporting
to support monitoring and compliance
with the ARPA and final rule. Finally,
the Written Justification also reflects the
fact that infrastructure projects are
generally not within scope of this
eligible use category. See section Uses
Outside the Scope of this Category in
General Provisions: Other.
As noted above, Tribal governments
are not required to complete the Written
Justification for projects with total
capital expenditures of $1 million or
greater. Tribal governments generally
have limited administrative capacity
due to their small size and
corresponding limited ability to
supplement staffing for short-term
programs. In addition, Tribal
governments are already subject to
unique considerations that require
additional administrative processes and
administrative burden for Tribal
government decision making, including
capital expenditures. Tribal
governments generally are subject to a
jurisdictionally complex sets of rules
and regulations in the case of
improvements to land for which the title
is held in trust by the United States for
a Tribe (Tribal Trust Lands).250 This
includes the requirement in certain
circumstances to seek the input or
approval of one or more federal agencies
such the Department of the Interior,
which holds fee title of Tribal Trust
Lands.
As a result of their limited
administrative capacity and unique and
complex rules and regulations
applicable to Tribal governments
operating on Tribal Trust Lands, Tribal
governments would experience
significant and redundant
administrative burden by also being
required to complete a Written
Justification for applicable capital
expenditures. While Tribal governments
are not required to complete the Written
Justification for applicable capital
expenditures, the associated substantive
requirements continue to apply,
including the requirement that a capital
expenditure must be reasonably
designed to benefit the individual or
class that experienced the identified
impact or harm and must be related and
reasonably proportional to the extent
and type of impact or harm. Note that,
as a general matter, Treasury may also
250See 25 U.S.C. 5108.
request further information on SLFRF
expenditures and projects, including
capital expenditures, as part of the
regular SLFRF reporting and
compliance process, including to assess
their eligibility under the final rule.
The Written Justification should (1)
describe the harm or need to be
addressed; (2) explain why a capital
expenditure is appropriate to address
the harm or need; and (3) compare the
proposed capital expenditure against
alternative capital expenditures that
could be made. The information
required for the Written Justification
reflects the framework applicable to all
uses under the public health and
negative economic impacts eligible use
category, providing justification for the
reasonable design, relatedness, and
reasonable proportionality of the capital
expenditure in response to the harm or
impact identified.
1. Description of harm or need to be
addressed: Recipients should provide a
description of the specific harm or need
to be addressed, and why the harm was
exacerbated or caused by the public
health emergency. When appropriate,
recipients may provide quantitative
information on the extent and type of
the harm, such as the number of
individuals or entities affected.
2. Explanation of why a capital
expenditure is appropriate: Recipients
should provide an independent
assessment demonstrating why a capital
expenditure is appropriate to address
the specified harm or need. This should
include an explanation of why existing
capital equipment, property, or facilities
would be inadequate to addressing the
harm or need and why policy changes
or additional funding to pertinent
programs or services would be
insufficient without the corresponding
capital expenditures. Recipients are not
required to demonstrate that the harm or
need would be irremediable but for the
additional capital expenditure; rather,
they may show that other interventions
would be inefficient, costly, or
otherwise not reasonably designed to
remedy the harm without additional
capital expenditure.
3. Comparison of the proposed capital
expenditure against alternative capital
expenditures: Recipients should provide
an objective comparison of the proposed
capital expenditure against at least two
alternative capital expenditures and
demonstrate why their proposed capital
expenditure is superior to alternative
capital expenditures that could be
made. Specifically, recipients should
assess the proposed capital expenditure
against at least two alternative types or
sizes of capital expenditures that are
potentially effective and reasonably
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4391
feasible. Where relevant, recipients
should compare the proposal against the
alternative of improving existing capital
assets already owned or leasing other
capital assets. Recipients should use
quantitative data when available,
although they are encouraged to
supplement with qualitative
information and narrative description.
Recipients that complete analyses with
minimal or no quantitative data should
provide an explanation for doing so.
In determining whether their
proposed capital expenditure is superior
to alternative capital expenditures,
recipients should consider the following
factors against each selected alternative.
a. A comparison of the effectiveness of
the capital expenditures in addressing
the harm identified. Recipients should
generally consider the effectiveness of
the capital expenditures in addressing
the harm over the useful life of the
capital asset and may consider metrics
such as the number of impacted or
disproportionately impacted individuals
or entities served, when such
individuals or entities are estimated to
be served, the relative time horizons of
the project, and consideration of any
uncertainties or risks involved with the
capital expenditure.
b. A comparison of the expected total
cost of the capital expenditures.
Recipients should consider the expected
total cost of the capital expenditure
required to construct, purchase, install,
or improve the capital assets intended to
address the public health or negative
economic impact of the public health
emergency. Recipients should include
pre -development costs in their
calculation and may choose to include
information on ongoing operational
costs, although this information is not
required.
Recipients should balance the
effectiveness and costs of the proposed
capital expenditure against alternatives
and demonstrate that their proposed
capital expenditure is superior. Further,
recipients should choose the most cost-
effective option unless it substantively
reduces the effectiveness of the capital
investment in addressing the harm
identified.
As an example, a recipient
considering building a new diagnostic
testing laboratory to enhance COVID-19
testing capacity may consider whether
existing laboratories sufficiently meet
demand for COVID-19 testing,
considering the demand for test results
(along with their turnaround time) as
well as the impact of current testing
availability on the spread of COVID-19.
Recipients may also consider other
public health impacts of the level of
diagnostic testing capacity, for example
if insufficient capacity has decreased
testing for other health conditions. The
recipient may consider alternatives such
as expanding existing laboratories or
building a laboratory of a different size.
In comparing the effectiveness of the
capital expenditures, examples of
factors that the recipient may consider
include when the facilities will become
operational and for how long; the daily
throughput of COVID-19 tests; and the
effect on minimizing delays in test
results on the populations that such
tests will serve. In comparing costs, the
recipient may compare the total
expected cost of the new laboratory
(including costs of acquisition of real
property, construction of the laboratory,
and purchase of any necessary
equipment needed to operationalize the
lab), against the expected costs of
expanding existing laboratories
(whether by replacing current
equipment with higher throughout
devices or physically expanding space
to accommodate additional capacity) or
building a new laboratory of a different
size, including by leasing property. As
a reminder, recipients should only
consider alternatives that are potentially
effective and reasonably feasible.
Because, in all cases, uses of SURF
funds to respond to public health and
negative economic impacts of the
pandemic must be related and
reasonably proportional to a harm
caused or exacerbated by the pandemic,
some capital expenditures may not
eligible. For example, constructing a
new correctional facility would
generally not be a proportional response
to an increase in the rate of certain
crimes or overall crime as most
correctional facilities have historically
accommodated fluctuations in
occupancy.251 In addition, construction
of new congregate facilities, which
would generally be expected to involve
expenditures greater than $1 million,
would generally not be a proportional
response to mitigate or prevent COVID-
19, because such construction is
generally expected to be more costly
than alternative approaches or capital
expenditures that may be equally or
more effective in decreasing spread of
251 See, e.g., "Economic Perspectives on
Incarceration and the Criminal Justice System,"
Council of Economic Advisers (April 2016), pg. 36-
43.
the disease.252 These alternatives
include personal protective equipment,
ventilation improvements, utilizing
excess capacity in other facilities or
wings, or temporary facility capacity
expansions.
Large capital expenditures intended
for general economic development or to
aid the travel, tourism, and hospitality
industries —such as convention centers
and stadiums —are, on balance,
generally not reasonably proportional to
addressing the negative economic
impacts of the pandemic, as the efficacy
of a large capital expenditure intended
for general economic development in
remedying pandemic harms may be very
limited compared to its cost.253
Presumptions on Capital Expenditures
For administrative convenience, the
final rule provides presumptions on
whether a Written Justification is
required —and required to be submitted
to Treasury through reporting based on
the type and size of the capital
expenditure, as detailed in the table
below.
As discussed above, Tribal
governments are not required to
complete the Written Justification for
applicable capital expenditures, but the
associated substantive requirements
continue to apply, including the
requirement that a capital expenditure
must be reasonably designed to benefit
the individual or class that experienced
the identified impact or harm and must
be related and reasonably proportional
to the extent and type of impact or
harm.
252 For instance, the CDC has published detailed
recommendations for nursing homes, long-term care
facilities, and correctional and detention facilities,
on infection prevention and control. Many of these
recommendations are relatively low cost, such as
proper use of PPE. In addition, increasing
vaccination rates among nursing home staff is
among the most important ways to decrease the
spread of the disease. Centers for Disease Control
and Prevention, Interim Infection Prevention and
Control Recommendations to Prevent SARS—CoV-
2 Spread in Nursing Homes (September 10, 2021),
https://www.cdc.govlcoronavirusl2Ol9-ncovlhcpl
long-term-care.htmManch or-1631030153017.
253 For instance, researchers have found no
consistent positive relationship between building
sports facilities and local economic development.
As Siegfried and Zimbalist (2000, 103) write in a
review of the literature, "independent work on the
economic impact of stadiums and arenas has
uniformly found that there is no statistically
significant positive correlation between sports
facility construction and economic development."
John Siegfried and Andrew Zimbalist, The
Economics of Sports Facilities and Their
Communities, Journal of Economic Perspectives 14,
no. 3 (Summer 2000): 95-114, https://
www.aeaweb.org/articles?id=l0.1257/jep.14.3.95.
4392 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
If a project has total expected cap- and the use is enumerated by Treasury as eligible, and the use is beyond those enumerated by Treas-
ital expenditures of then 254 ury as eligible, then 255
Less than $1 million ........................ No Written Justification required ............................... No Written Justification required.
Greater than or equal to $1 million, Written Justification required but recipients are not Written Justification required and recipients must
but less than $10 million. required to submit as part of regular reporting to submit as part of regular reporting to Treasury.
Treasury.
$10 million or more ......................... Written Justification required and recipients must
submit as part of regular reporting to Treasury.
In selecting these thresholds, Treasury
recognized that capital expenditures
vary widely in size and therefore would
benefit from tiered treatment to
implement eligibility standards while
minimizing administrative burden,
especially for smaller projects. For
example, Treasury selected $1 million
as a threshold for whether a recipient
needs to complete a Written
Justification as well as a threshold
under which capital expenditures
would be presumed reasonably
proportional. Treasury estimates that $1
million would encapsulate the costs of
a significant portion of equipment or
small renovations. These types of
smaller projects are often a necessary
and reasonably proportional part of a
response to the public health
emergency; therefore, the $1 million
threshold provides a simplified pathway
to complete smaller projects more likely
to meet the eligibility standard. At the
same time, Treasury selected $10
million as the threshold for more
intensive reporting requirements,
estimating that projects larger than $10
million would likely constitute
significant improvements or
construction of mid- or large -sized
facilities. As discussed above, given
their scale and longer time to
completion, these types of larger
254 Whether or not a Written Justification is
required, recipients should still determine that the
response is related and reasonably proportional to
the public health emergency and its negative
economic impacts. Treasury recognizes that
enumerated eligible uses are "related" to the public
health emergency and its negative economic
impacts and presumed to be reasonably
proportional, except recipients pursuing projects
with expected total capital expenditures equal to or
greater than $1 million should still independently
determine that the expenditures are a reasonably
proportional response. Enumerated projects with
total expected capital expenditures under $1
million receive a safe harbor and deemed to meet
the related and reasonably proportional standard.
255 Whether or not a Written Justification is
required, recipients should still determine that the
response is related and reasonably proportional to
the public health emergency and its negative
economic impacts. Treasury presumes that projects
with total expected capital expenditures under $1
million are reasonably proportional in size to
responding to the public health emergency and its
negative economic impacts; however, recipients
should determine that the response otherwise meets
the requirements of the standard, including that the
response is related to the public health emergency
and its negative economic impacts.
projects may be less likely to be
reasonably proportional responses. The
$10 million threshold also generally
aligns with thresholds in other parts of
the SLFRF program, such as for
enhanced reporting on labor practices.
Expenditures from closely related
activities directed toward a common
purpose are considered part of the scope
of one project. These expenditures can
include capital expenditures, as well as
expenditures on related programs,
services, or other interventions. A
project includes expenditures that are
interdependent (e.g., acquisition of land,
construction of the school on the land,
and purchase of school equipment), or
are of the same or similar type and
would be utilized for a common
purpose (e.g., acquisition of a fleet of
ambulances that would be used for
COVID-19 emergency response).
Recipients must not segment a larger
project into smaller projects in order to
evade review. A recipient undertaking a
set of identical or similar projects (e.g.,
development of a number of new
affordable housing complexes across the
recipient jurisdiction) may complete
one Written Justification
comprehensively addressing the entire
set of projects.
Projects Enumerated as Eligible by
Treasury
Under the public health and negative
economic impacts eligible use category,
the final rule provides a non-exclusive
list of eligible uses of funding for
projects that respond to the public
health emergency or its negative
economic impacts. Treasury has
determined that these enumerated
projects are related to the public health
emergency and its negative economic
impacts; however, recipients (other than
Tribal governments) undertaking these
projects with total expected capital
expenditures of $1 million or greater
must still complete and meet the
substantive requirements of a Written
Justification as part of their
demonstration that the project is a
related and reasonably proportional
response to the harm identified.
• Projects with total expected capital
expenditures of under $1 million:
Treasury provides a safe harbor for
projects with total expected capital
expenditures of less than $1 million and
will not require recipients to complete,
submit, or meet the substantive
requirements of a Written Justification
for the capital expenditure. In essence,
recipients may pursue an enumerated
project with total expected capital
expenditures of under $1 million
without having to undergo additional
assessments to meet SLFRF
requirements.
• Projects with total expected capital
expenditures of at least $1 million but
under $10 million: Recipients should
complete a Written Justification for the
capital expenditure and make an
independent assessment of whether
their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Recipients will
not be required to submit the Written
Justification as part of regular reporting
to Treasury but should keep
documentation for their records.
• Projects with total expected capital
expenditures of at least $10 million:
Similar to the above, recipients should
complete a Written Justification of the
capital expenditure and make an
independent assessment of whether
their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Further,
recipients will be asked to submit the
Written Justification as part of regular
reporting to Treasury. Similar to other
parts of the SLFRF program, such as on
reporting on labor practices, Treasury
recognizes that projects with expected
total capital expenditures of at least $10
million may be less likely to meet
eligibility requirements and therefore
requires recipients to provide an
enhanced level of information to
Treasury.
Projects Beyond Those Enumerated as
Eligible by Treasury
As with all uses, recipients that
undertake capital expenditures beyond
those enumerated as eligible by
Treasury must meet the two-part
framework under Standards:
Designating a Public Health Impact and
Standards: Designating a Negative
Economic Impact under General
Provisions: Structure and Standards,
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4393
including the requirement that
responses are related and reasonably
proportional to the harm or impact
identified. As part of that assessment,
these recipients may also be asked to
complete a Written Justification.
Recipients (other than Tribal
governments) are subject to the
following presumptions for the Written
Justification of the capital expenditure,
based on the total expected capital
expenditures of the project:
• Projects with total expected capital
expenditures of under $1 million:
Treasury provides a safe harbor for
unenumerated projects with total
expected capital expenditures of under
$1 million and will not require
recipients to complete, submit, or meet
the substantive requirements of a
Written Justification of the capital
expenditure. Recipients should still
make a determination as to whether the
capital expenditure is part of a response
that is related and reasonably
proportional to the public health
emergency or its negative economic
impacts.
• Projects with total expected capital
expenditures of $1 million or over:
Recipients should complete a Written
Justification of the capital expenditure
and make an independent assessment
that their proposed capital expenditure
meets the substantive requirements of
the Written Justification. Further,
recipients will be asked to submit the
Written Justification as part of regular
reporting to Treasury.
Treasury employs a risk -based
approach to overall program
management and monitoring, which
may result in heightened scrutiny on
larger projects. Accordingly, recipients
pursuing projects with larger capital
expenditures should complete more
detailed analyses for their Written
Justification, commensurate with the
scale of the project.
Additional Provisions, Standards, and
Definitions
Strong Labor Standards in Construction
Treasury encourages recipients to
carry out projects in ways that produce
high -quality work, avert disruptive and
costly delays, and promote efficiency.
Treasury encourages recipients to use
strong labor standards, including project
labor agreements (PLAs) and
community benefits agreements that
offer wages at or above the prevailing
rate and include local hire provisions.
Treasury also recommends that
recipients prioritize in their
procurement decisions employers who
can demonstrate that their workforce
meets high safety and training standards
(e.g., professional certification,
licensure, and/or robust in-house
training), that hire local workers and/or
workers from historically underserved
communities, and who directly employ
their workforce or have policies and
practices in place to ensure contractors
and subcontractors meet high labor
standards. Treasury further encourages
recipients to prioritize employers
(including contractors and
subcontractors) without recent
violations of federal and state labor and
employment laws.
Treasury believes that such practices
will promote effective and efficient
delivery of high -quality projects and
support the economic recovery through
strong employment opportunities for
workers. Such practices will reduce
likelihood of potential project
challenges like work stoppages or safety
accidents, while ensuring a reliable
supply of skilled labor and minimizing
disruptions, such as those associated
with labor disputes or workplace
injuries. That will, in turn, promote on -
time and on -budget delivery.
Furthermore, among other
requirements contained in 2 CFR 2009
Appendix II, all contracts made by a
recipient or subrecipient in excess of
$100,000 with respect to a capital
expenditure that involve employment of
mechanics or laborers must include a
provision for compliance with certain
provisions of the Contract Work Hours
and Safety Standards Act, 40 U.S.C.
3702 and 3704, as supplemented by
Department of Labor regulations (29
CFR part 5).
Treasury will seek information from
recipients on their workforce plans and
practices related to capital expenditures
undertaken under the public health and
negative economic impacts eligible use
category with SLFRF funds. This
reporting will support transparency and
competition by enhancing available
information on the services being
provided.
Environmental, Uniform Guidance, and
Other Generally Applicable
Requirements
Treasury cautions that, as is the case
with all projects using SLFRF funds, all
projects must comply with applicable
federal, state, and local law. In the case
of capital expenditures in particular,
this includes environmental and
permitting laws and regulations.
Likewise, as with all capital expenditure
projects using the SLFRF funds, projects
must be completed in a manner that is
technically sound, meaning that it must
meet design and construction methods
and use materials that are approved,
codified, recognized, fall under standard
or acceptable levels of practice, or
otherwise are determined to be
generally acceptable by the design and
construction industry.
Further, as with all other uses of
funds under the SLFRF program, the
Uniform Guidance at 2 CFR part 200
applies to capital expenditures unless
stated otherwise. Importantly, this
includes 2 CFR part 200 Subpart D on
post -federal award requirements,
including property standards pertaining
to insurance coverage, real property,
and equipment; procurement standards;
sub -recipient monitoring and
management; and record retention and
access.
Definitions
Treasury adopts several definitions
from the Uniform Guidance at 2 CFR
200.1 under this section, including for
capital expenditures, capital assets,
equipment, and supplies.
Per the Uniform Guidance, the term
"capital expenditures" means
"expenditures to acquire capital assets
or expenditures to make additions,
improvements, modifications,
replacements, rearrangements,
reinstallations, renovations, or
alterations to capital assets that
materially increase their value or useful
life." The term "capital assets" means
"tangible or intangible assets used in
operations having a useful life of more
than one year which are capitalized in
accordance with [Generally Accepted
Accounting Principles]."
Capital assets include lands, facilities,
equipment, and intellectual property.
Equipment means "tangible personal
property (including information
technology systems) having a useful life
of more than one year and a per -unit
acquisition cost which equals or
exceeds the lesser of the capitalization
level established by the non -Federal
entity for financial statement purposes,
or $5,000." Supplies, which means all
tangible personal property other than
those included as "equipment," are not
considered capital expenditures.
Recipients may also use SLFRF funds
for pre -project development costs that
are tied to or reasonably expected to
lead to an eligible capital expenditure.
For example, pre -project costs
associated with planning and
engineering for an eligible project are
considered an eligible use of funds.
c. Distinguishing Subrecipients Versus
Beneficiaries
Under the interim final rule, state,
local, and Tribal governments that
receive a federal award directly from a
federal awarding agency, such as
Treasury, are designated as "recipients,"
4394 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
and state, local, and Tribal governments
are authorized to transfer funds to other
entities, including private entities like
nonprofits. The interim final rule stated
that, "[a] transferee receiving a transfer
from a recipient under sections 602(c)(3)
and 603(c)(3) will be a subrecipient.
Subrecipients are entities that receive a
subaward from a recipient to carry out
a program or project on behalf of the
recipient with the recipient's Federal
award funding."
For funds transferred to a
subrecipient, the interim final rule
noted that " [r] ecipients continue to be
responsible for monitoring and
overseeing the subrecipient's use of
SLFRF funds and other activities related
to the award to ensure that the
subrecipient complies with the statutory
and regulatory requirements and the
terms and conditions of the award.
Recipients also remain responsible for
reporting to Treasury on their
subrecipients' use of payments from the
SLFRF funds for the duration of the
award. "
Public Comment: Treasury received
many comments requesting clarification
about which entities qualify as
subrecipients and are, in turn, subject to
subrecipient monitoring and reporting
requirements. For example, commenters
sought clarification about whether a
nonprofit that received a grant to
provide services under a program to
carry out an enumerated eligible use
would qualify as a subrecipient and be
subject to subrecipient monitoring and
reporting requirements. Similarly,
commenters also wondered if a
nonprofit that received a grant in
recognition of experiencing a negative
economic impact of the public health
emergency would also be a subrecipient
and subject to subrecipient reporting
requirements.
Treasury Response: Treasury is
clarifying the distinction between a
subrecipient and beneficiary in the final
rule. The Uniform Guidance definitions
for subaward and subrecipient inform
Treasury's distinction between
subrecipients and beneficiaries.
First, per 2 CFR 200.1 of Uniform
Guidance "[s]ubaward means an award
provided by a pass -through entity256 to
a subrecipient for the subrecipient to
carry out part of a Federal award
received by the pass -through entity. It
does not include payments to a
contractor or payments to an individual
that is a beneficiary of a Federal
program. A subaward may be provided
through any form of legal agreement,
256In this context, a pass -through entity means a
recipient of SURF funds.
including an agreement that the pass -
through entity considers a contract."
Further, 2 CFR 200.1 of the Uniform
Guidance defines a subrecipient, in that
"[s]ubrecipient means an entity, usually
but not limited to non -Federal entities,
that receives a subaward from a pass -
through entity to carry out part of a
Federal award; but does not include an
individual that is a beneficiary of such
award. A subrecipient may also be a
recipient of other Federal awards
directly from a Federal awarding
agency." Treasury is aligning the
definition of subrecipient in the final
rule with the definition of subrecipient
in the Uniform Guidance.
Treasury is maintaining the
monitoring and subrecipient reporting
requirements outlined in the final rule.
Per 2 CFR 2 00. 101 (b)(2) of the Uniform
Guidance, the terms and conditions of
federal awards flow down to subawards
to subrecipients. Therefore, non-federal
entities, as defined in the Uniform
Guidance, must comply with the
applicable requirements in the Uniform
Guidance regardless of whether the non-
federal entity is a recipient or
subrecipient of a federal award. This
includes requirements such as the
treatment of eligible uses of funds,
procurement, and reporting
requirements.
The Uniform Guidance definitions for
both subaward and subrecipient specify
that payments to individuals or entities
that are direct beneficiaries of a federal
award are not considered subrecipients.
The final rule adopts this definition of
a beneficiary and outlines that
households, communities, small
businesses, nonprofits, and impacted
industries are all potential beneficiaries
of projects carried out with SLFRF
funds. Beneficiaries are not subject to
the requirements placed on
subrecipients in the Uniform Guidance,
including audit pursuant to the Single
Audit Act and 2 CFR part 200, subpart
F or subrecipient reporting
requirements.
The distinction between a
subrecipient and a beneficiary,
therefore, is contingent upon the
rationale for why a recipient is
providing funds to the individual or
entity. If the recipient is providing
funds to the individual or entity for the
purpose of carrying out a SLFRF
program or project on behalf of the
recipient, the individual or entity is
acting as a subrecipient. Acting as a
subrecipient, the individual or entity is
subject to subrecipient monitoring and
reporting requirements. Conversely, if
the recipient is providing funds to the
individual or entity for the purpose of
directly benefitting the individual or
entity as a result of experiencing a
public health impact or negative
economic impact of the pandemic, the
individual or entity is acting as a
beneficiary. Acting as a beneficiary, the
individual or entity is not subject to
subrecipient monitoring and reporting
requirements.
d. Uses Outside the Scope of This
Category
Summary of the Interim Final Rule and
Final Rule Structure
In the interim final rule, Treasury
noted that certain uses of funds are not
permissible under the eligible use
category of responding to the public
health and negative economic impacts
of the pandemic. In the final rule, these
uses remain impermissible, but
Treasury has re -categorized where they
are addressed to increase clarity.
Specifically, the interim final rule
provided that the following uses of
funds are not eligible under this eligible
use category: Contributions to rainy day
funds, financial reserves, or similar
funds; payment of interest or principal
on outstanding debt instruments; fees or
issuance costs associated with the
issuance of new debt; and satisfaction of
any obligation arising under or pursuant
to a settlement agreement, judgment,
consent decree, or judicially confirmed
debt restructuring plan in a judicial,
administrative, or regulatory
proceeding, except to the extent the
judgment or settlement requires the
provision of services that would
respond to the COVID-19 public health
emergency. These uses of funds remain
ineligible under the final rule; Treasury
has re -categorized these issues to the
section Restrictions on Use, which
describes restrictions that apply to all
eligible use categories, to clarify that
these uses are not eligible under any
eligible use category of SLFRF. Treasury
responds to public comments on this
issue in the section Restrictions on Use.
As noted above, the interim final rule
also posed several questions on what
other types of services or costs Treasury
should consider as eligible uses to
respond to the public health and
negative economic impacts of COVID-
19, including in disproportionately
impacted communities. In this section,
Treasury addresses proposed uses of
funds suggested by commenters that
Treasury has not included as
enumerated eligible uses of funds in this
eligible use category.
General Eligible Uses
Public Comment: Commenters
proposed a wide variety of additional
recommended enumerated eligible uses
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4395
in all sections of the public health and
negative economic impacts eligible use
category, including in impacted and
disproportionately impacted
communities. The proposed additional
uses included general categories of
services (e.g., legal and social services,
long-term investments to remediate
long-term disparities, response to
natural disasters). Other suggested uses
of funds respond to needs widely
experienced across the country (e.g.,
access to and affordability of health
insurance). Finally, other suggested uses
of funds were highly specific (e.g.,
healthcare equipment for a specific
health condition, fire hydrants, weather
alert systems) or most applicable to the
particularized needs to certain
populations or geographic areas of the
United States (e.g., senior citizens,
immigrants, formerly incarcerated
individuals, responding to
environmental issues in certain
geographic regions). Other commenters
generally requested a high degree of
flexibility to respond to the particular
needs of their communities.
Treasury Response: Given the large
number and diversity of SLFRF
recipients, Treasury has aimed to
include as enumerated eligible uses
programs, services, and capital
expenditures that respond to public
health and negative economic impacts
of the pandemic experienced widely in
many jurisdictions across the country,
making it clear and simple for recipients
to pursue these enumerated eligible uses
under the final rule. This provides
enumerated eligible uses that many
recipients may want to pursue, while
including uses that are responsive to the
pandemic's impacts across the diverse
range of SLFRF recipients. In the final
rule, Treasury has clarified several
additional uses that generally respond
to pandemic impacts experienced
broadly across jurisdictions and
populations.
Treasury has not chosen to include as
enumerated uses all uses proposed by
commenters; given the significant range,
and in some cases highly specific
nature, of the proposed uses Treasury
was not able to assess that the proposed
uses would respond to negative
economic impacts experienced
generally across the country, supporting
an enumerated eligible use available to
all recipients presumptively.
However, Treasury emphasizes that
the enumerated eligible uses are non -
exhaustive and that other uses, beyond
those enumerated, are eligible. Treasury
recognizes that the impacts of the
pandemic vary over time, by
jurisdiction, and by population; as such,
the final rule provides flexibility for
recipients to identify other public health
or negative economic impacts to
additional households, small
businesses, or nonprofits, including
classes of these entities, and pursue
programs and services that respond to
those impacts. Treasury also notes that
some populations are presumed to be
impacted or disproportionately
impacted by the pandemic, and thus
eligible for responsive services; these
presumed eligible populations may
encompass many individuals in the
specific populations for whom
commenters recommended services. For
details on these issues, see section
General Provisions: Structure and
Standards.
Infrastructure, Community
Development, and General Economic
Development
Some potential additions to
enumerated eligible uses were also
recommended by several commenters
each but are not included as enumerated
eligible uses in the final rule.
Public Comment: Infrastructure: In
the interim final rule, Treasury noted
that a "general infrastructure project, for
example, typically would not be
included [in this eligible use category]
unless the project responded to a
specific pandemic public health need."
Numerous commenters requested that
Treasury permit investments in
infrastructure as a response to the
public health and negative economic
impacts of the pandemic. While these
comments most commonly
recommended that constructing and
maintaining roads and surface
transportation infrastructure be eligible,
the proposed uses for infrastructure
ranged widely and included parking
lots, bridges, traffic management
infrastructure, solid waste disposal
facilities, and utility infrastructure
(outside of water, sewer, and
broadband).
Many commenters argued that
infrastructure development and
maintenance is a pressing need in their
communities and that their
communities had less need for water,
sewer, and broadband infrastructure or
other eligible uses to respond to the
public health and negative economic
impacts of the pandemic. Other
commenters argued that these uses
would stimulate the economy, attract
businesses, or allow for tourist
movement; these commenters argued
that, by generally supporting a stronger
economy or facilitating conditions that
are more conducive to business activity
and tourism, these uses respond to the
negative economic impacts of the
pandemic.
Treasury Response: In the final rule,
Treasury is maintaining the approach
under the interim final rule that general
infrastructure projects, including roads,
streets, and surface transportation
infrastructure, would generally not be
eligible, unless the project responded to
a specific pandemic public health need
or a specific negative economic impact.
The ARPA expressly includes
infrastructure if it is "necessary" and in
water, sewer, or broadband, suggesting
that the statute contemplates only those
types of infrastructure. Further,
responding to the public health and
negative economic impacts of the
pandemic requires identifying whether,
and the extent to which, there has been
a harm that resulted from the COVfD-
19 public health emergency and
whether, and the extent to which, the
use would respond or address this
harm. Uses of funds intended to
generally grow the economy and
therefore enhance opportunities for
workers and businesses would not be an
eligible use, because such assistance is
not reasonably designed to impact
individuals or classes that have been
identified as having experienced a
negative economic impact. In other
words, there is not a reasonable
connection between the assistance
provided and an impact on the
beneficiaries. Such an activity would be
attenuated from and thus not reasonably
designed to benefit the households that
experienced the negative economic
impact.
Note, however, that Treasury has
clarified that capital expenditures that
are related and reasonably proportional
to responding to the public health and
economic impacts of the pandemic are
eligible uses of funds, in addition to
programs and services; for details on
eligibility criteria for capital
expenditures, see section Capital
Expenditures in General Provisions:
Other.
Public Comment: Community
Development Block Grant: Several
commenters recommended that
Treasury enumerate as eligible uses
those eligible under the Department of
Housing and Urban Development's
Community Development Block Grant
(CDBG) or the Housing and Community
Development Act of 1974, which
established the CDBG program.
Commenters requested that these uses
be eligible either to respond to the
negative economic impacts of the
pandemic, or in the alternate the
disproportionate negative economic
impacts of the pandemic in certain
communities. Under the CDBG program,
recipient governments may undertake a
wide range of community and economic
4396 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
development services and projects.
Commenters reasoned that many state
and local governments are familiar with
this program, and that aligning to its
eligible uses may help recipients easily
understand and pursue eligible projects.
Commenters also noted that Treasury
had chosen to align with existing federal
programs in other eligible use
categories, namely water infrastructure,
in the interim final rule.
Treasury Response: In the final rule,
Treasury is not including all categories
of projects permissible under CDBG as
enumerated eligible uses to respond to
the public health and negative economic
impacts of the pandemic. Because CDBG
permits such a broad range of activities,
including services to individual
households, communities, small
businesses, general economic
development activities, and capital
expenditures, Treasury determined that
it was more appropriate to assess the
underlying types of projects eligible
within CDBG and whether each type of
project responds to the negative
economic impacts of the pandemic. In
other words, Treasury considered
whether various types of community
and economic development projects
respond to the impacts of the pandemic
in different communities and
circumstances. In the final rule,
Treasury addresses the eligibility of
these various types of projects in each
relevant eligible use category within
public health and negative economic
impacts under SLFRF, including
assistance for impacted households,
disproportionately impacted
households, disproportionately
impacted small businesses, and capital
expenditures.
Public Comment: General Economic
Development: Treasury provided
guidance following the interim final
rule that general economic development
or workforce development would
generally not be eligible as it does not
respond to a negative economic impact
of the COVID-19 public health
emergency.
Some commenters recommended that
Treasury expand enumerated eligible
uses to include general economic
development activities, beyond those
that respond to negative economic
impacts of the pandemic, such as
creating an economic development
strategy for the jurisdiction's overall
economic growth, creating a general
workforce development strategy, or
providing funds to businesses that did
not experience negative economic
impacts to carry out economic
development activities or to incentivize
the addition or retention of jobs.
Commenters supportive of assistance to
businesses for general economic
development activities argued that
subsidies to businesses increase job
growth and that, in some cases,
assistance to companies that excelled
during the public health emergency
would help create more job
opportunities for workers or expand the
jurisdiction's tax base and produce
funds to support government services.
In contrast, other commenters argued
that academic research consistently
finds that economic development
subsidies have a negligible, or even
negative, economic effect, citing
research findings to this effect.257
Treasury Response: In the final rule,
Treasury maintains the interim final
rule's approach that general economic
development or workforce development,
meaning activities that do not respond
to negative economic impacts of the
pandemic and rather seek to more
generally enhance the jurisdiction's
business climate, would generally not
be eligible under this eligible use
category. As noted above, to identify an
eligible use of funds under this category,
a recipient must identify a beneficiary
or class of beneficiaries that experienced
a harm or impact due to the pandemic,
and eligible uses of funds must be
257 See, e.g., Matthew D. Mitchell et al., The
Economics of a Targeted Economic Development
Subsidy (Arlington, VA: Mercatus Center at George
Mason University, 2019), 5, available at https://
www.mercatus. org/publications/government-
spending/economics-targeted-economi c-
development-subsidy; Timothy J. Bartik, Who
Benefits from Economic Development Incentives?
How Incentive Effects on Local Incomes and the
Income Distribution Vary with Different
Assumptions about Incentive Policy and the Local
Economy (Upjohn Institute Technical Report No.
13-034, W.E. Upjohn Institute for Employment
Research, March 1, 2018), available at: https://
research.upjohn.org/up_technicalreports/34/; Cailin
Slattery and Owen Zidar, Evaluating State and
Local Business Tax Incentives, Journal of Economic
Perspectives 34, no. 2 (2020): 90-118, available at:
https://www.aeaweb.org/articles?id=l0.1257/
jep.34.2.90; Kenneth Thomas, The State of State and
Local Subsidies to Business (Mercatus Policy Brief,
Mercatus Center at George Mason University,
Arlington, VA, October 2019), available at: https://
www.mercatus. org/system/files/tomas_-_policy_
brief-_the_state_of state_and_local_subsidies_to_
business_-_vl.pdf Dennis Coates, Growth Effects of
Sports Franchises, Stadiums, and Arenas: 15 Years
Later (Mercatus Working Paper, Mercatus Center at
George Mason University, Arlington, VA,
September 2015), available at: https://
www.mercatus.org/system/f`�iles/Coates-Spoits-
Franchises.pdf, Dennis Coates and Brad R.
Humphreys, Do Economists Reach a Conclusion on
Subsidies for Sports Franchises, Stadiums, and
Mega -Events?, Econ Journal Watch 5, no. 3 (2008):
294-315, available at: https.Ileconjwatch.org/
articles/do-economists-reach-a-conclusion-on-
subsidies for -sports franchises -stadiums -and -mega -
events; Matthew D. Mitchell, Daniel Sutter, and
Scott Eastman, The Political Economy of Targeted
Economic Development Incentives, Review of
Regional Studies 48, no. 1 (2018): 1-9, available at:
https://www.mercatus. org/publications/corporate-
wel fare/poli tical-economy-targeted-economi c-
d evel o pm en t-in cen ti ves.
reasonably designed to respond to the
harm, benefit the beneficiaries that
experienced it, and be related and
reasonably proportional to that harm or
impact.
As noted above, recipients should
analyze eligible uses based on the
beneficiary of the assistance, and
recipients may not provide assistance to
small businesses or impacted industries
that did not experience a negative
economic impact. Provision of
assistance to a business that did not
experience a negative economic impact,
under the theory that such assistance
would generally grow the economy and
therefore enhance opportunities for
workers, would not be an eligible use,
because such assistance is not
reasonably designed to impact
individuals or classes that have been
identified as having experienced a
negative economic impact. In other
words, there is not a reasonable
connection between the assistance
provided and an impact on the
beneficiaries. Such an activity would be
attenuated from and thus not reasonably
designed to benefit the households that
experienced the negative economic
impact. Research cited by some
commenters finding that business
subsidies have limited or negative
economic impact also suggests that such
a response may not be reasonably
designed to benefit households and
other entities impacted by the
pandemic. Similarly, planning activities
for an economic development or
workforce strategy regarding general
future economic growth do not provide
a program, service, or capital
expenditure that responds to negative
economic impacts of the pandemic.
However, Treasury notes that the final
rule includes as enumerated eligible
uses many types of assistance that
respond to negative economic impacts
of the pandemic and may produce
economic development benefits. For
example, see sections Assistance to
Unemployed Workers, Assistance to
Small Businesses, and Capital
Expenditures.
B. Premium Pay
Background and Summary of the
Interim Final Rule
Sections 602(c)(1)(B) and 603(c)(1)(B)
of the Social Security Act, as added by
the ARPA, provide that SLFRF funds
may be used "to respond to workers
performing essential work during the
COVID-19 public health emergency by
providing premium pay to eligible
workers of the . . . government that are
performing such essential work, or by
providing grants to eligible employers
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4397
that have eligible workers who perform
essential work."
Premium pay is designed to
compensate workers that, by virtue of
their employment, were forced to take
on additional burdens and make great
personal sacrifices as a result of the
COVID-19 pandemic. Premium pay can
be thought of as hazard pay by another
name.258
During the public health emergency,
employers' policies on COVID-19-
related premium pay or hazard pay have
varied widely, with many essential
workers not yet compensated for the
heightened risks they have faced and
continue to face.259 Many of these
workers earn lower wages on average
and live in socioeconomically
underserved communities as compared
to the general population.260 A recent
study found that 25 percent of essential
workers were estimated to have low
household income, with 13 percent in
high -risk households.261 The low pay of
many essential workers makes them less
able to cope with the financial
consequences of the pandemic or their
work -related health risks. As Americans
return to work and governments relax
certain rules, essential workers will
continue to bear the brunt of the risk of
maintaining the ongoing operation of
vital facilities and services. The added
health risk to essential workers is one
prominent way in which the pandemic
has amplified pre-existing
socioeconomic inequities. Premium pay
is designed to address the disparity
between the critical services provided
by and the risks taken by essential
workers and the relatively low
compensation they tend to receive.
The interim final rule established a
three-part framework for recipients
seeking to use SURF funds for
premium pay. First, to receive premium
pay one must be an eligible worker.
Second, an eligible worker must also
perform essential work. Finally,
premium pay must respond to workers
performing essential work during the
COVID-19 public health emergency.
Most of the comments received by
Treasury pertaining to premium pay
related to these three requirements.
Comments also addressed the definition
of premium pay generally and posed
258 See U.S. Department of Labor, Hazard Pay,
https://www.dol.govlgeneralltopiclwagesl
hazardpay (last visited October 18, 2021).
259Economic Policy Institute, Only 30% of those
working outside their home are receiving hazard
pay (June 16, 2020), https://www.epi.org/press/only-
30- o f-th o se- working-outside-their-home-are-
recei ving-hazard-pay-black-and-his pani c-workers-
are-most-con cerned-abo u t-bringing-the-
coronavirus-home/.
260 McCormack, supra note 65.
261 Id.
questions regarding premium pay
program structuring. This section
responds to the comments by addressing
the three requirements in turn, then the
overall definition of premium pay and,
finally, program structure.
Eligible Workers
The ARPA defines "eligible workers"
as "those workers needed to maintain
continuity of operations of essential
critical infrastructure sectors and
additional sectors as each . . .
[government] may designate as critical
to protect the health and wellbeing of
[its] residents." The interim final rule
supplemented this definition by
identifying a list of "essential critical
infrastructure sectors" whose workers
are eligible workers, based on the list of
sectors in the HEROES Act, a bill
introduced in the House of
Representatives in 2020 that would have
provided premium pay to essential
workers.262 In addition to the critical
infrastructure sectors defined in the
interim final rule, the chief executive (or
equivalent) of a recipient government
may designate additional non-public 263
sectors as critical so long as doing so is
necessary to protecting the health and
wellbeing of the residents of such
jurisdiction.
Public Comment: Treasury received
multiple comments on the definition of
"eligible worker" included in the
interim final rule. Many commenters
agreed with the definition of eligible
worker adopted by Treasury. Other
commenters sought clarification about
or changes to the definition of eligible
worker, including the definition of
eligible sectors, the inclusion of
government workers in the definition of
eligible workers, and the process for
designating additional non-public
sectors as eligible.
Some commenters asked Treasury to
change how it identifies eligible sectors,
including suggestions to add to or
subtract from the list of eligible sectors.
For example, some commenters asked
Treasury to consider using Bureau of
Labor Statistics (BLS) -Standard
Occupational Classifications to identify
specific sectors or occupations, in
contrast to the approach taken in the
interim final rule, which included a
mixture of economic sectors, industries,
and occupations. Many commenters
asked Treasury to explicitly clarify that
a particular industry or occupation is
covered by the definition of "essential
critical infrastructure sector." Some of
262 See H.R. 6800, 116th Cong. (2020).
263 Note that the sectors defined in the interim
final rule already include all state, local, and Tribal
government employees.
these commenters represented public
employees, e.g., employees of facilities
and public works; public utilities;
courthouse employees; police, fire, and
emergency medical services; and waste
and wastewater services. Others were a
mixture of public and private sector
employees, e.g., coroners and medical
examiners; transportation infrastructure
(specifically electric vehicle
infrastructure and supply equipment);
electric utilities, natural gas, and steam
supply; and grocery employees. Other
commenters requested that Treasury
prohibit certain occupations currently
included in the eligible workers
definition (e.g., police and corrections
officers) from receiving premium pay for
performance of regular duties.
Commenters also asked Treasury to
clarify which government workers are
included in the definition of eligible
workers. The interim final rule included
as an essential critical infrastructure
sector, "any work performed by an
employee of a State, local, or Tribal
government." Some commenters
requested that Treasury adopt a
definition of eligible worker that
includes all employees of the recipient
government; however, all public
employees of state, local, and Tribal
governments are already included in the
interim final rule definition of "eligible
worker." Commenters asked whether
this includes governments that did not
receive SURF funds (i.e., "non
recipient governments"). Many
commenters from Tribal governments
requested that the definition of eligible
worker, which includes "any work
performed by an employee of a . . .
Tribal government," also include an
employee of a "Tribal enterprise" to
remove uncertainty regarding which
employees are included.
Finally, commenters made
suggestions for the process by which the
chief executive (or equivalent) of a
recipient government may designate
additional non-public sectors as critical.
Commenters asked that Treasury adopt
a requirement that Treasury must
approve or deny any additional non-
public sector identified by the chief
executive of a recipient government
prior to implementation of the
recipient's program.
Some commenters asked Treasury to
clarify whether their chief executive (or
equivalent) could designate particular,
and in some cases all, employees of the
recipient government as eligible for
premium pay.
Treasury Response: In the final rule,
Treasury will preserve the definition of
"eligible worker" as it was defined in
the interim final rule with minor
modifications to clarify that all public
4398 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
employees of recipient governments are
already included in the interim final
rule definition of "eligible worker." A
more specific eligibility system (e.g.,
linking eligibility to specific
occupational or industry codes) would
have provided more certainty but would
have been much more rigid. In contrast,
the current definition is flexible enough
to give recipients the ability to tailor
their premium pay programs to meet
their needs while ensuring that
programs focus on sectors where
workers were forced to shoulder
substantial risk as a result of the
COVID-19 pandemic. Furthermore, the
critical infrastructure sectors defined in
the interim final rule already include
many of the occupations that
commenters requested be added. For
example, Treasury received many
comments from public workers asking
to be included in the definition of
"eligible worker" even though these
workers already fall within the scope of
"any work performed by an employee of
a State, local, or Tribal government."
Treasury has clarified in the final rule
that the chief executive's discretion to
designate additional sectors as critical
relates only to "non-public" sectors,
since all public employees of recipient
governments are already included in the
definition of "eligible worker." While
all such public employees are "eligible
workers" and the chief executive (or
equivalent) of a recipient government
may designate additional non-public
sectors as critical, in order to receive
premium pay, these workers must still
meet the other premium pay
requirements (e.g., performing essential
work).
Treasury recognizes that the list of
"essential critical infrastructure sectors"
includes both occupations and sectors.
Recipients, if uncertain which
occupations are included in a critical
infrastructure sector, may consult
government occupational classifications
if helpful but are not required to do
s0.264 Furthermore, a recipient
government does not need to submit to
Treasury for approval its designation of
a sector as essential critical
infrastructure; rather, Treasury will
defer to the reasonable interpretation of
the recipient government and the
discretion of the recipient's chief
executive in making such designations.
If a recipient is unsure if a non-public
sector is covered by the definition in the
264 See, e.g., sources such as Bureau of Labor
Statistics, Occupational Outlook Handbook,
which provide information on which
professions or occupations are typically
included in interpretations of a sector, https://
www.bls.gov/ooh/.
final rule,265 the chief executive (or
equivalent) of a recipient government
may also identify the non-public sector
as critical so long as the chief executive
deems the non-public sector necessary
to protecting the health and wellbeing of
residents. Treasury has, where possible,
clarified the definition of "essential
critical infrastructure sectors." For
instance, Treasury has clarified in the
final rule that work performed by an
employee of a Tribal government
includes an employee of a Tribal
enterprise and discussed in this
Supplementary Information how a
recipient may qualify other non-public
sectors as essential critical
infrastructure.
Essential Work
The interim final rule defined
"essential work" as work that (1) is not
performed while teleworking from a
residence and (2) involves either (i)
regular, in -person interactions with
patients, the public, or coworkers of the
individual that is performing the work
or (ii) regular physical handling of items
that were handled by, or are to be
handled by, patients, the public, or
coworkers of the individual that is
performing the work. Treasury adopted
this definition of essential work to
ensure that premium pay is targeted to
workers that faced or face heightened
risks due to the character of their work
during a pandemic.
Public Comment: Some commenters
found the definition unclear and asked
Treasury to clarify what constitutes
"essential work." Others disagreed with
the essential work test altogether,
arguing that it forces recipients to
distinguish between essential and non-
essential employees, which may be
difficult to do. Accordingly, these
commenters asked Treasury to allow
recipients to determine which workers
qualify as essential. Treasury also
received several requests that specific
occupations be explicitly deemed
essential, including all public
employees, veterinarians, election
administrators, detention staff and
sheriffs deputies, and employees of
utilities, such as electric power, natural
gas, steam supply, water supply, and
sewage removal.
Several commenters requested that
Treasury not distinguish between
remote and in -person work or amend
the standard so that employees
providing essential services would still
be eligible even if they worked
remotely. Finally, a few commenters
requested clarification as to the
265 Public sector workers are "eligible workers"
under the interim final rule and final rule.
definition of "regular" in -person
interactions and whether Treasury
could clarify which job functions merit
more (or less) premium pay.
Treasury Response: Treasury is
maintaining the definition of "essential
work" in the final rule without
modification. The test adopted in the
interim final rule was designed to
compensate workers facing
disproportionate risk due to the
pandemic. COVfD-19 is transmitted
through person -to -person interactions,
and therefore, workers with regular in -
person interactions are the primary
group facing increased health risks.
Although COVfD-19 is not transmitted
primarily by people handling items,
such work may present increased risk in
certain cases, and the final rule
maintains the interim final rule's
inclusion of such work in order to give
recipient governments the flexibility to
include workers performing such work
as they determine appropriate. Changing
the test as some commenters suggested,
e.g., by eliminating the in -person work
requirement or allowing recipients to
designate which employees are
essential, even if not working in person,
would no longer focus the program on
workers taking on additional health
risks and instead allow premium pay to
be awarded to individuals who
experienced relatively little risk of
exposure to COVID-19. To maintain
flexibility, Treasury is not defining the
term "regular" with regard to in -person
interactions, allowing recipients to
develop programs based on the specific
workforce to be served and local
circumstances. Generally speaking,
however, recipients are encouraged to
consider an eligible worker's risk of
exposure in designing premium pay
programs.
Respond To
As required by the ARPA, the interim
final rule required that premium pay
programs "respond to" eligible workers
performing essential work during the
COVID-19 public health emergency.
Premium pay responds to eligible
workers performing essential work if it
prioritizes low- and moderate -income
persons, given the significant share of
essential workers that are low- and
moderate -income and may be least able
to bear added costs associated with
illness. The level of the award limit —up
to $13 per hour not to exceed $25,000
in aggregate —in the ARPA supports this
reasoning.
Accordingly, the interim final rule
required written justification for how
premium pay to certain higher -income
workers responds to eligible workers
performing essential work: If a recipient
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4399
(or grantee) uses SLFRF funds to
provide premium pay to an employee
and the pay or grant would increase a
worker's total pay above 150 percent of
their residing state or county's average
annual wage for all occupations, as
defined by the BLS Occupational
Employment and Wage Statistics,
whichever is higher, on an annual basis,
then the recipient must provide,
whether for themselves or on behalf of
a grantee, written justification to
Treasury detailing how the award
responds to eligible workers performing
essential work.
Public Comment: Treasury received
numerous comments on the wage
threshold and the written justification
requirement. Several commenters
supported the threshold as a way to
encourage recipients to target premium
pay to lower -income, eligible workers.
Some commenters even asked Treasury
to make the wage threshold a firm
restriction, above which an eligible
worker could not receive premium pay.
Others agreed with the threshold but
also requested flexibility to use existing
worker classifications as an
administratively simple way to identify
workers for whom premium pay would
be responsive. For instance, a few
commenters asked Treasury to allow
recipients or grantees to presume that
premium pay "responds to" eligible
workers performing essential work
when it is provided to employees who
are not exempt from the Fair Labor
Standards Act (FLSA) overtime
provisions —a test that employers are
routinely required to apply.266
In contrast, several commenters
disagreed with the threshold and the
requirement for written justification. A
few commenters thought the threshold
was too low to capture employees in
certain critical infrastructure sectors
(e.g., public safety, waste collection) and
that it did not sufficiently account for
the variance in economic need across
different geographic areas and family
structures. Some smaller communities
argued that the threshold was difficult
to calculate and apply.
Other commenters proposed revisions
for how the threshold is calculated. For
instance, a few commenters asked
Treasury to consider using alternative
earnings measures such as median
income. Similarly, another commenter
asked Treasury to consider the incomes
of workers with different levels of
seniority in developing any income
266 See generally 29 U.S.C. 207(a); U.S.
Department of Labor, Overtime Pay Requirements of
the FLSA (Fact Sheet No. 23), https://www.dol.govl
agencies/whd/fact-sheets/23 flsa-overtime-pay.
thresholds for permitting or reporting on
premium pay.
Finally, there was also some
uncertainty as to the threshold and the
requirement for written justification.
Some commenters interpreted the
threshold as a hard cap on who was
eligible for premium pay, which is not
the case. Relatedly, some commenters
also requested further guidance on what
recipients should include in the written
justification submitted to the Secretary.
Treasury Response: The final rule
makes some modifications to the
determination of when premium pay
"responds to" eligible workers
performing essential work during the
public health emergency. Under the
interim final rule, premium pay was
responsive if either the workers' pay
was below a wage threshold or, if the
pay was above a wage threshold, the
recipient submitted written justification
to Treasury explaining how the
premium pay was responsive. The final
rule retains these two means of
establishing premium pay in response to
workers performing essential work and
adds an additional means of
demonstrating that premium pay is
responsive. Under the final rule, a
recipient may also show that premium
pay is responsive by demonstrating that
the eligible worker receiving premium
pay is not exempt from the FLSA
overtime provisions.267 This change will
expand the number of workers eligible
to receive premium pay268 and does not
require recipients to provide written
justification to Treasury regarding the
workers who are not exempt from the
FLSA overtime provisions, making the
program easier to administer for
recipients. Incorporating this change
further simplifies application of the
267 Department of Labor, Overtime Pay, https://
www.dol.gov/agencies/whd/overtime; see also 29
U.S.C. 207.
268 Among workers that report working overtime,
roughly 41-44 percent of workers earn above
$50,000 per year, which is slightly less than the
national average annual wage for all employees
according to the Bureau of Labor Statistics'
Occupational Employment and Wage Statistics,
available at https://www.bis.govloesl. See also U.S.
Census Bureau, Basic Monthly CPS, January 2019
through December 2019, available at https://
www. census.gov/data/dotasets/time-series/demo/
cps/cps-basic.html. Notes: Annual earnings reflect
weekly wages multiplied by 52. Usual weekly
earnings are computed by BLS to include earnings
from work such as tips, overtime, regular wages,
etc., but not non -labor sources of income such as
government transfers and capital gains. Pre -
overtime earnings are computed by taking the
difference of usual weekly earnings and earnings
from overtime last week and multiplying by 52.
Note, some sources multiply weekly earnings by 50
instead of 52 to account for unpaid time off and
holidays, so these figures may be slightly larger
than those reported elsewhere. Either assumption
may overestimate earnings if workers do not work
year-round.
final rule for recipients because
Treasury understands that most
employers, public and private, are
familiar with and are routinely required
to apply the FLSA.
With this addition, the final rule
provides that premium pay is
responsive to eligible workers
performing essential work during the
public health emergency if each eligible
worker who receives premium pay falls
into one of three categories: (1) The
worker's pay is below the wage
threshold, (2) the worker is not exempt
from the FLSA overtime provisions, or
(3) the recipient has submitted a written
justification to Treasury.
The final rule makes it clear that
written justification to Treasury is not
necessary with respect to eligible
workers whose pay is less than the wage
threshold. Nor is written justification
necessary with respect to eligible
workers who are not exempt from the
FLSA overtime provisions. The written
justification is only necessary if the
worker's pay (with or without the
premium) exceeds the threshold, and
the worker is exempt from the FLSA
overtime provisions. The final rule also
clarifies that a worker's pay exceeds the
threshold if either the premium pay
increases the worker's total pay above
the wage threshold or the worker's total
pay was already above the threshold,
before receiving premium pay.
Treasury has also updated the final
rule to clarify that written justification
means a brief, written narrative
justification of how the premium pay or
grant is responsive to workers
performing essential work during the
public health emergency. This could
include a description of the essential
workers' duties, health or financial risks
faced due to COVID-19, and why the
recipient determined that the premium
pay was responsive despite the workers'
higher income.
Recipients should refer to SLFRF
program reporting guidance, user
guides, and other documentation for
further guidance on the form and
content of the written justification.
Treasury anticipates that recipients will
easily be able to satisfy the justification
requirement for front-line workers, like
nurses and hospital staff.
Definition of Premium Pay
The statute defines premium pay as
"an amount of up to $13 per hour . . . ,
in addition to wages or remuneration
the eligible worker otherwise receives,
for all work performed by the eligible
worker during the COVID-19 public
health emergency. Such amount may
not exceed $25,000 with respect to any
single eligible worker." The interim
4400 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
final rule incorporated this definition
and emphasized that premium pay
should be in addition to compensation
typically received.
Public Comment: Several submitted
comments related to the definition of
"premium pay." Several commenters
asked Treasury to clarify certain aspects
of the interim final rule and statutory
definition of premium pay. For instance,
a few commenters asked whether the
$25,000 limit applies to the annual
amount of premium pay received or the
aggregate amount of premium pay
received over the period of performance.
A few commenters requested flexibility
as to how premium pay may be
awarded, including flexibility to make
monthly or quarterly payments or lump
sum payments. Finally, commenters
requested additional clarification as to
how premium pay should be calculated.
For instance, a commenter asked how to
calculate the amount of and account for
overtime pay and other incentive
pay,2s9
Treasury Response: Treasury has
clarified some of these issues in the
final rule. For example, Treasury has
clarified in the final rule that the
$25,000 per employee limit is for the
entire period of performance, not an
annual cap. Further, recipients have
discretion with respect to the way in
which premium pay is awarded to
eligible workers (e.g., monthly,
quarterly, lump sum), provided that the
total premium pay awarded to any
eligible worker does not exceed $13 per
hour or $25,000 over the period of
performance. Finally, a recipient may
award premium pay to an eligible
worker in addition to the overtime pay
already earned by the eligible worker
but in no instance may the portion of
the compensation funded with SLFRF
funds exceed $13 per hour, even if strict
time -and -a -half calculation requires
more.270 To the extent that an employer
is required under the FLSA to make
payments to an eligible worker in excess
of $13 per hour or $25,000 in the
aggregate over the period of
performance, the employer must use a
source of funding other than the SLFRF
funds to satisfy those obligations.
Program Structure
Public Comment: Several commenters
also requested elaboration on eligible
269 See 29 U.S.C. 207(a) ("[A]t a rate not less than
one and one-half times the regular rate at which he
is employed.").
270All recipients are required to comply with
otherwise applicable laws, including any wage and
hour requirements in the Fair Labor Standards Act.
See generally, Department of Labor, Wages and the
Fair Labor Standards Act, https://www.dol.govl
agencies/whd/flsa.
types of employees and permissible
structures for awarding premium pay. A
few commenters asked if premium pay
could be awarded to volunteers or those
in irregular and non -hourly or salaried
employment positions. Similarly,
various commenters asked if part-time
workers were eligible for premium pay.
Some commenters asked Treasury to
provide more detail on when premium
pay may be paid retroactively or if a
government could reimburse its general
fund for hazard pay already paid before
the start of the period of performance.
Treasury Response: Treasury has also
made clear in the final rule that a
recipient may award premium pay to
non -hourly or salaried workers as well
as part-time workers. Premium pay may
not, however, be awarded to volunteers.
If a recipient is interested in
compensating volunteers with SLFRF
funds, then it must do so consistent
with the requirements set forth in other
eligible use categories; for example, see
section Public Sector Capacity and
Workforce in Public Health and
Negative Economic Impacts.
Under the final rule, recipients may
award premium pay retroactively;
however, SLFRF funds may not be used
to reimburse a recipient or eligible
employer grantee for premium pay or
hazard pay already received by the
employee. To make retroactive premium
payments funded with SLFRF funds, a
recipient or eligible employer grantee
must make a new cash outlay for the
premium payments and the payments
must be in addition to any wages or
remuneration the eligible worker
already received, subject to the other
requirements and limitations set forth in
the ARPA and this final rule.
Finally, as part of accepting the
Award Terms and Conditions for
SLFRF, each recipient agreed to
maintain a conflict -of -interest policy
consistent with 2 CFR 200.318(c) that is
applicable to all activities funded with
the SLFRF award. This award term
requires recipients and subrecipients to
report to Treasury or the pass -through
agency, as appropriate, any potential
conflict of interest related to the award
funds per 2 CFR 200.112. Pursuant to
this policy, decisions concerning SLFRF
funds must be free of undisclosed
personal or organizational conflicts of
interest, both in fact and in appearance.
Consistent with this policy, elected
officials are prohibited from using their
official position and control over SLFRF
funds for their own private gain. This
policy also prohibits, among other
things, elected officials from steering
funds to projects in which they have a
financial interest or using funds to pay
themselves premium pay.
C. Revenue Loss
Background
Sections 602(c)(1)(C) and 603(c)(1)(C)
of the Social Security Act provide that
SLFRF funds may be used "for the
provision of government services to the
extent of the reduction in revenue of
such . . . government due to the
COVID-19 public health emergency
relative to revenues collected in the
most recent full fiscal year of the . . .
government prior to the emergency."
This provision allows recipients
experiencing budget shortfalls to use
payments from the SLFRF funds to
avoid cuts to government services and,
thus, enables state, local, and Tribal
governments to continue to provide
valuable services and ensures that fiscal
austerity measures do not hamper the
broader economic recovery.
State and local government budgets
experienced stress in fiscal year 2020 as
delayed tax filings and pandemic -
related business closures caused
revenues to decline sharply.271 Twenty-
two state governments took actions to
close budget gaps in fiscal year 2020 272
and nearly 80 percent of cities reported
being less able to meet the fiscal needs
of their communities relative to fiscal
year 2019.273 Surveys of Tribal
governments and Tribal enterprises
conducted in 2020 found majorities of
respondents reporting substantial cost
increases and revenue decreases, with
Tribal governments reporting reductions
in health care, housing, social services,
and economic development activities as
a result of reduced revenues.274
The economic recovery, aided by the
broad distribution of COVID-19
vaccines and the deployment of federal
stimulus, has led to a strong rebound in
total state and local government revenue
and is contributing to a brighter fiscal
271 In the second quarter of 2020, quarterly state
and local tax revenues as reported by the U.S.
Census Bureau fell 19 percent compared to the
second quarter of 2019; U.S. Census Bureau,
Quarterly Summary of State and Local Tax
Revenue, https://www.census.govlprograms-
surveys/gtax.html.
272 National Association of State Budget Officers,
Fiscal Survey of the States (Fall 2020), available at
https.Ilhigherlogicdownload.s3.amazonaws.com/
NASBO/9d2d2db1-c943-4 f1 b-b750-0 fca152d64c2/
Uploadedlmages/Fiscal %2oSurvey/NASBO_Fall_
2020—Fiscal—Survey—of States_S.pdf.
273 National League of Cities, City Fiscal
Conditions (2020), available at https://www.nlc.orgl
wp-content/u ploadsl202olo8lCity_Fiscal_
Conditions_2020_FINAL. pdf.
274 Surveys conducted by the Center for Indian
Country Development at the Federal Reserve Bank
of Minneapolis in March, April, and September
2020. Elijah Moreno & Heather Sobrepena, Tribal
entities remain resilient as COVID-19 batters their
finances, Federal Reserve Bank of Minneapolis
(Nov. 10, 2020), https://www.minneapolisfed.org/
article/202o/tribal-entities-remain-resilient-as-
covid-19-batters-their finances.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4401
outlook for most jurisdictions as
compared to the earlier months of the
public health emergency. For the fiscal
year ending June 30, 2021, total state
and local government tax revenues
increased 21 percent relative to the
same period in 2020, reflecting the
combined impact of the modified tax
filing deadline in 2020 and an
improving economy.275 However,
despite a stable budget situation overall,
many governments face uncertainty as
the COVID-19 pandemic continues to
impact commuting patterns, hospitality
and tourism, and other drivers of
jurisdictions' economies. Thirty-five
percent of cities still report being less
able to meet financial needs than in
fiscal year 2020,276 and over half of
surveyed Tribal governments and Tribal
enterprises reported losing at least 40
percent of their revenue since the start
of the pandemic.277 Budget challenges
persist as governments work to mitigate
and contain COVID-19 and help
citizens weather the economic
downturn.
State, local, and Tribal government
budgets affect the broader economic
recovery. During the period following
the 2007-2009 recession, state and local
government budget pressures led to
fiscal austerity that was a significant
drag on the overall economic
recovery.278 Inflation -adjusted state and
local government revenue did not return
to the previous peak until 2013,279
while employment in the sector
returned to the previous peak in August
2019, nearly a decade later.280 Just
months after recouping losses from the
previous downturn, the COVID-19
pandemic caused state and local
government employment to contract
again, but this time more sharply: By
May 2020, state and local government
payrolls fell 7.7 percent compared to
February 2020. Despite improvement,
non-federal public sector job growth
continues to lag behind the rest of the
U.S. labor market recovery.2111
Summary of Interim Final Rule
As stated above, the Social Security
Act provides that SLFRF funds may be
used "for the provision of government
services to the extent of the reduction in
revenue of such . . . government due to
the COVID-19 public health emergency
relative to revenues collected in the
most recent full fiscal year of the . . .
government prior to the emergency."
The interim final rule provided a
formula for calculating revenue loss
through a four-stepprocess:
• Step 1: Identity revenues collected
in the most recent full fiscal year prior
to the public health emergency (i.e., last
full fiscal year before January 27, 2020),
called the base year revenue.
• Step 2: Estimate counterfactual
revenue, which is the amount of
revenue the recipient would have
expected in the absence of the downturn
caused by the pandemic. The
counterfactual revenue is equal to base
yearrevenue * [(1 +growth adjustment)
A (n/12)], where n is the number of
months elapsed since the end of the
base year to the calculation date, and
growth adjustment is the greater of the
average annual growth rate across all
State and Local Government "General
Revenue from Own Sources" in the
most recent three years prior to the
emergency, 5.2 percent, or the
recipient's average annual revenue
growth in the three full fiscal years prior
to the COVID-19 public health
emergency.282 This approach to the
growth rate provides recipients with the
option to use a standardized growth
adjustment when calculating the
counterfactual revenue trend and thus
minimizes administrative burden, while
not disadvantaging recipients with
revenue growth that exceeded the
national average prior to the COVID-19
public health emergency by permitting
these recipients to use their own
revenue growth rate over the preceding
three years.
• Step 3: Identify actual revenue,2113
which equals revenues collected over
the twelve months immediately
preceding the calculation date.
• Step 4: The extent of the reduction
in revenue is equal to counterfactual
revenue less actual revenue. If actual
revenue exceeds counterfactual revenue,
the extent of the reduction in revenue is
set to zero for that calculation date.
For illustration, consider a
hypothetical recipient with base year
revenue equal to 100 (Step 1) that ends
on June 30, 2019. In Step 2, the
hypothetical recipient finds that the
average annual growth across all state
and local government "General Revenue
from Own Sources" in the most recent
three years of available data, 5.2
percent, is greater than the recipient's
average annual revenue growth in the
three full fiscal years prior to the public
health emergency. In this illustration, n
(months elapsed) and counterfactual
revenue would be equal to:
As of:
12/31 /2020
12/31 /2021
12/31 /2022
12/31 /2023
n (months elapsed)..........................................................................................
Counterfactual revenue: ..................................................................................
18
107.9
30
113.5
42
119.4
54
125.6
27s Analysis of Quarterly Summary of State and
Local Tax Revenue, U.S. Census Bureau, supra note
271.
276National League of Cities, City Fiscal
Conditions (2021), available at https://www.nlc.orgl
wp-content/u ploods/2021 /10/2021-City-Fiscal-
Conditions-Report-2021. pdf.
277 Center for Indian Country Development and
Federal Reserve Bank of Minneapolis, One Year
Into COVID-19, Pandemic's Negative Effects Persist
in Indian Country (May 2021), available at https.11
www.n7inneapolisfed.org/article/202l/one-year-
into-covid-1 9-pandemi cs-n egati ve-effects- persist-in-
indian-country.
278 See, e.g., Nora Fitzpatrick et al., Fiscal Drag
from the State and Local Sector?, Liberty Street
Economics Blog, Federal Reserve Bank of New York
(June 27, 2012), https.Illibeitystreeteconomics.
newyorkfed.org/2012/06/fiscal-drag from-the-state-
and-local-sector.html; Jiri Jonas, Great Recession
and Fiscal Squeeze at U.S. Subnational Government
Level, IMF Working Paper 12/184, (July 2012),
available at https://www.imf.org/external/pubs/ft/
wp/2012/wp12184.pdf; Gordon, supra note 16.
279 State and local government general revenue
from own sources, adjusted for inflation using the
Bureau of Economic Analysis' implicit price
deflator for GDP. U.S. Census Bureau, Annual
Survey of State Government Finances and U.S.
Bureau of Economic Analysis, National Income and
Product Accounts, https://www.census.govl
programs-surveys/gov finances.html.
280 U.S. Bureau of Labor Statistics, All Employees,
State Government [CES9092000001] and All
Employees, Local Government [CES9093000001],
retrieved from FRED, Federal Reserve Bank of St.
Louis, https.Ilfred.stlouisfed.org/series/
CES9092000001 and https.Ilfred.stlouisfed.org/
series/CES9093000001.
281 Pew Research, State and Local Government
Job Growth Lags as Economy Recovers (September
2021), available at https://www.pewtrusts.org/en/
research-and-analysis/articlesl2021/09/14/state-
and-local-governorent-job-growth-lags-as-economy-
recovers.
282 At the time the interim final rule was
published, the average annual growth across all
state and local government "General Revenue from
Own Sources" in the most recent three years of
available data (2015-2018) was 4.1%, which was
presented as one option for the growth adjustment.
Since the interim final rule was published, 2019
data has been made available, which increases this
rate to 5.2%. The final rule updates the percentage
to 5.2%, as shown in Step 2.
283 As explained below, in the final rule,
recipients must adjust actual revenue amounts
based on certain tax policy changes.
4402 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
The figure below illustrates the hypothetical recipient calculated in
reduction in revenue for the accordance with the methodology.
140
• Actuel Revenue
130
120
110
100
90
on
Jun-19
anon wonr rmwa i in
Finally, as explained in greater detail
below, the clear meaning of the
statutory phrase "due to the COVID-19
public health emergency" is that it is
referring to revenue reductions caused
by the public health emergency. As
such, it does not include revenue
reduced for reasons other than the
public health emergency. Treasury in
the interim final rule presumed that any
reduction in revenue relative to the
counterfactual estimate would be
considered revenue lost due to the
pandemic and thereby relieved
recipients of the administrative burden
of determining the extent to which
reduction in revenue was due to the
public health emergency. The
calculation methodology in the interim
final rule implicitly assumed that
recipients did not suffer a loss in
revenue due to the public health
emergency if they did not experience a
reduction in aggregate revenue
compared to the counterfactual
estimate. The interim final rule invited
comments on whether Treasury should
revise its presumption to "take into
account other factors, including actions
taken by the recipient as well as the
expiration of the COVID-19 public
health emergency, in determining
whether to presume that revenue losses
N •-
are `due to' the COVID-19 public health
emergency."
Treasury received a substantial
number of comments on the revenue
loss provisions set forth in the interim
final rule. These comments largely
pertained to the following topics: The
overall methodology for calculating
revenue loss; the definition of
"revenue"; whether revenue should be
aggregated or calculated on some
alternative basis (e.g., source -by -source
or fund -by -fund); the appropriate
calculation dates (i.e., fiscal year or
calendar year); the presumption that all
revenue loss is due to the pandemic; the
base year; and the definition of
"government services."
Overall Methodology for Calculating
Revenue Loss
As noted above, the interim final rule
provided a formula for recipients to
calculate revenue loss by comparing
actual revenues received during a given
time -period with a counterfactual
amount of revenue based on revenues in
the base year and an adjustment for
expected growth in revenue each year.
Public Comment: Treasury received
many public comments on the overall
methodology for calculating revenue
loss. Some recipients, including smaller
governments, have expressed concern
regarding the burden associated with
the calculation of revenue loss,
particularly the burden involved in
calculating the amount of general
revenue, given that the definition of
general revenue in the interim final rule
does not always align with the
definition of revenue already calculated
by recipients for other purposes, and
requested clarifications regarding a
number of components, including the
definition of revenue. Commenters also
asked for clarification on the
relationship between revenue loss
calculations across different calculation
dates. Other commenters argued that the
revenue loss formula does not precisely
capture the nuances of local revenues or
their particular situation. For example,
some commenters stated that requiring
that revenues be aggregated fails to
capture decreases in revenue sources
that cannot easily be made up for with
other revenue sources.
Treasury Response: In the final rule,
Treasury is largely maintaining the
revenue loss formula as set forth in the
interim final rule. To address comments
that the formula for calculating revenue
loss was difficult to apply, Treasury is
including an option for recipients to use
a standard allowance for revenue loss.
Specifically, in the final rule, recipients
will be permitted to elect a fixed
amount of loss that can then be used to
fund government services. This fixed
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4403
amount, referred to as the "standard
allowance," is set at up to $10 million
total for the entire period of
performance not to exceed the
recipient's SLFRF award amount.
Although Treasury anticipates that this
standard allowance will be most helpful
to smaller local governments and Tribal
governments, any recipient can use this
standard allowance instead of
calculating revenue loss pursuant to the
formula above, so long as recipients
employ a consistent methodology across
the period of performance (i.e., choose
either the standard allowance or the
regular formula). Treasury intends to
amend its reporting forms to provide a
mechanism for recipients to make a one-
time, irrevocable election to utilize
either the revenue loss formula or the
standard allowance.
The $10 million level is based on
average revenue loss across state and
local governments, taking into
consideration potential variation in
revenue types and losses and continued
uncertainty faced by many recipients
regarding revenue shortfalls. To
calculate this estimate, Treasury applied
a variation of the final rule's revenue
loss calculation on available aggregate
state and local government tax revenue
data as reported by the Census Bureau
for the first calculation date of
December 31, 2020. This estimate
accounts for expected variation across
recipient experiences and reflects the
fact that the final rule revenue loss
calculation provides recipients several
options for specific aspects (e.g.,
calendar year or fiscal year basis; use of
average state and local revenue growth
rate or specific local rate). Treasury
compared actual calendar year 2020 tax
revenues, in aggregate for all state and
local governments, to several
counterfactual trends that vary based on
the end date of the fiscal base year.284
Treasury also assessed counterfactual
trends using different revenue growth
rates (e.g., the three-year average growth
rates of total state and local government
general revenue for both fiscal years
ending in 2016-2018 and fiscal years
ending in 2017-2019; the three-year
average growth rates of total state and
local government tax revenues for fiscal
years ending in 2017-2019; and the one-
year growth rate for total state and local
government tax revenue in the last full
fiscal year before the public health
emergency). To account for the fact that
the initial estimate, based on tax
284Because the Census Bureau's state and local
government tax revenue data is reported on a
quarterly frequency, fiscal base year end dates of
March 31, June 30, September 30, and December 31
were used in this assessment.
revenue, only includes a subset of
recipient aggregate general revenue,
Treasury applied a scaling factor to
recognize that tax revenues generally
make up just over half of general
revenue collected by state and local
governments (i.e., Treasury scaled up its
estimate based on tax revenue to
produce an estimate for total general
revenue).285 The resulting calculation
was then extrapolated over the four-year
period of performance and divided by a
population of interest to arrive at an
average loss estimate.
As noted above, Treasury estimated a
range of scenarios to account for
different values of the variables that
would impact average losses. For
example, the end date of the fiscal base
year and growth rate of counterfactual
revenue impact the overall estimate of
revenue loss. In addition, this estimate
takes into consideration the limitations
in the available data. The governments
covered by the Census Bureau's survey
do not entirely align with SLFRF
recipients. The Census Bureau's figures
are based on 50 state governments, all
local government property tax collectors
and local government non -property tax
imposers, representing at a minimum
the more than 38,000 "General Purpose
Governments" defined by Census.
However, there are only roughly 32,000
recipients of SLFRF funds. Thus,
Treasury considered the difference
between the number and type of entities
in the Census Bureau data and the
SLFRF recipients.
Based on this methodology, Treasury
estimates that average revenue loss
(determined by comparing the
counterfactual revenue to actual
revenue) may range from $0 to $11.7
million per recipient over the period of
performance.286 Treasury settled on a
point estimate toward the upper end of
the range of potential averages, in part,
to account for significant variation in
the experiences of recipient
governments: Some recipients likely
experienced losses at the upper end of
this range of potential averages. A point
estimate toward the upper end of the
range errs toward ensuring more
recipients' experiences are covered and
increases the utility of the standard
allowance for SLFRF recipients.
Specifically, the program includes a
very large number of recipients with
relatively smaller awards; these
recipients have tended to describe
having greater difficulty completing the
285 Annual Survey of State and Local Government
Finances (2019).
286 This is the range of averages that Treasury
calculated by varying the aforementioned
assumptions.
regular revenue loss calculation. Thus,
selecting a point estimate toward the
higher end of the expected range not
only increases the likelihood that the
standard allowance will reflect the
experience of a larger number of SLFRF
recipients but is more responsive to the
comments of those with smaller awards.
In addition, using a point estimate
toward the upper end of the range
accounts for the difficulty and
uncertainty in predicting revenue losses
years into the future, throughout the
period of performance.287
Finally, Treasury selected a single
allowance level, as opposed to varying
levels, to further the goals of simplicity,
flexibility, and administrability.
Furthermore, data limitations make it
difficult to distinguish between types of
local governments.288
General Revenue
The interim final rule adopted a
definition of "general revenue" based
largely on the components reported
under "General Revenue from Own
Sources" in the Census Bureau's Annual
Survey of State and Local Government
Finances. Under the interim final rule,
general revenue included revenue
collected by a recipient and generated
from its underlying economy, and it
would capture a range of different types
of tax revenues, as well as other types
of revenue that are available to support
government services.289 Specifically,
revenue under the interim final rule
included money that is received from
tax revenue, current charges, and
miscellaneous general revenues and
excluded refunds and other correcting
transactions, proceeds from issuance of
debt or the sale of investments, agency
or private trust transactions, revenue
from utilities, social insurance trust
revenues, and intergovernmental
287 See, e.g., Government Accountability Office,
State and Local Governments: Fiscal Conditions
During the COVID-19 Pandemic in Selected States
(July 2021) (noting that "[s]tate and local
government revenues partly depend on the overall
economy, and actions to stem the spread of the
virus drastically reduced economic activity.");
Board of Governors of the Federal Reserve System,
Monetary Policy Report (July 9, 2021) (noting that
the pandemic "pushed down state and local
government tax collections" and that while some of
the drag is "abating" state and local "government
payrolls . . . have only edged up from their lows
at the onset of the pandemic").
288 Local government tax revenue data in the
Census Bureau's Quarterly Summary of State and
Local Tax Revenue, supra note 271, is provided on
an aggregated basis.
289 The Department also released guidance
clarifying how a recipient may determine whether
a particular entity is "part of the recipient's
government." See FAQ 3.14. Coronavirus State and
Local Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https.Ilhome.
treasury.gov/system/files/136/SLFRPFAQ. pd f.
4404 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
transfers from the federal government,
including transfers made pursuant to
section 9901 of the ARPA.290 In the case
of Tribal governments, it also included
revenue from Tribal business
enterprises.
Public Comment: Many commenters
asked Treasury to include certain items
in the definition of "general revenue."
For instance, several commenters that
operate their own utilities asked that
revenue from utilities be included,
arguing that declines in utility revenue
directly affect contributions to their
general funds. Many of these
commenters noted that moratoriums on
utility shutoffs and a decline in
collections have resulted in significant
budgetary pressures.
Some commenters also asked for the
exclusion of certain intergovernmental
transfers in the definition of general
revenue, including transfers of shared
revenue from the state.291 Other
commenters asked for the inclusion of
certain transfers from the federal
government, including fees paid for
services and grants that are, in effect,
paid for the prevision of services.
Treasury also received multiple
requests to include revenue from Tribal
enterprises in the definition of "general
revenue" and that "Tribal enterprise" be
defined broadly. Others asked for the
ability to choose whether to include
revenue from Tribal enterprises.
Finally, some commenters requested
that the definition of general revenue
exclude certain sources of revenue, such
as revenue sources that do not support
a general fund (i.e., revenue sources that
are restricted in use). Commenters also
asked that general revenue exclude
revenue from special assessments,
settlements that make the recipient
290 The interim final rule stated that "general
revenue" and "tax revenue" excludes refunds and
other correcting transactions. Instead of
"excluding" refunds and other correcting
transactions, the Census Bureau methodology upon
which those definitions are based provides that
general revenue and tax revenue are determined
"net of refunds and other correcting transactions.
The use of "excluding" in the interim final rule is
substantively the same as the Census Bureau
methodology. However, to be consistent with the
terminology used by the Census Bureau, the final
rule uses "net of instead of "excluding." Current
charges are defined as "charges imposed for
providing current services or for the sale of
products in connection with general government
activities." It includes revenues such as public
education institution, public hospital, and toll
revenues. Miscellaneous general revenue comprises
of all other general revenue of governments from
their own sources (i.e., other than utility and
insurance trust revenue), including rents, royalties,
lottery proceeds, and fines.
291 The interim final rule excluded governmental
transfers from the Federal Government, but it did
not exclude intergovernmental transfers from other
governmental units for purposes of the revenue loss
provisions.
whole for past expenditures, and one-
time revenues such as revenue from the
sale of property.
Treasury Response: In the final rule,
Treasury has maintained the definition
of "general revenue" from the interim
final rule with two exceptions.
Treasury has adjusted the definition
to allow recipients that operate utilities
that are part of their own government to
choose whether to include revenue from
these utilities in their revenue loss
calculation. This change responds to
comments from recipients indicating
that revenue from utilities is used to
fund other government services and that
utility revenues have declined on
aggregate.292 This approach is consistent
with other eligible uses, which
recognize decreased ability of many
households to make utility payments;
see section Assistance to Households,
which identifies utility assistance as an
enumerated eligible use of funds,
including through direct or bulk
payments to utilities for consumer
assistance. Furthermore, for utilities or
other entities (e.g., certain service
districts) that are not part of the
recipient government, a transfer from
the utility to the recipient constitutes an
intergovernmental transfer and therefore
is included in the definition of "general
revenue." 293
Treasury has also added liquor store
revenue to the definition of general
revenue. The Supplemental Information
to the interim final rule stated that the
definition of tax revenue would include
liquor store revenue, but the text of the
rule did not include it. Accordingly, in
the final rule, Treasury is clarifying that
revenue includes liquor store revenue.
However, Treasury believes revenue
from government -owned liquor stores is
better classified as general revenue than
it is as tax revenue, so the final rule
includes it as part of general revenue.
In response to requests that the
definition of general revenue exclude
revenue from special assessments,
settlements that make the recipient
whole for past expenditures, and one-
time revenues such as revenue from the
sale of property, Treasury is maintaining
its position in the final rule that such
revenue is included in general revenue.
While such revenues may be less
predictable than other sources of
292 U.S. Energy Information Administration,
Annual Electric Utility Data (October 2021),
available at https://www.eia.gov/electricitylsales—
revenue—pricel.
293 FAQ 3.14 provides further guidance on how
to determine what entities constitute a government
for purposes of calculating revenue loss. See
Coronavirus State and Local Fiscal Recovery Funds,
Frequently Asked Questions, as of July 19, 2021;
https://home. treasury.gov/system/files/l36/
SLFRPFAQ. pdf.
revenue (e.g., property taxes), these are
not uncommon sources of revenue for
recipients, and their inclusion provides
a more complete view of the financial
health of a recipient government and is
consistent with the Census Bureau
methodology. Treasury is also
maintaining the exclusion of all
payments from the federal government
(including payments for services) from
general revenue in order to avoid
substantial dilution of the definition of
revenue, particularly in light of
extraordinary fiscal support provided
during the pandemic. Treasury is
maintaining the inclusion of
intergovernmental transfers other than
from the federal government for the
reasons provided in the Supplemental
Information to the interim final rule; to
do otherwise would be to significantly
distort the revenue calculations for local
governments that regularly receive
revenue sharing payments, for example,
from their state governments. Treasury
is also maintaining the approach that
"general revenue" includes revenue
from Tribal enterprises. This approach
recognizes that these enterprises often
form the revenue base for Tribal
governments' budgets.
To ease the burden on recipients and
account for anomalous variations in
revenue, as mentioned above, Treasury
has incorporated a "standard
allowance" option into the final rule. A
recipient may choose to use the
standard allowance, which under the
final rule is set at up to $10 million, not
to exceed the recipient's SLFRF award
amount, as an alternative to calculating
revenue loss according to the formula
described above. This addition will
promote administrative efficiency and
simplify the revenue loss calculation for
the vast majority of recipients. Treasury
intends to amend its reporting forms to
provide a mechanism for recipients to
elect to utilize either the revenue loss
formula or the standard allowance, in
addition to other changes made as part
of the final rule.
Aggregate Revenue Loss Calculation
Under the interim final rule, revenue
loss was calculated based on aggregate
revenues and therefore loss in one type
of revenue could be offset by gains in
another. The amount of SLFRF funds
available to provide government
services was based on overall net
revenue loss. In the Supplementary
Information to the interim final rule,
Treasury asked commenters to discuss
the advantages and disadvantages of,
and any potential concerns with, this
approach, including circumstances in
which it could be necessary or
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4405
appropriate to calculate the reduction in
revenue by source.
Public Comment: Treasury received
many comments stating that revenue
loss should be calculated on a source -
by -source basis. Some commenters
argued that a source -by -source approach
would be administratively simpler.
Other commenters argued that
calculating revenue loss source -by -
source would better reflect the impact of
the COVID-19 pandemic on their ability
to fund government services because
revenue gains in one source cannot
always be used to make up for losses in
another. For similar reasons, other
commenters asked that revenue loss be
calculated on a fund basis.
Treasury Response: Treasury
considered alternative methods (e.g.,
source -by -source, fund -by -fund) but
ultimately determined to maintain the
calculation of revenue loss in the
aggregate. The pandemic has had
different effects on recipients (and their
revenues), and Treasury recognized that
one particular type of revenue or one
particular source may have experienced
a greater amount of loss for some
recipients. However, the statute refers
only to "the reduction in revenue of
such State, local government, or Tribal
government." The statute is thus clear
that Treasury is to refer to the aggregate
revenue reduction of the recipient due
to the public health emergency. Further,
this provision is designed to address
declines in the recipients' overall ability
to pay for governmental services, and
calculating revenue loss on an aggregate
basis provides a more accurate
representation of the effect of the
pandemic on overall revenues and the
fiscal health of the recipient. In many
circumstances, recipient governments
have flexibility to use revenues from an
array of sources and offset declines in
some sources with gains in others.
While the details and configuration of
this flexibility vary widely across
recipient governments, calculating
revenue loss on a source -by -source or
fund -by -fund basis would not capture
how recipient governments balance
their budgets in the regular course of
business. Accordingly, the final rule
maintains the requirement that revenue
loss is to be calculated on an aggregate
basis.
Calculation Dates
Public Comment: Under the interim
final rule, recipients calculate revenue
loss as of the end of the calendar year.
Treasury received many comments
requesting that recipients be permitted
to calculate revenue loss as of the end
of their fiscal year. Commenters argued
that doing so would be simpler and less
burdensome on recipients and that
financial data as of the end of the fiscal
year is audited and therefore more
reliable. Commenters also argued that
recipients' fiscal years are structured
around the timing of major revenue
sources, and that the Census Bureau
uses fiscal years in its Annual Survey.
Treasury also received comments
about the use of multiple calculation
dates. Several Tribal governments stated
that they would not see ongoing revenue
losses due to the COVID-19 public
health emergency and asked to be able
to determine revenue loss as of the first
calculation date. Several commenters
asked whether revenue loss is
determined independently for each
year, so that a gain in one year does not
offset a loss in another, or whether
revenue loss is cumulative from the
beginning of the pandemic.
Treasury Response: In the final rule,
Treasury has made adjustments to give
recipients more flexibility with respect
to calculation dates and to clarify
certain elements. Specifically, the final
rule provides recipients the option to
choose whether to calculate revenue
loss on a fiscal year or calendar year
basis, though they must choose a
consistent basis for loss calculations
throughout the period of performance.
Treasury has also clarified in the final
rule that revenue loss is calculated
separately for each year such that the
calculation of revenue lost in one year
does not affect the calculation of
revenue lost in prior or future years.
Presumption That Revenue Loss Is Due
to the Pandemic
As stated above, sections 602(c)(1)(C)
and 603(c)(1)(C) of the Social Security
Act provide that SLFRF funds may be
used "for the provision of government
services to the extent of the reduction in
revenue of such . . . government due to
the COVID-19 public health emergency
relative to revenues collected in the
most recent full fiscal year of the . . .
government prior to the emergency." As
discussed in the interim final rule,
although revenue may decline for
reasons unrelated to COVID-19, in order
to minimize the administrative burden
on recipients in calculating revenue loss
and take into consideration the
devastating effects of the COVID-19
public health emergency, any reduction
in revenue relative to the counterfactual
estimate was presumed in the interim
final rule to be considered revenue lost
due to the pandemic.
Treasury stated in the Supplementary
Information to the interim final rule that
it was considering when, if ever, during
the period of performance it would be
appropriate to reevaluate the
presumption that all losses are
attributable to the public health
emergency. Treasury also sought
comment on whether to take into
account other factors, including actions
taken by the recipient as well as the
expiration of the COVID-19 public
health emergency, in determining
whether to presume that revenue losses
are "due to" the COVID-19 public
health emergency.
Public Comment: Treasury received
many comments in support of the
presumption, as well as some opposed.
Some commenters argued that the
presumption eases the administrative
burden on recipients because, without
it, it would be difficult to identify which
losses are attributable to the COVID-19
public health emergency. Many
commenters also argued that Treasury
should maintain the presumption
because recipients are likely to
experience losses due to the public
health emergency even after the end of
the public health emergency. Treasury
also received comments asking that it
adjust any revenue loss calculation to
account for tax changes enacted by the
recipient. In particular, some
commenters noted that some recipients
had increased taxes in order to meet
additional demands for government
services or to address declines in
revenue due to the pandemic. These tax
increases have in some cases offset some
or all of the actual revenue loss
attributable to the public health
emergency. Because the interim final
rule calculates revenue loss by reference
to actual revenue collected, commenters
argued that the calculation of revenue
loss "due to" the public health
emergency needs to take into
consideration the effects of tax increases
by deducting the effect of these tax
increases from actual revenue collected.
Treasury Response: In the final rule,
Treasury has maintained the
presumption that a reduction in a
recipient's revenue is due to the public
health emergency with certain
adjustments to respond to comments
and to better account for revenue loss
"due to the COVID-19 public health
emergency." The final rule makes
adjustments to the presumption to take
into account certain government actions
to change tax policy. In particular,
Treasury is adjusting the presumption to
account for changes to tax policy by
providing that changes in revenue that
are caused by tax increases or decreases
adopted after the issuance of the final
rule will not be treated as due to the
public health emergency.
4406 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022/Rules and Regulations
Presumption of Revenue Loss "Due To"
the Pandemic
In enacting sections 602(c)(1)(C) and
603(c)(1)(C) of the Social Security Act,
Congress provided that a state, local
government, or Tribal government could
use funds to "cover costs . . . for the
provision of government services," but
only "to the extent of the reduction in
revenue . . . due to the COVID-19
public health emergency relative to
revenues collected in the most recent
fall fiscal year . . . prior to the
emergency." In doing so, Congress
recognized that the pandemic was
causing significant disruption to
economic activity and sought to
minimize the impact of associated
revenue losses on the ability of the
recipient to provide government
services when such services were
needed most.294 The text of the statute
itself reinforces this important context:
The law specifically limits funds to
cover revenue losses that both are "due
to the COVID-19 public health
emergency" and could impact "the
provision of government services."
Courts have recognized that the
phrase "due to" can refer to various
causal standards.295 Here, in the context
of Congress's addressing economic
disruptions caused by the COVID-19
pandemic that could impact both
revenues and government services, the
key consideration is whether a revenue
loss experienced by the recipient
resulted from the exogenous impacts of
the public health emergency (and were
thus "due to" the pandemic) or instead
from the recipient's own discretionary
actions (and, in this context, were not
"due to" the pandemic). Reductions in
revenue due to the public health
emergency does not cover revenue
reductions that resulted from a
recipient's own discretionary actions.
In the interim final rule, Treasury
included a presumption that all revenue
loss is due to the pandemic in order to
minimize the administrative burden on
recipients discussed above and take into
consideration the devastating effects of
the COVID-19 public health emergency.
Based on comments, Treasury believes
that the reasons for the presumption
continue to be valid and has determined
to maintain the presumption in the final
rule with certain modifications. In
294 See also sections 602(a)(1) and 603(a) of the
Social Security Act (appropriating the funds for
payment to recipients in order to "mitigate the
fiscal effects stemming from the public health
emergency").
295 U.S. Postal Service v. Postal Regulatory
Comm'n, 640 F.3d 1263 (D.C. Cir. 2011); see Kimber
v. Thiokol Corp., 196 F.3d 1092, 1100 (10th Cir.
1999); Adams v. Director, OWCP, 886 F.2d 818, 821
(6th Cir. 1989).
particular, at this point in the course of
the pandemic, with the fiscal pressure
on state and local governments having
been significantly reduced, it is
appropriate for Treasury to reassess
aspects of this presumption. As
discussed below, the final rule requires
recipients to exclude the value of tax
policy changes adopted after January 6,
2022.
Recipients of the SURF range from
states to the smallest local governments.
At the time that the interim final rule
was adopted, it was important for
recipients to be able to calculate with
ease and certainty their amount of
revenue loss so that they could begin
deploying these funds to continue to
maintain essential government services.
To this end, the presumption in the
interim final rule provided a relatively
simple formula for all recipients to use,
but the exigent need for recipients to
immediately deploy funds for the
provision of government services has
decreased and the benefit of the
presumption in reducing administrative
burden is less relevant for those
governments that are not likely to avail
themselves of the standard allowance
described above.
Consistent with these considerations,
the final rule requires recipients to
exclude revenue loss due to tax changes
adopted after January 6, 2 02 2.
Eliminating revenue loss due to tax
changes from the presumption is
appropriate given the significance of tax
revenue as a portion of all revenue for
state and local governments, the direct
impact of tax policy decisions on
revenue collected, and the relative ease
with which recipients can isolate the
estimated effect of a tax change on
revenue.296 Most state budgeting
processes require a "budget score,"
often developed through a consensus
process with executive and legislative
branch experts,297 and Treasury expects
that larger localities, those most likely to
utilize the revenue loss formula rather
than the standard allowance, also
regularly use revenue or budget
estimates when considering changes to
tax policies. As such, in many cases,
296 Treasury considered whether to also eliminate
the presumption with respect to losses resulting
from other changes in policy, such as decreases in
user fees or fines. However, the effects of these
changes are more minor overall and would be more
challenging to accurately identify and quantify, so
the administrability benefit of the presumption for
recipients outweighs whatever distortion there
might be as a result of not reflecting such changes.
297 See generally, National Association of State
Budget Officers, Budget Processes in the States,
(2021), available at https.Ilhigherlogicdownload.
s3.amazonaws.com/N`ASBO/9d2d2dbi-c943-4fib-
b75O-Ofcal 52d64c2lUploadedImagesIBudget%20
Processess/NASBO_2021 _B u dget_Processes_in_th e_
States_S.pdf.
recipients already prepare estimates of
the impact of tax changes on revenue,
and as discussed below, Treasury will
generally permit recipients to rely on
such estimates in adjusting their
revenue loss calculations.
Reductions in revenue that are not
attributable to tax changes would
continue to be subject to the
presumption. A requirement that
recipients evaluate the revenue effect of
changes in discretionary policy actions
other than tax changes would be more
difficult for recipients than evaluating
the changes attributable to tax changes
given that state and local governments
do not generally prepare estimates of the
revenue effects of other actions. Finally,
as noted above, taxes are the single
largest source of revenue for state and
local government recipients in the
aggregate.
Revisions to Presumption To Address
Tax Reductions
For these reasons, Treasury is
providing in the final rule that changes
in general revenue that are caused by
tax cuts adopted after the date of
adoption of the final rule (January 6,
2022) will not be treated as due to the
public health emergency, and the
estimated fiscal impact of such tax cuts
must be added to the calculation of
"actual revenue" for purposes of
calculation dates that occur on or after
April 1, 2022. Tax cuts include final
legislative or regulatory action or a new
or changed administrative interpretation
that reduces any tax (by providing for a
reduction in a rate, a rebate, a
deduction, a credit, or otherwise) or
delays the imposition of any tax or tax
increase and that the recipient assesses
has had the effect of reducing tax
revenue relative to current law. This
includes the phase -in or taking effect of
any statute or rule if the phase -in or
taking effect was not prescribed prior to
the issuance of the final rule.
In assessing whether a tax change has
had the effect of reducing tax revenue,
recipients may either calculate the
actual effect on revenue or rely on
estimates prepared at the time the tax
change was adopted. More specifically,
recipients may rely on information
typically prepared in the course of
developing the budget (e.g., expected
revenues) and/or considering tax
changes (e.g., budget scores, revenue
notes) to determine the amount of
revenue that would have been collected
in the absence of the tax cut, as long as
those estimates are based on reasonable
assumptions and do not use dynamic
methodologies that incorporate the
projected effects of macroeconomic
growth, given that macroeconomic
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022/Rules and Regulations 4407
growth is accounted for in the
counterfactual growth assumptions.
Recipients that choose to calculate the
actual effect of a tax change on revenue
must similarly base their calculations on
reasonable estimates that do not use
dynamic methodologies. Recipients
should apply this adjustment in
determining their actual revenue totals
at Step 3 in the revenue loss calculation
described above.
Revisions to Presumption To Address
Tax Increases
As noted above, the calculation
methodology in the interim final rule
implicitly assumed that recipients did
not experience a reduction in revenue
due to the public health emergency if
they did not experience a reduction in
aggregate revenue relative to the
counterfactual estimate. Treasury
recognizes that some recipients may
have experienced a reduction in
revenue due to the public health
emergency that was offset by other
revenue, particularly in the case of
increases to tax revenue resulting from
a tax increase. The final rule requires
recipients that increased taxes to deduct
the amount of increases to revenue
attributable to such tax increase. This
change is also consistent with the
incorporation in the interim final rule
and final rule of a counterfactual growth
rate, which effectively permits
recipients to count revenue losses due
to the public health emergency that are
offset by increased tax revenue resulting
from organic growth.
For these reasons, Treasury is
providing in the final rule that
recipients must subtract from their
calculation of actual revenue the effect
of tax increases adopted after the date of
adoption of this final rule (January 6,
2022) for purposes of calculation dates
that occur on or after April 1, 2022. This
change and the change to the final rule
described above treat tax changes in a
consistent manner: In the case of
reduction in revenue resulting from a
tax cut, a recipient must add the amount
of that reduction to its calculation of
actual revenue, and in the case of an
increase in revenue resulting from a tax
increase, a recipient must subtract the
amount of additional revenue collected
as a result of the tax increase from its
calculation of actual revenue.298
298 The final rule does not permit recipients to
reflect the effects of other changes in policy, such
as increases in fees adopted after adoption of the
final rule. Treasury understands that the main
beneficiaries of such a change would be those
recipients that will benefit from the standard
allowance provided for in the final rule and that for
other recipients the administrative burden on
recipients needed to calculate these adjustments
As is the case with tax cuts, discussed
above, tax increases that must be
reflected in the calculation of revenue
include final legislative or regulatory
action or a new or changed
administrative interpretation that
increases any tax and that the recipient
assesses has had the effect of increasing
tax revenue relative to current law. In
assessing whether a tax change has had
the effect of increasing tax revenue,
recipients may either calculate the
actual effect on revenue or rely on
estimates prepared at the time the tax
change was adopted. Recipients may
rely on information typically prepared
in the course of developing the budget
(e.g., expected revenues) and/or
considering tax changes (e.g., budget
scores, revenue notes) to determine the
amount of revenue that was collected as
a result of the tax increase as long as
those estimates are based on reasonable
assumptions and do not use dynamic
methodologies that incorporate the
projected effects of macroeconomic
growth, given that macroeconomic
growth is accounted for in the
counterfactual growth assumptions.
Recipients that choose to calculate the
actual effect of a tax change on revenue
must similarly base their calculations on
reasonable estimates that do not use
dynamic methodologies. Recipients
should apply this adjustment in
determining their actual revenue totals
at Step 3 in the revenue loss calculation
described above.
Previously Adopted Tax Changes
As discussed above, the final rule will
not require recipients to reflect the
revenue effects of tax increases or
decreases adopted prior to the adoption
of the final rule. Recipients that adopted
a tax change in a previous period will
not be required to recalculate the
amount of revenue loss as of prior
calculation dates or to reflect the fiscal
impacts of such tax changes in
calculation dates after the effective date
of the final rule. However, the final rule
will permit recipients to elect to reflect
the revenue effects of their tax changes
adopted between the beginning of the
public health emergency and the
adoption of the final rule.299 If a
recipient elects to do so, it must do so
with respect to all of its tax changes
would outweigh the benefit of having a somewhat
larger amount of funds available for government
services.
299 The final rule also addresses the possibility
that some recipients may have fiscal years ending
during the period between January 6, 2022 and
April 1, 2022; such recipients' election to reflect tax
changes from prior periods would also apply to
changes during this period with respect to the
calculation date in this period.
adopted between the beginning of the
public health emergency and the
adoption of the final rule. Treasury
intends to revise its reporting
requirements to permit recipients to
amend their previously reported
calculation periods to reflect such
changes.
Determination of the Base Year
Under the ARPA and interim final
rule, SLFRF funds may be used "for the
provision of government services to the
extent of the reduction in revenue . . .
relative to revenues collected in the
most recent full fiscal year" of the
recipient. Therefore, the base year for
the revenue loss calculation is the most
recent full fiscal year prior to the
COVID-19 public health emergency.
Public Comment: Treasury received
multiple comments asking for flexibility
in determining base year revenues. For
instance, some commenters asked to use
a different base year than the "most
recent full fiscal year" prior to the
pandemic for calculating revenue loss;
others asked to be able to average prior
years. Commenters stated that, for
various reasons, revenue was artificially
low in the last full fiscal year prior to
the public health emergency, and,
therefore, using revenue in that year as
the base year did not accurately reflect
expected revenue in a normal year. For
example, several Tribes stated that
unforeseeable weather events resulted
in forced closure of casinos which, in
turn, artificially deflated revenues in the
base year. Other commenters indicated
that one-time anomalies in the timing of
tax collection in that year artificially
pushed revenue into the following fiscal
year. Similarly, a few commenters noted
that tax changes that took effect in the
middle of the base year may artificially
skew the size of the revenue loss
experienced by the recipient
government.
Treasury Response: Treasury
understands that recipients may have
experienced events in the base year that
led to lower or higher revenues than
what they otherwise would have
collected. The ARPA provides that
revenue loss is to be determined with
respect to revenue in the most recent
full fiscal year prior to the pandemic,
and therefore the final rule maintains its
incorporation of the statutory definition.
In calculating revenue loss, recipients
may use data on a cash, accrual, or
modified accrual basis, provided that
recipients are consistent in their choice
of methodology throughout the covered
period, which might help recipients
adjust to certain delays in revenue
receipt. Both the standard allowance
and elements of the formula (e.g.,
4408 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
counterfactual growth rate) incorporate
generous assumptions to give recipients
flexibility and to account for variation
among recipients' experiences during
the pandemic.
Government Services
The SUPPLEMENTAL INFORMATION to the
interim final rule provided a non -
exhaustive list of examples of services
that are government services. The
interim final rule also discussed why
neither payment of debt service nor
replenishing financial reserves
constitutes government services, as
these expenditures do not provide
services but relate to the financing of
such services. Similarly, government
services under the interim final rule did
not include satisfaction of any
obligation arising under or pursuant to
a settlement agreement, judgment,
consent decree, or judicially confirmed
debt restructuring in a judicial,
administrative, or regulatory
proceeding, unless the judgment or
settlement required the provision of
government services.
Public Comment: Treasury received
several comments requesting further
clarification regarding the scope of
government services, including asking
for either a specific definition of
government services or that a specific
use be expressly deemed to be a
government service. Some commenters
disagreed with the exclusions from
government services in the interim final
rule. For instance, many of the
comments Treasury received suggested
that replenishing reserve funds and at
least certain types of debt service should
be treated as providing governmental
services. Some commenters also
suggested that a recipient should be able
to use funds for costs incurred before
March 3, 2021. Other commenters asked
Treasury to maintain the prohibition on
using the funds to pay debt service.
Treasury Response: Treasury
continues to believe that the lists of
activities that either are or are not
providing government services are
accurate but is clarifying here that,
generally speaking, services provided by
the recipient governments are
"government services" under the
interim final rule and final rule, unless
Treasury has stated otherwise.
Government services include, but are
not limited to, maintenance or pay -go
funded building 300 of infrastructure,
including roads; modernization of
cybersecurity, including hardware,
300pay-go infrastructure funding refers to the
practice of funding capital projects with cash -on -
hand from taxes, fees, grants, and other sources,
rather than with borrowed sums.
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.
The aforementioned list of
government services is not exclusive.
However, recipients should be mindful
that other restrictions may apply,
including those articulated in the
section Restrictions on Use. In the final
rule, Treasury is maintaining the
limitations on government services
included in the interim final rule and
has addressed and responded to public
commenters on these issues in the
section Restrictions on Use.
D. Investments in Water, Sewer, and
Broadband Infrastructure
Summary of Interim Final Rule
Under the ARPA, recipients may use
funds to make necessary investments in
water, sewer, and broadband
infrastructure. The interim final rule
provided recipients with the ability to
use funds for a broad array of uses
within these categories.
The interim final rule discussed two
general provisions that apply across all
water, sewer, and broadband
infrastructure investments. First, the
interim final rule addressed the
meaning of "necessary" investments as
meaning those designed to provide an
adequate minimum level of service and
unlikely to be made using private
sources of funds. Second, the interim
final rule encouraged recipients to use
strong labor standards in water, sewer,
and broadband projects, as discussed
below.
Necessary Investments
The statute limits investments to
those that are necessary. As discussed in
more detail below, Treasury determined
that the types of water and sewer
projects that were authorized under the
interim final rule by reference to
existing Environmental Protection
Agency (EPA) programs would in all
cases be necessary investments given
the conditions applicable to such EPA
programs. Similarly, the interim final
rule's definition of eligible broadband
projects as those designed to provide a
certain standard of service to those
households and businesses with limited
existing service was based on the
statutory requirement that investments
in water, sewer, and broadband must be
"necessary."
As discussed further below, Treasury
has expanded the scope of what is an
eligible water and sewer infrastructure
project to include additional uses. In
particular, the final rule permits use of
SLFRF funds for certain dam and
reservoir restoration projects and certain
drinking water projects to support
population growth. The nature of these
additional uses is such that additional
factors must be considered in
determining whether one of these
additional uses is a necessary project. In
addition, Treasury recognizes that there
may be a need for improvements to
broadband beyond those households
and businesses with limited existing
service as defined in the interim final
rule. Treasury has replaced this specific
requirement based on an understanding
that broadband investments may be
necessary for a broader set of reasons.
Given this expansion of what is
considered in scope as a water, sewer,
or broadband infrastructure project, the
final rule provides a further elaboration
of Treasury's understanding of the
conditions under which an
infrastructure project will be considered
to be a necessary investment. Treasury
considers a necessary investment in
infrastructure to be one that is (1)
responsive to an identified need to
achieve or maintain an adequate
minimum level of service, which may
include a reasonable projection of
increased need, whether due to
population growth or otherwise and (2)
a cost-effective means for meeting that
need, taking into account available
alternatives. In addition, given that
drinking water is a resource that is
subject to depletion, in the case of
investments in infrastructure that
supply drinking water in order to meet
projected population growth, the project
must be projected to be sustainable over
its estimated useful life.
Not included in the list of criteria
above is the requirement in the interim
final rule that the project be unlikely to
be made using private sources of funds.
Given that it may be difficult to assess
in a particular case what the probability
of private investment in a project would
be, Treasury has eliminated this
standard from the meaning of necessary
but still encourages recipients to
prioritize projects that would provide
the greatest public benefit in their
respective jurisdictions.
Strong Labor Standards in Water, Sewer,
and Broadband Construction
As stated in the Supplementary
Information to the interim final rule,
Treasury encourages recipients to carry
out investments in water, sewer, or
broadband infrastructure in ways that
produce high -quality infrastructure,
avert disruptive and costly delays, and
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4409
promote efficiency.301 Treasury
encourages recipients to use strong labor
standards, including project labor
agreements (PLAs) and community
benefits agreements that offer wages at
or above the prevailing rate and include
local hire provisions. Treasury also
recommends that recipients prioritize in
their procurement decisions employers
who can demonstrate that their
workforce meets high safety and
training standards (e.g., professional
certification, licensure, and/or robust in-
house training), that hire local workers
and/or workers from historically
underserved communities, and who
directly employ their workforce or have
policies and practices in place to ensure
contractors and subcontractors meet
high labor standards. Treasury further
encourages recipients to prioritize
employers (including contractors and
subcontractors) without recent
violations of federal and state labor and
employment laws.
Treasury believes that such practices
will promote effective and efficient
delivery of high -quality infrastructure
projects and support the economic
recovery through strong employment
opportunities for workers. Such
practices will also reduce the likelihood
of potential project challenges like work
stoppages or safety accidents, while
ensuring a reliable supply of skilled
labor and minimizing disruptions, such
as those associated with labor disputes
or workplace injuries. That will, in turn,
promote on -time and on -budget
delivery.
Furthermore, among other
requirements contained in 2 CFR 2009
Appendix II, all contracts made by a
recipient or subrecipient in excess of
$100,000 with respect to water, sewer,
or broadband infrastructure project that
involve employment of mechanics or
laborers must include a provision for
compliance with certain provisions of
the Contract Work Hours and Safety
Standards Act, 40 U.S.C. 3702 and 3704,
301 Treasury received several comments related to
its encouragement of certain wage and labor
standards in the Supplementary Information to the
interim final rule. Some commenters opposed this
encouragement, arguing that even encouragement
and reference to PLAs and prevailing wage laws
could lead to confusion or make it more likely that
recipients would apply labor standards in ways that
would discourage competition and raise project
costs. Conversely, some commenters supported the
encouragement of the use of certain standards,
including giving preference to employers that meet
certain employment standards (e.g., those that
maintain high safety and training standards)
because it would support the goal of completing
water, sewer, and broadband projects efficiently
and safely. As in the interim final rule, this
encouragement does not impose a legally binding
restriction on recipients.
as supplemented by Department of
Labor regulations (29 CFR part 5).
Treasury will continue to seek
information from recipients on their
workforce plans and water, sewer, and
broadband projects undertaken with
SURF funds. This reporting will
support transparency and competition
by enhancing available information on
the services being provided. Since
publication of the interim final rule,
Treasury has provided recipients with
additional guidance and instructions on
the reporting requirements.302
Environmental and Other Generally
Applicable Requirements
Treasury cautions that, as is the case
with all projects engaged in using the
SURF funds, all projects must comply
with applicable federal, state, and local
law. In the case of infrastructure
projects in particular, this includes
environmental and permitting laws and
regulations. Likewise, as with all capital
expenditure projects using SURF
funds, projects must be undertaken and
completed in a manner that is
technically sound, meaning that they
must meet design and construction
methods and use materials that are
approved, codified, recognized, fall
under standard or acceptable levels of
practice, or otherwise are determined to
be generally acceptable by the design
and construction industry.
1. Water and Sewer Infrastructure
Sections 602(c)(1)(D) and Section
603(c)(1)(D) of the Social Security Act
provide that recipients may use the
SURF funds "to make necessary
investments in water [and] sewer . .
infrastructure." The interim final rule
permitted a broad range of necessary
investments in projects that improve
access to clean drinking water and
improve wastewater and stormwater
infrastructure systems. As discussed
below, after review of comments
received on the interim final rule,
Treasury has made changes in the final
rule to expand the scope of eligible
water and sewer projects.
Summary of Interim Final Rule and
Final Rule Structure
Background: In the interim final rule,
Treasury aligned eligible uses of the
SURF with the wide range of types or
categories of projects that would be
eligible to receive financial assistance
through the Clean Water State Revolving
Fund (CWSRF) or Drinking Water State
Revolving Fund (DWSRF) administered
302 See U.S. Department of the Treasury,
Compliance and Reporting Guidance, 21 (June 24,
2021), https.Ilhome.treasury.gov/system/files/1361
SLFRF-Compliance-and-Reporting-Gui dance. pdf.
by the Environmental Protection Agency
(EPA). By referring to these existing
programs, with which many recipients
are already familiar, Treasury intended
to provide flexibility to recipients to
respond to the needs of their
communities while facilitating
recipients' identification of eligible
projects. Furthermore, by aligning
SURF eligible uses with these existing
programs, Treasury could ensure that
projects using the SURF are limited to
"necessary investments."
Public Comment: Treasury received
many comments responding to the
water and sewer infrastructure
provisions of the interim final rule from
state, local, and Tribal governments,
industry trade associations, public
interest groups, private individuals, and
other interested parties. Commenters
requested that Treasury provide a wider
set of eligible uses for water and sewer
infrastructure beyond those uses
articulated by the DWSRF and CWSRF,
suggesting that Treasury expand the
definition of necessary water and sewer
infrastructure.
Treasury Response: In response to
commenters, Treasury is expanding the
eligible use categories for water and
sewer infrastructure, discussed in
further detail below. Because the
interim final rule aligned the definition
of necessary water and sewer
infrastructure with the eligible uses
included in the DWSRF and CWSRF,
Treasury is reflecting in the final rule a
revised standard for determining a
necessary water and sewer
infrastructure investment for eligible
water and sewer uses beyond those uses
that are eligible under the DWSRF and
CWSRF.
Interpretation of Necessary Investments
and Water and Sewer Infrastructure
Necessary Investments: As discussed
above, Treasury considers an
investment in infrastructure to be
necessary if it is (1) responsive to an
identified need to achieve or maintain
an adequate minimum level of service,
which for some eligible project
categories may include a reasonable
projection of increased need, whether
due to population growth or otherwise
and (2) a cost-effective means for
meeting that need, taking into account
available alternatives. In addition, in the
case of investments in drinking water
service infrastructure to supply drinking
water to satisfy a projected increase in
population, the project must also be
projected to be sustainable over its
estimated useful life. As detailed further
below, DWSRF and CWSRF eligible
projects continue to be presumed to be
necessary investments under the final
4410 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
rule, with the exception of projects for
the rehabilitation of dams and
reservoirs, which the EPA has permitted
in certain circumstances under the
DWSRF and, as discussed below, are
addressed separately in the final rule.
In evaluating whether a project would
respond to a need to achieve or
maintain an adequate minimum level of
service, a recipient should consider
whether it would meet the needs of the
population to be served and would
satisfy applicable standards. For
example, a drinking water project must
be sized such that it provides an
adequate volume of water to households
and other customers and must meet
applicable standards for drinking water
quality under the Safe Drinking Water
Act (SDWA). Similarly, a centralized
wastewater treatment project should be
designed to manage updated estimated
flow rates and comply with Clean Water
Act requirements. These requirements
are already reflected in the eligibility
criteria of the DWSRF and CWSRF,
respectively.
In evaluating whether a project is a
cost-effective means of providing the
water or sewer service, the recipient
should consider the need for the project,
the costs and benefits of the project
compared to alternatives, and the
effectiveness of the project in meeting
the identified need. Recipients are not
required to conduct a full cost -benefit
analysis; however, they should consider
and analyze relevant factors. For
example, a recipient may not use funds
to pursue a costly dam rehabilitation to
provide drinking water to a community
if it could provide the same service with
a significantly smaller investment by
drawing water from another available
reservoir, assuming that doing so would
meet the other requirements of the final
rule. As detailed further below,
recipients are only required to assess
cost-effectiveness of projects for the
creation of new drinking water systems,
dam and reservoir rehabilitation
projects, or projects for the extension of
drinking water service to meet
population growth needs.
Certain DWSRF eligibilities are
already subject to a cost-effectiveness
test. Specifically, projects that create
new drinking water systems must be a
cost-effective solution to addressing the
identified problem.303 The EPA also
imposes a cost-effectiveness condition
on dam and reservoir rehabilitation
projects undertaken pursuant to its class
deviation from the DWSRF rule. These
projects are particularly expensive and,
unlike in the case of other types of
eligible projects, there are often
303 See 40 CFR 35.3520(b)(2)(vi).
available alternatives to conducting
these projects. Projects for the extension
of drinking water service to meet
population growth needs are also often
particularly expensive, and there are
often different ways to meet the needs
of expanding populations. Treasury will
accordingly require that recipients
engage in a cost-effectiveness analysis
when engaging in projects for the
creation of new drinking water systems,
dam and reservoir rehabilitation
projects, or projects for the extension of
drinking water service to meet
population growth needs. Other types of
eligible water or sewer projects will not
be subject to this cost-effectiveness test,
including lead line replacement and
lead remediation.304
In the case of projects that expand
drinking water service infrastructure to
satisfy a projected increase in
population, the project must also be
sustainable, meaning that the project
can continue providing the adequate
minimum level of service for its
estimated useful life, taking into
account projected impacts of changes to
the climate and other expected demands
on the source of water. For example, a
reservoir rehabilitation project may not
be pursued if the reservoir will no
longer be able to provide an adequate
source of drinking water before the end
of the estimated useful life of the
improvements to the reservoir. In areas
currently impacted by drought or where
drought conditions are expected to be
more frequent or more severe in the
future, sources of drinking water may be
diminished more quickly than in prior
periods. In considering how much of a
source of water will be available in the
future for the drinking water project, a
recipient must consider that a source of
water may be drawn upon or otherwise
used for other current and expected
uses, including use by fish and other
wildlife.
The final rule applies this
sustainability condition to projects that
expand drinking water service
infrastructure to satisfy a projected
increase in population but not to other
drinking water projects. When a new
source of water is required to remedy an
existing threat to public health, as in the
case of source projects eligible under the
DWSRF, sustainability should be a
consideration, but in some cases, the
need to replace a contaminated source
may mean that a less sustainable choice
304 In such cases, either the projects are
presumptively cost-effective (e.g., lead projects
would always be considered cost-effective given the
costs imposed by lead poisoning) or a cost-
effectiveness test is less relevant given the lack of
available alternatives or the relatively low cost of
the project.
may be made. When faced with such an
issue, such as in the case of a
contaminated well system, a project to
replace the contaminated source can be
said to be "necessary" even if the
replaced source is not sustainable over
the long term. Expediency may dictate
that a shorter -term solution is pursued
if it is cost-effective and will prevent
health issues while a longer -term
solution can be found. In contrast, an
expansion to accommodate population
growth cannot be said to be necessary if
it is not sustainable over its estimated
useful life.
Not included in the list of criteria
above is the requirement in the interim
final rule that the project be unlikely to
be made using private sources of funds.
Given that it may be difficult to assess
in a particular case what the probability
of private investment in a project would
be, Treasury has eliminated this
standard from the meaning of necessary
but nevertheless encourages recipients
to apply funds to projects that would
provide the greatest public benefit.
Water and Sewer Infrastructure: As
stated above, Congress provided that
SURF funds are available for
"necessary water, sewer, and broadband
infrastructure." Treasury interprets the
reference to water and sewer uses
consistent with the inclusion of
broadband uses. Water, sewer, and
broadband infrastructure all involve the
provision of essential services to
residents, businesses, and other
consumers. As the pandemic has made
clear, access to broadband has itself
become essential for individuals and
businesses to participate in education,
commerce, work, and civic matters and
to receive health care and social
services.
Water and sewer services provided
broadly to the public as essential
services include the provision of
drinking water and the removal,
management, and treatment of
wastewater and stormwater.305
Although governments are engaged in
other infrastructure related to water,
including irrigation projects,
transportation projects, and recreation
projects, such projects go beyond the
scope of what is provided to all
residents as an essential service.
Provision of drinking water and
removal, management, and treatment of
305In many jurisdictions, stormwater flows into
the sewer system rather than into a separate
stormwater system. The separate inclusion of
"water" and "sewer" infrastructure also makes
clear that "water" in this context cannot refer to all
uses relevant to water. Given that sewer systems
carry wastewater (and often stormwater), if water
infrastructure were to refer to all water -related
infrastructure in this context, it would make the
inclusion of sewer infrastructure redundant.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4411
wastewater and stormwater are the
typical responsibilities of "water and
sewer" authorities throughout the
country, and there is a tremendous need
for improvements to the ability of state,
local, and Tribal governments to
provide such services, including to
address the consequences of deferred
maintenance and additional resiliency
needed to adapt to changes to the
climate.306
Although the meaning of water and
sewer infrastructure for purposes of
sections 602(c)(1)(D) and 603(c)(1)(D) of
the Social Security Act does not include
all water -related uses, Treasury has
made clear in this final rule that
investments to infrastructure include a
wide variety of projects. Treasury
interprets the word "infrastructure" in
this context broadly to mean the
underlying framework or system for
achieving the given public purpose,
whether it be provision of drinking
water or management of wastewater or
stormwater.307 As discussed below, this
can include not just storm drains and
culverts for the management of
stormwater, for example, but also
bioretention basins and rain barrels
implemented across a watershed,
including on both public and private
property, that together reduce the
amount of runoff that needs to be
managed by traditional infrastructure.
Further, Treasury understands that
investments in infrastructure include
306In addition, Treasury interprets the eligible
uses of SURF funds against the background of the
Coronavirus Relief Fund (CRF), for which the
SURF funds are, in part, a successor. CRF
recipients expressed great interest in using the CRF
to pursue water infrastructure projects, including
provision of drinking water and internal plumbing
on Tribal lands and in Alaskan villages, and
broadband projects throughout the country;
Treasury permitted these projects given the
connection to the public health emergency (see
Coronavirus Relief Fund for States, Tribal
Governments, and Certain Eligible Local
Governments, 86 FR 4182, 4190, 4192 (Jan. 15,
2021), but the short deadline for use of funds made
it difficult to use CRF funds in this way. Congress'
inclusion of the water, sewer, and broadband clause
in the ARPA, along with the SURF funds' longer
eligible use date, is responsive to this unmet need.
As discussed below, Congress in the Infrastructure
Investment and Jobs Act amended sections 602(c)
and 603(c) of the Social Security Act to add a new
paragraph as sections 602(c)(4) and 603(c)(5),
respectively, providing that SURF funds may be
used to meet non-federal matching requirements of
any authorized Bureau of Reclamation project. This
authority was added as a separately enumerated
eligible use regardless of whether the underlying
project would be an eligible use of SURF funds
under the water and sewer infrastructure eligible
use category.
307 See, e.g., section 502 of the Federal Water
Pollution Control Act (33 U.S.C. 1362), defining
"green infrastructure" as "the range of measures
that use plant or soil systems, permeable pavement
or other permeable surfaces or substrates,
stormwater harvest and reuse, or landscaping to
store, infiltrate, or evapotranspirate stormwater and
reduce flows to sewer systems or to surface waters."
improvements that increase the capacity
of existing infrastructure and extend the
useful life of existing infrastructure.
Accordingly, water and sewer
infrastructure investment projects
include those that conserve water,
thereby reducing pressure on
infrastructure for the provision of
drinking water, and that recycle
wastewater and stormwater, thereby
reducing pressure on the infrastructure
for treating and managing wastewater
and stormwater.
As with other infrastructure projects
and capital expenditure projects that are
permitted as responses to the public
health emergency and its negative
economic impacts, costs for planning
and design and associated pre -project
costs are eligible uses of SURF funds.
Costs for the acquisition of land are also
eligible, but only if needed for the
purposes of locating eligible project
components. Recipients should ensure
that they have the technical, financial,
and managerial capability to ensure
compliance with the requirements of the
SDWA, or that the assistance will
ensure compliance and the owners or
operators of the systems will undertake
feasible and appropriate changes in
operations to ensure compliance over
the long-term.
Drinking Water State Revolving Fund
and Clean Water State Revolving Fund
Background: As stated above, in the
interim final rule, Treasury included
eligible uses of the DWSRF and the
CWSRF as eligible uses of the SURF in
the water and sewer infrastructure
category. By providing that projects
eligible under the DWSRF and the
CWSRF are also eligible uses of SURF
funds, the interim final rule permitted a
broad range of projects that improve
drinking water infrastructure, such as
building or upgrading facilities and
transmission, distribution, and storage
systems, including replacement of lead
service lines. With respect to clean
water and wastewater infrastructure, the
interim final rule provided that
recipients may use SURF funds to
construct publicly owned treatment
infrastructure, manage and treat
stormwater or subsurface drainage
water, and facilitate water reuse, among
other uses. Consistent with the DWSRF
and the CWSRF, the interim final rule
provided that SURF funds may be used
for cybersecurity needs to protect water
or sewer infrastructure, such as
developing effective cybersecurity
practices and measures at drinking
water systems and publicly owned
treatment works.
Use of DWSRF and CWSRF to Support
Climate Change Adaptations. Many of
the types of projects eligible under
either the DWSRF or CWSRF also
support efforts to address climate
change. For example, by taking steps to
manage potential sources of pollution
and preventing these sources from
reaching sources of drinking water,
projects eligible under the DWSRF and
CWSRF may reduce energy required to
treat drinking water. Similarly, projects
eligible under the DWSRF and CWSRF
include measures to conserve and reuse
water, for example through projects to
reuse or recycle wastewater, stormwater,
or subsurface drainage water. Treasury
encourages recipients to consider green
infrastructure investments and projects
to improve resilience to the effects of
climate change. For example, more
frequent and extreme precipitation
events combined with construction and
development trends have led to
increased instances of stormwater
runoff, water pollution, and flooding.
Green infrastructure projects that
support stormwater system resiliency
could include bioretention basins that
provide water storage and filtration
benefits, and green streets, where
vegetation, soil, and engineered systems
are combined to direct and filter
rainwater from impervious surfaces. In
cases of a natural disaster, recipients
may also use SURF funds for water
infrastructure to provide relief, such as
interconnecting water systems or
rehabilitating existing wells during an
extended drought.
Public Comment: Many commenters
expressed support for the interim final
rule's alignment of the use of funds for
water and sewer infrastructure under
the SURF with the project categories
provided through the EPA's DWSRF and
CWSRF programs.
Many commenters also provided
recommendations about the specific
types of water infrastructure projects
that should be eligible under the final
rule. In many of these cases,
commenters recommended that
Treasury include project types that are
already eligible under the DWSRF and
CWSRF and thus eligible under the
interim final rule and final rule. For
example, several commenters requested
that aquifer recharge projects, or other
groundwater protection and restoration
projects, be included as eligible uses of
SURF when certain aquifer recharge
projects that (1) implement a nonpoint
source pollution management
program 308 or (2) constitute reuse of
308 Specifically, this would include desalination
projects that decrease the burden on aquifers where
there is causal relationship between aquifer
withdrawals and saltwater intrusion if the projects
implement a nonpoint source pollution
Continued
4412 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
wastewater, stormwater, or subsurface
drainage water are in fact eligible uses
under the CWSRF. Furthermore, under
the DWSRF, eligible projects include
certain aquifer storage and recovery
systems for water storage.
Treasury Response: Eligible projects
articulated in the DWSRF and CWSRF
continue to be eligible uses of SLFRF
funds under the final rule. Recognizing
that recipients have faced challenges
interpreting eligible use categories
under the interim final rule or cross-
referencing EPA program materials to
interpret eligible project types, Treasury
is including in this Supplementary
Information additional information on
the types of projects eligible under the
DWSRF and CWSRF. Treasury
emphasizes that this further clarification
does not represent a change in
eligibility. Treasury encourages
recipients to reference EPA handbooks
for the DWSRF and CWSRF, which
provide further information and detail
about the types of projects eligible
under those programs and thus under
the final rule.
Eligible projects under the DWSRF.
Eligibilities under the DWSRF, the
interim final rule, and the final rule
include projects that address present or
prevent future violations of health -based
drinking water standards. These include
projects needed to maintain compliance
with existing national primary drinking
water regulations for contaminants with
acute and chronic health effects.
Projects to replace aging infrastructure
are also eligible uses if they are needed
to maintain compliance or further the
public health protection objectives of
section 1452 of the SDWA.309 The
following project categories are eligible
under the DWSRF, were eligible under
the interim final rule, and continue to
be eligible under the final rule:
(i) Treatment projects, including
installation or upgrade of facilities to
management program under section 319 of the
Clean Water Act. This could include projects in
which desalinated seawater is injected into the
aquifer to mitigate or prevent salt water intrusion,
as well as projects in which brackish water is
removed from an aquifer, desalinated, and returned
to the aquifer.
309 See 42 U.S.C. 300j-12(a)(2)(B) (limiting
financial assistance used by a public water system
to expenditures (including expenditures for
planning, design, siting, and associated
preconstruction activities, or for replacing or
rehabilitating aging treatment, storage, or
distribution facilities of public water systems, but
not including monitoring, operation, and
maintenance expenditures of a type or category
which the Administrator of the EPA has
determined, through guidance, will facilitate
compliance with national primary drinking water
regulations applicable to the system under 42
U.S.C. 300g-1 or otherwise significantly further the
health protection objectives of the SWDA); See also
40 CFR 35.3520(b).
improve the quality of drinking water to
comply with primary or secondary
standards and point of entry or central
treatment under section 1401(4)(B)(i)(IIl)
of the SDWA.
(ii) Transmission and distribution
projects, including installation or
replacement of transmission and
distribution pipes to improve water
pressure to safe levels or to prevent
contamination caused by leaks or breaks
in the pipes.
(iii) Source projects, including
rehabilitation of wells or development
of eligible sources to replace
contaminated sources.
(iv) Storage projects, including
installation or upgrade of eligible
storage facilities, including finished
water reservoirs, to prevent
microbiological contaminants from
entering a public water system.
(v) Consolidation projects, including
projects needed to consolidate water
supplies where, for example, a supply
has become contaminated or a system is
unable to maintain compliance for
technical, financial, or managerial
reasons.
(vi) Creation of new systems,
including those that, upon completion,
will create a community water system to
address existing public health problems
with serious risks caused by unsafe
drinking water provided by individual
wells or surface water sources. Eligible
projects are also those that create a new
regional community water system by
consolidating existing systems that have
technical, financial, or managerial
difficulties. Projects to address existing
public health problems associated with
individual wells or surface water
sources must be limited in scope to the
specific geographic area affected by
contamination. Projects that create new
regional community water systems by
consolidating existing systems must be
limited in scope to the service area of
the systems being consolidated.
Ineligible projects under the DWSRF.
Federally -owned public water systems
and for -profit noncommunity water
systems are not eligible to receive
DWSRF funds and therefore SLFRF
funds.310 The acquisition of water
rights, laboratory fees for routine
compliance monitoring, and operation
and maintenance expenses are not costs
associated with investments in
infrastructure and thus would not be
eligible under the final rule. 311 Projects
needed primarily to serve future
population growth are also ineligible
under the DWSRF; the treatment of such
projects under the final rule is discussed
310 See 40 CFR 35.3520(d)(1).
311 See id at § 35.3520(e)(2)—(4).
separately below under "Expansion of
Drinking Water Service." Projects
eligible under the DWSRF must be sized
only to accommodate a reasonable
amount of population growth expected
to occur over the useful life of the
project.
Eligible projects under the CWSRF.
The final rule continues to allow the use
of SLFRF funds for projects eligible
under the CWSRF, consistent with the
interim final rule. Under the CWSRF, a
project must meet the criteria of one of
the following CWSRF eligibilities to be
eligible for assistance. Section 603(c) of
the Clean Water Act (CWA) 312 provides
that the CWSRF can provide assistance:
(i) to any municipality, intermunicipal,
interstate, or state agency for construction of
publicly owned treatment works (as defined
in section 212 of the CWA); 313
(ii) for the implementation of a
management program established under
section 319 of the CWA; 314
(iii) for the development and
implementation of a conservation and
management plan under section 320 of the
CWA; 315
(iv) for the construction, repair, or
replacement of decentralized wastewater
treatment systems that treat municipal
wastewater or domestic sewage. Eligible
projects include, but are not limited to, the
construction of new decentralized systems
(e.g., individual onsite systems and cluster
systems), as well as the upgrade, repair, or
replacement of existing systems.
(v) for measures to manage, reduce,
treat, or recapture stormwater or
subsurface drainage water. Publicly and
privately owned, permitted and
unpermitted projects that manage,
reduce, treat, or recapture stormwater or
subsurface drainage water are eligible.
For example, projects that are
specifically required by a Municipal
Separate Storm Sewer System (MS4)
permit are eligible, regardless of
ownership. Projects may include, but
are not limited to green roofs,
bioretention basins, roadside plantings,
porous pavement, and rainwater
harvesting.
(vi) to any municipality,
intermunicipal, interstate, or state
agency for measures to reduce the
demand for publicly owned treatment
works capacity through water
conservation, efficiency, or reuse.
Eligible projects include, but are not
limited to, the installation, replacement,
or upgrade of water meters; plumbing
fixture retrofits or replacement; and gray
water recycling. Water audits and water
conservation plans are also eligible.
312 33 U.S.C. 1383 (c).
313 33 U.S.C. 1292.
31433 U.S.C. 1329.
315 33 U.S.C. 1330.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4413
Equipment to reuse effluent (e.g., gray
water, condensate, and wastewater
effluent reuse systems) is eligible.
(vii) for the development and
implementation of watershed projects
meeting the criteria set forth in section
122 of the CWA.316 Projects that
develop or implement a watershed pilot
project related to at least one of the six
areas identified in section 122 of the
CWA are eligible: Watershed
management of wet weather discharges,
stormwater best management practices,
watershed partnerships, integrated
water resource planning, municipality -
wide stormwater management planning,
or increased resilience of treatment
works.
(viii) to any municipality,
intermunicipal, interstate, or state
agency for measures to reduce the
energy consumption needs for publicly
owned treatment works. Projects may
include, but are not limited to, the
installation of energy efficient lighting,
HVAC, process equipment, and
electronic equipment and systems at
publicly owned treatment works.
Planning activities, such as energy
audits and optimization studies are also
eligible.
(ix) for reusing or recycling
wastewater, stormwater, or subsurface
drainage water. Projects involving the
reuse or recycling of wastewater,
stormwater, or subsurface drainage
water are eligible. This includes, as part
of a reuse project, the purchase and
installation of treatment equipment
sufficient to meet reuse standards. Other
eligible projects include, but are not
limited to, distribution systems to
support effluent reuse, including piping
the effluent on the property of a private
consumer, recharge transmission lines,
injection wells, and equipment to reuse
effluent (e.g., gray water, condensate,
and wastewater effluent reuse systems).
(x) for measures to increase the
security of publicly owned treatment
works. Security measures for publicly
owned treatment works might include,
but are not limited to, vulnerability
assessments, contingency/emergency
response plans, fencing, security
cameras/lighting, motion detectors,
redundancy (systems and power),
secure chemical and fuel storage,
laboratory equipment, securing large
sanitary sewers, and tamper -proof
manholes. The CWSRF cannot fund
operations and maintenance activities.
Therefore, maintaining a human
presence (i.e., security guards) and
monitoring activities are not eligible.
31633 U.S.C. 1274.
Other Clarifications of DSWRF and
CWSRF Eligible Project Categories
Public Comment: Several commenters
requested that Treasury provide
clarification of the requirements
associated with use of SLFRF funds for
necessary investments in water and
sewer infrastructure.
Treasury Response: After release of
the interim final rule, Treasury clarified
in further guidance that, while
recipients must ensure that water and
sewer infrastructure projects pursued
are eligible under the final rule,
recipients are not required to obtain
project pre -approval from Treasury or
any other federal agency when using
SLFRF funds for necessary water and
sewer infrastructure projects unless
otherwise required by federal law. For
projects that are being pursued under
the eligibility categories provided
through the DWSRF or CWSRF
programs, project eligibilities are based
on federal project categories and
definitions for the programs and not on
each state's eligibility or definitions.
While reference in the final rule to the
DWSRF, CWSRF, or other federal water
programs is provided to assist recipients
in understanding the types of water and
sewer infrastructure projects eligible to
be funded with SLFRF, recipients do
not need to apply for funding from the
applicable state programs or through
any federal water program. Similarly,
besides eligible project categories, the
final rule does not incorporate other
program requirements or guidance that
attach to the DWSRF, CWSRF, or other
federal water programs. However, as
noted above, recipients should be aware
of other federal or state laws or
regulations that may apply to
construction projects or water and sewer
projects, independent of SLFRF funding
conditions, and that may require pre -
approval from another federal or state
agency.
Expanded Eligible Uses for Water and
Sewer Infrastructure
Summary
Public Comment: Many commenters
requested broader flexibility in the use
of SLFRF funds for water and sewer
infrastructure projects that are not
eligible under the DWSRF and CWSRF.
These commenters argued that localities
are best situated to identify the highest -
need water and sewer projects in their
communities. Several Tribal
government commenters noted that
Tribes have different water and sewer
infrastructure needs than states and
localities and that additional flexibility
in the use of funds would lift current
barriers to improving infrastructure on
Tribal lands.
To achieve additional flexibility,
commenters suggested a range of
options for broadening the eligible use
of SLFRF funds for necessary water and
sewer infrastructure. For example,
several commenters suggested Treasury
broaden the eligibilities provided under
the interim final rule to include project
types eligible under other federal water
and sewer programs.
Treasury Response: Treasury agrees
that additional flexibility for use of
SLFRF funds is warranted and is
providing expanded eligibilities as
described below, several of which
address specific areas of need outlined
by Tribal and rural communities.
As discussed below, Treasury has
incorporated into the final rule projects
that are eligible under certain programs
established by the EPA under the Water
Infrastructure Improvements for the
Nation Act (WIIN Act). Other water -
related grant programs cited by
commenters include projects that are
otherwise already covered by the final
rule, for example because they are
covered as eligible under the DWSRF or
the CWSRF, or projects that are
ineligible under the final rule because
they are beyond the scope of the
meaning of water and sewer projects for
purposes of ARPA. To minimize the
need for recipients of SLFRF funds to
cross reference eligibilities across
multiple federal programs, which may
exacerbate current challenges to
understanding eligibility under SLFRF,
Treasury is providing detailed
information related to expanded
eligibilities within the text of this
SUPPLEMENTARY INFORMATION for the
final rule.
Stormwater Infrastructure
Public Comment: Several commenters
requested that additional stormwater
infrastructure projects be included as
eligible uses of SLFRF funds under the
final rule. Commenters suggested that
culvert repair and resizing and
replacement of storm sewers is
necessary to address increased rainfall
brought about by a changing climate.
Other commenters noted that rural
communities that do not manage their
own sewer systems may rely on this
type of water infrastructure.
Treasury Response: The CWSRF
includes a broad range of stormwater
infrastructure projects, and as such
these projects were eligible under the
interim final rule and continue to be
eligible under the final rule. These
projects include gray infrastructure
projects, such as traditional pipe,
storage, and treatment systems. Projects
4414 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
that manage, reduce, treat, or recapture
stormwater or subsurface drainage water
are also eligible, including real-time
control systems for combined sewer
overflow management, and sediment
control. Culvert infrastructure projects
are eligible under the CWSRF if they (1)
implement a nonpoint source
management plan, (2) implement
National Estuary Program
Comprehensive Conservation and
Management Plan, or (3) implement a
stormwater management plan with the
goal of providing a water quality benefit.
Stormwater projects under the CWSRF
also encompass a number of eligible
green infrastructure categories, such as
green roofs, green streets, and green
walls, rainwater harvesting collection,
storage, management, and distribution
systems, real-time control systems for
harvested rainwater, infiltration basins,
constructed wetlands, including surface
flow and subsurface flow (e.g., gravel)
wetlands, bioretention/bioswales (e.g.,
bioretention basins, tree boxes),
permeable pavement, wetland, riparian,
or shoreline creation, protection, and
restoration, establishment or restoration
of urban tree canopy, and replacement
of gray infrastructure with green
infrastructure including purchase and
demolition costs.
In addition to the eligible uses under
the CWSRF, Treasury is expanding the
eligible uses under the final rule to
include stormwater system
infrastructure projects regardless of
whether there is an expected water
quality benefit from the project.
Treasury anticipates that this eligible
use will allow recipients to manage
increased volumes of stormwater as a
result of changes to the climate. For
example, the final rule now permits the
use of SURF funds for the repair,
replacement, or removal of culverts or
other road -stream crossing
infrastructure to the extent the purpose
of the project is to manage stormwater.
In addition, Treasury understands that
the repair, replacement, or removal of
culverts may necessitate the repair or
upgrade of roads. As noted in guidance
issued after the interim final rule,
recipients may use SURF funds for
road repairs and upgrades that interact
directly with an eligible stormwater
infrastructure project. All stormwater
infrastructure projects undertaken
should incorporate updated design
features and current best practices.
Private Wells and Septic Systems
Public Comment: Several commenters
requested that the scope of eligible
projects be expanded to allow for the
expenditure of SURF funds on private
wells or septic systems. Commenters
noted that wells may be contaminated
with dangerous substances, including
arsenic, lead, radon, and PFAS (per- and
polyfluoroalkyl). Commenters also
suggested that, because rural and
underserved communities are often
reliant on these infrastructure types for
their drinking water or wastewater
needs, lack of appropriate funding to
maintain these systems could present
health and safety issues that
disproportionately affect certain
communities.
Treasury Response: Consistent with
the CWSRF, the installation, repair, or
replacement of private septic units
continues to be an eligible use of SURF
funds under the final rule. For example,
eligible projects include those that
address groundwater contamination
resulting from faulty septic units and
those that would connect failing septic
systems to centralized wastewater
treatment. Consistent with the DWSRF,
connecting homes served by a private
well to a public water system is an
eligible use of SURF funds.
In addition, Treasury has provided in
the final rule that recipients may use
SURF funds for an expanded set of
infrastructure projects that improve
access to and provision of safe drinking
water for individuals served by
residential wells. Eligible projects under
this category include rehabilitation of
private wells, testing initiatives to
identify contaminants in wells, and
treatment activities and remediation
strategies that address contamination.
Remediating Lead in Water
Public Comment: Several commenters
emphasized the need to fully remediate
lead contamination, especially in
structures that serve the public or
populations like children that are
particularly vulnerable to the effects of
lead exposure, such as schools and
daycares. Many American households
and an estimated 400,000 schools and
childcare centers currently lack safe
drinking water.317
Treasury Response: The replacement
of lead service lines, up to premise
plumbing, is an eligible use under the
DWSRF and continues to be an eligible
use of SURF funds. Such projects are
eligible regardless of the pipe material
of the replacement lines and ownership
of the property on which the service
line is located. Lead service line
replacement projects can serve
households, schools, or any other
317 The White House, Updated Fact Sheet:
Bipartisan Infrastructure Investment and Jobs Act
(August 2, 2021), https://www.whitehouse.govl
briefing-room/statements-releases/2021 /O8/02/
updated fact -sheet -bipartisan -infrastructure -
investment -and jobs -act/.
entities. Given the lifelong impacts of
lead exposure for children and the
widespread prevalence of lead service
lines, Treasury encourages recipients to
consider projects to replace lead service
lines.
In addition, Treasury is providing in
the final rule that for lead service line
replacement projects, recipients must
replace the full length of the service
line, and not just a partial portion of the
service line. Some water utilities, when
replacing service lines, will only replace
the "public portion" of the service line
and physically slice through the lead
service line at the public/private line.
This action can result in elevated
drinking water lead levels for some
period of time after replacement,
suggesting the potential for harm, rather
than benefit during that time period.318
Requiring replacement of the full length
of the service line is also consistent with
the requirements of the EPA's Lead and
Copper Rule Revisions for water
systems that have an action level
exceedance for lead 319 and certain other
water systems.320
Treasury is expanding eligible uses of
SURF funds to include infrastructure
projects eligible under EPA grant
programs authorized by the WIIN
Act.321 Eligible projects under these
programs include the installation or re -
optimization of corrosion control
treatment, replacing lead service lines,
replacing galvanized pipes downstream
of a lead service line (other than lead
pipes within a home as discussed
below), and maintaining an inventory of
the drinking water system's service
lines. Water quality testing, compliance
monitoring, and remediation activities
in schools and other childcare facilities,
as well as activities necessary to
respond to a contaminant, are eligible
uses of SURF funds.322 Remediation
318 See EPA Science Advisory Board, Evaluation
of the Effectiveness of Partial Lead Service Line
Replacements, (September 2011), https://
www. epa.gov/sdwa/science-advisory-board-
eval nation -effectiveness -partial -lead -service -line -
replacements (advising against partial lead service
line replacement).
319Environmental Protection Agency, supra note
188.
329 Environmental Protection Agency, National
Primary Drinking Water Regulations: Lead and
Copper Rule Revisions, 86 FR 4198. 40 CFR 141.84,
and preamble at 4215, January 15, 2021, https://
www.federalregister.gov/d/2020-28691; scheduled
to become effective December 16, 2021,
Environmental Protection Agency, 86 FR 31939,
https://www.federalregister.govldl202l-l2600.
321 Eligible uses of funds include those eligible
under the Small, Underserved, and Disadvantaged
Communities Grant (Section 2104), Reduction in
Lead Exposure via Drinking Water Grant Program
(Section 2105) and Lead Testing in School and
Child Care Program Drinking Water Grant Program
(Section 2107).
322 Such testing and remediation programs would
be an eligible use of SLFRF funds given that they
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4415
activities such as replacement of
faucets, internal plumbing, and fixtures
in schools and childcare facilities are
also an eligible use of SURF funds.
Consistent with the EPA programs,
replacement of lead pipes within a
home is not eligible under the final rule
because the vast majority of lead
contamination cases can be solved by
replacing lead service lines (including
on public and private property) and
faucets and fixtures themselves. As
such, replacement of lead pipes within
a home would not be considered a cost-
effective means for achieving the
desired level of service and thus would
not be a "necessary" investment. The
provision of bottled water is also not an
eligible use of SURF funds under this
eligible use category, as it is not an
investment in infrastructure. However,
bottled water in areas with an action
level exceedance for lead in water may
be an eligible use of SURF funds under
a separate eligible use category for
"remediation of lead paint and other
lead hazards;" see Assistance to
Households in Public Health and
Negative Economic Impacts.
Water filtration systems are eligible
under the EPA grant programs and the
final rule as long as they are installed as
a permanent part of a facility's system
and not intended for temporary use.
Conducting remediation, follow-up
monitoring, and conducting public
education and outreach about the
availability of infrastructure programs,
such as water testing and fixture
replacement programs funded with
SURF funds or otherwise, are also
eligible projects. Finally, recipients
should note that "remediation of lead
paint and other lead hazards" is a
separate eligible use category and a
broader range of programs and services
may be eligible under that section,
including investments that are not
infrastructure; see the eligible use for
"remediation of lead paint and other
lead hazards" in section Assistance to
Households in Public Health and
Negative Economic Impacts.
Dams and Reservoirs
Public Comment: Many commenters
requested that Treasury broaden
eligibilities to include dams and
reservoirs, infrastructure that
commenters noted may in its current
state be unsafe and could put
surrounding communities at risk. Some
would help a recipient determine whether an
infrastructure project, such as a lead line
replacement, is necessary. In contrast, as mentioned
above, the costs of continual testing that is part of
a drinking water or wastewater facilities' operating
costs would not be considered part of an
infrastructure project.
commenters argued that dams and
reservoirs play an important role in
providing municipal water supply and
water to irrigate farmland, including in
areas impacted by recent droughts.
Other commenters noted that a large
number of dams are currently classified
as high -hazard structures, the failure of
which would have severe consequences
for public safety and the local
environment. With respect to reservoirs,
commenters articulated that changing
climate conditions have necessitated
upgrades to reservoir infrastructure to
ensure existing facilities can meet the
local water needs of a community.
Commenters noted that communities
facing drought may also need to adjust
or enhance reservoirs to maintain
adequate water supply.
In contrast, several commenters
suggested that infrastructure projects
related to dams and reservoirs should
not be considered eligible uses of SURF
funds. These commenters noted that
alternate sources of funding exist for
dam and reservoir projects and that
dams and reservoir infrastructure could
result in negative impacts to Tribal
communities and negative
environmental impacts, including harm
to wildlife habitats.
Treasury Response: Treasury
understands that many dams and
reservoirs in need of rehabilitation are
dams and reservoirs whose primary
purpose is to provide drinking water. As
discussed above, SURF funds are
available for projects related to the
provision of drinking water. Moreover,
since issuance of the interim final rule,
the EPA has adopted a class deviation
from the DWSRF regulations that
permits such dam and reservoir
rehabilitation projects in certain
circumstances.323 In approving this
class deviation, the EPA recognized that
many dams used for drinking water are
aging and deteriorating and pose a
public health risk to communities; that
current dam conditions do not meet
state safety standards; and that reservoir
capacity has diminished and requires
dredging to meet drinking water needs
of the existing population.
Treasury's final rule provides that
funds may be used for rehabilitation of
dams and reservoirs if the primary
purpose of the dam or reservoir is for
drinking water supply and the
rehabilitation project is necessary for
continued provision of drinking water
323 See EPA, Approval of Class Exception from
the Regulatory Prohibitions on the Use of Drinking
Water State Revolving Fund for Rehabilitation of
Dams and Reservoirs (July 14, 2021), available at
https://www.epa.govlsystemlfilesldocumentsl202l -
07/d wsrf-class-deviation-dam-reservoir-rehab-2021 _
O.pdf.
supply. In considering whether a dam or
reservoir project is necessary for the
provision of drinking water supply, a
recipient may take into consideration
future population growth in certain
circumstances, as discussed under
"Expansion of Drinking Water Service
Infrastructure" below, but the project
must in any case be designed to support
no more than a reasonable level of
projected increased need. The recipient
must also determine that the project is
cost-effective, i.e., that there are not
significantly superior alternatives that
are available, taking into consideration
the relative costs and benefits of the
project as compared to those
alternatives.
This change to the final rule would
permit a wide variety of projects.324 The
limitation in the final rule to
rehabilitation of existing dams and
reservoirs reflects the scope of the EPA
class deviation referenced above and
Treasury's understanding of the
significant need for investments in
rehabilitation to address deterioration of
dams and the diminished capacity of
reservoirs. Further, Treasury expects
that in many cases it would be
considerably more difficult to
demonstrate that construction of a new
dam or reservoir would be necessary for
the purpose of the provision of drinking
water than is the case for rehabilitation
of dams and reservoirs already serving
that purpose for a particular population,
particularly given opportunities to meet
drinking water needs through water
reuse and conversation efforts. For these
reasons, and given that the relatively
short period of availability of the funds
makes new dam and reservoir
construction with these funds less
likely, Treasury has limited the scope of
the final rule to dam and reservoir
rehabilitation projects.
As discussed above, Treasury has
determined that ARPA does not
authorize the use of SURF funds for
uses other than the provision of
drinking water and the management of
wastewater and storm water. As such,
the final rule does not include
infrastructure projects related to dams
and reservoirs as eligible uses of SURF
funds unless they meet the conditions
discussed above.
324As noted in the EPA's class deviation,
examples of dam rehabilitation projects include
spillway reconstruction or repair; dam resurfacing,
patching, or other structural repairs, including
minimal height increases if needed to maintain the
structural integrity of the dam; grouting for seepage
control or liquefaction remediation (e.g., epoxy
resin, asphalt, or rock); repair or replacement of
drainage systems; and seismic stability efforts (e.g.,
anchors). Examples of reservoir rehabilitation
projects include sedimentation dredging and
reservoir lining.
4416 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
Public Comment: Several commenters
requested that the removal of dams and
associated habitat restoration should be
eligible uses of SURF funds, noting that
in some cases, dam removal will
improve water quality while removing
long-term operational expenses for the
recipient.
Treasury Response: Dam removal
projects and associated stream and
habitat restoration projects are eligible
uses of the CWSRF and continue to be
eligible under the final rule when the
removal implements either a nonpoint
source management program plan or a
National Estuary Program
Comprehensive Conservation and
Management Plan or when the removal
will provide a water quality benefit.
Habitat restoration projects more
generally may also be eligible under the
CWSRF and the final rule if they
constitute a form of stormwater
infrastructure.
Expansion of Drinking Water Service
Infrastructure
Public Comment: Commenters asked
for the ability to use funds for drinking
water projects for the purpose of
meeting needs arising from future
growth, which, given the restrictions
applicable to the DWSRF, was not
permitted under the interim final rule.
Treasury Response: As provided for in
the SDWA, the DWSRF is meant to
serve the public health needs of the
existing population. The EPA regulation
implementing the DWSRF program
provides that projects needed primarily
to serve future population growth are
not eligible uses of the DWSRF. A
project that is intended primarily to
address public health or regulatory
compliance issues for the existing
service population may be sized for a
"reasonable" amount of population
growth over the useful life of the
project.325
ARPA does not include the same
limitation as the SDWA. Accordingly,
the final rule provides that recipients
may use SURF funds for projects that
are needed to support increased
population in certain cases. ARPA
limits projects to those investments that
are "necessary." As discussed above,
Treasury interprets this to mean that the
investments must be (1) responsive to
an identified need to achieve or
maintain an adequate minimum level of
service, which for some eligible project
categories may include a reasonable
projection of increased need, whether
due to population growth or otherwise
and (2) a cost-effective means for
meeting that need, taking into account
325 See 40 CFR 35.3520(e)(5).
available alternatives. For this eligible
use category, expansion of drinking
water service infrastructure, the project
must also be projected to be sustainable
over its estimated useful life.
Investments must be determined to be
necessary when they are initiated.
Accordingly, Treasury is clarifying in
the final rule that the need identified for
a water or sewer project may include a
need arising from reasonable
expectations of future population
growth, provided that it is necessary at
the time the investment is initiated for
the recipient to make the investment to
meet this growth. For example, a
recipient expecting increased
population during the period of
performance may install a drinking
water treatment plant to meet that
growth. In addition, a recipient
expecting increased population growth
outside the period of performance may
install the treatment plant if the
planning and construction timeline for
the project would require work to begin
during the performance period in order
to meet the expected population growth.
A recipient may install transmission
lines as part of the development of new
housing occurring during the period of
performance. In this case, the housing
development must be in progress; a
recipient may not use the SURF funds
to install a water main, for example, to
an undeveloped tract in the expectation
that in the future that tract will be
developed with housing, because there
would be no need for that investment to
be made at the time it is initiated.
For the reasons discussed above, if a
project is undertaken to address
expected growth in population, the
project must also be sustainable,
meaning that the project can continue
providing the adequate minimum level
of service for its estimated useful life,
taking into account projected impacts of
changes to the climate and other
expected demands on the source of
water. In considering how much of a
source of water will be available in the
future for the drinking water project, a
recipient must consider that a source of
water may be drawn upon or otherwise
used for other current and expected
uses, including use by fish and other
wildlife. A drinking water project that is
designed to address a growing
population cannot be considered a
necessary investment if the source of
drinking water will cease to be available
to meet the population's needs before
the end of the estimated useful life of
the project. In such a case, a recipient
should consider alternative sources for
drinking water. See "Interpretation of
Necessary Investments and Water and
Sewer Infrastructure" above for more
information.
Non -Federal Matching Requirements for
Authorized Bureau of Reclamation
Projects
The Infrastructure Investment and
Jobs Act amends sections 602(c) and
603(c) of the Social Security Act to add
an additional eligible use of SURF
funds, providing that SURF funds
"may be used for purposes of satisfying
any non -Federal matching requirement
required for [an authorized Bureau of
Reclamation project]." 326
This amendment permits the use of
SURF funds to meet non-federal
matching requirements of any
authorized Bureau of Reclamation
project, regardless of whether the
underlying project would be an eligible
use of SURF funds under the water and
sewer infrastructure eligible use
category. These amendments are
effective as of March 11, 2021, as if
included in the ARPA at the time of its
enactment.327 Treasury will provide
further guidance to recipients on the
scope of Bureau of Reclamation water
projects and expenses covered by this
provision.
Floodplain Management and Flood
Mitigation Projects
Public Comment: Several commenters
requested that projects to address
floodwater, including floodplain
management and flood mitigation
projects, be included as an eligible use
of SURF funds. Within this category of
floodplain management and flood
mitigation infrastructure, several
commenters requested that the
installation of levees, flood walls, sea
walls, elevation projects, dredging, or
nature -based flood mitigation projects
be included as eligible projects.
Treasury Response: Treasury notes
that some floodplain management and
flood mitigation infrastructure projects,
including green infrastructure designed
to protect treatment works from flood
waters and flood impact are currently
eligible under the CWSRF and therefore
continue to be eligible under the final
rule.
Treasury has not included floodplain
management and flood mitigation
projects more generally as eligible under
the final rule. Although floodplain
management and flood mitigation are
functions of many state and local
governments, they are not the sort of
generally -provided essential services
included within the meaning of water
326 See Public Law 117-58, 40909(a)—(b) (Nov. 15,
2021).
327 See Public Law 117-58 § 40909(c).
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4417
and sewer projects under the ARPA, as
discussed above.
Irrigation
Public Comment: Some commenters
requested that irrigation projects be an
eligible use because they consider such
projects to be critical infrastructure.
Several commenters supported this
request by noting that irrigation systems
may be used to replenish aquifers and
recharge wells, in addition to delivering
water for irrigation. One commenter also
noted that the national irrigation system
is antiquated and in need of repair.
Treasury Response: Some irrigation
projects were eligible under the interim
final rule and continue to be eligible
under the final rule as a result of their
inclusion as eligible projects under the
CWSRF. For example, water efficient
irrigation equipment that reduces the
runoff of nutrients and implements a
management program established under
section 319 of the CWA and/or a
conservation and management plan
under section 320 of the CWA are
eligible uses under the CWSRF and
therefore continue to be an eligible use
of SLFRF funds under the final rule.
Likewise, projects to receive and
distribute reclaimed water for irrigation
systems or other agricultural use are
eligible under the CWSRF and therefore
continue to be an eligible use under the
final rule. Unlike projects for the
improvement of irrigation systems
generally, these reclaimed water
projects are related to wastewater
treatment and stormwater management,
which are within the scope of the
meaning of water and sewer
infrastructure for purposes of ARPA.
Treasury considered commenter
requests for inclusion of additional
irrigation infrastructure and determined
that irrigation projects more generally
are not permitted under the final rule.
Although these types of projects may be
water -related infrastructure, they are not
the sort of generally -provided essential
services included within the meaning of
water and sewer projects under ARPA,
as discussed above.
Consumer Incentive Programs
Public Comment: One commenter
requested that consumer incentive
programs in the areas of water use
efficiency, conservation, green
infrastructure, reuse, and other
distributed solutions be an allowable
use of SLFRF.
Treasury Response: The DWSRF and
CWSRF eligibilities include the
development and implementation of
incentive and educational programs that
address and promote water
conservation, source water protection,
and efficiency related to infrastructure
improvements, e.g., incentives such as
rebates to install green infrastructure
such as rain barrels or promote other
water conservation activities. Treasury
clarifies that such project types were
eligible under the interim final rule and
continue to be eligible under the final
rule.
2. Broadband Infrastructure
Under the ARPA, recipient
governments may use SLFRF funds to
make "necessary investments in . . .
broadband infrastructure." In the
Supplementary Information to the
interim final rule, Treasury interpreted
necessary investments in infrastructure
as investments "designed to provide an
adequate minimum level of service and
[that] are unlikely to be made using
private sources of funds." Treasury
explained that, with respect to
broadband specifically, such necessary
investments include projects that
"establish [ ] or improve [ ] broadband
service to underserved populations to
reach an adequate level to permit a
household to work or attend school, and
that are unlikely to be met with private
sources of funds."
Summary of Interim Final Rule, Public
Comments, and Treasury Response
Summary of Interim Final Rule: In
implementing the ARPA, the interim
final rule provided that eligible
broadband infrastructure investments
are limited to those that are designed to
provide service to unserved or
underserved households or businesses,
defined as those that lack access to a
wireline connection capable of reliably
delivering at least minimum speeds of
25 Mbps download and 3 Mbps upload.
The interim final rule also provided that
eligible projects under the SLFRF are
limited to those that are designed to
deliver, upon project completion,
service that reliably meets or exceeds
symmetrical upload and download
speeds of 100 Mbps. In instances where
it would not be practicable for a project
to deliver such service speeds because
of the geography, topography, or
excessive costs associated with such a
project, the interim final rule provided
that the project would be required to be
designed to deliver, upon project
completion, service that reliably meets
or exceeds 100 Mbps download speed
and between at least 20 Mbps and 100
Mbps upload speeds and be scalable to
a minimum of 100 Mbps symmetrical
for download and upload speeds.
In addition, Treasury, in the
Supplementary Information to the
interim final rule, encouraged recipients
to pursue a number of other objectives.
First, Treasury encouraged recipients to
prioritize investments in fiber-optic
infrastructure wherever feasible and
focus on projects that deliver a physical
broadband connection by prioritizing
projects that achieve last -mile
connections. Second, Treasury
encouraged recipients to integrate
affordability options into their program
design. Third, Treasury encouraged
recipients to prioritize support for local
networks owned, operated, or affiliated
with local governments, nonprofits, and
cooperatives. Fourth, Treasury
encouraged recipients to avoid investing
in locations with 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.
Finally, following release of the interim
final rule, Treasury provided filrther
guidance clarifying some aspects of
broadband infrastructure eligibility,
specifically on flexibility for recipients
to determine eligible areas to be
served,328 middle -mile projects,329 pre -
project development costs,330
broadband connections to schools or
libraries, 331 and the applicability of the
National Environmental Policy Act
(NEPA) and the Davis -Bacon Act.332
Summary of Public Comments:
Treasury received several comments on
the interim final rule's requirements
regarding eligible areas for investment
and build -to speed standards, as well as
Treasury's encouragements in the
Supplementary Information of the
interim final rule. Many commenters
found the interim final rule's
requirement to limit projects to those
designed to provide service to unserved
or underserved households or
businesses to be appropriately focused
on hard -to -reach areas. In contrast, other
commenters argued that this
requirement was too restrictive and that
it would limit the ability for some
recipients, particularly local
governments, to invest in broadband
infrastructure.
Separately, some commenters
supported the interim final rule's
requirement that eligible projects be
built to reliable speeds of 100 Mbps
symmetrical, with an exception for areas
where it was impracticable, and
encouragement that projects be built
with fiber-optic infrastructure, while a
328 See FAQ 6.8, 6.9, 6.11. Coronavirus State and
Local Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https.11
home.treasury.gov/system/files/1361SLFRPFAQ. pdf.
329 See FAQ 6.10. Id.
330 See FAQ 6.12. Id.
331 See FAQ 6.16. Id.
332 See FAQ 6.4, 6.17. Id.
4418 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
few others argued that the interim final
rule should remain technology -neutral
and that lower speed standards would
be more appropriate for today's usage
needs.
Summary of Treasury Response: In
response to the comments, the final rule
expands eligible areas for investment by
requiring recipients to invest in projects
designed to provide service to
households and businesses with an
identified need for additional
broadband infrastructure investment,
which would include but not be limited
to a lack of broadband service reliably
delivering certain speeds. In addition, as
discussed further below, the final rule
further supports the expansion of
affordable access to broadband service
for households by requiring that
recipients use a provider that
participates in a qualifying affordability
plan. Treasury encourages recipients to
prioritize projects that are designed to
provide service to locations not
currently served by a wireline
connection that reliably delivers at least
100 Mbps of download speed and 20
Mbps of upload speed.
The final rule maintains the interim
final rule's requirement that eligible
projects be designed to, upon
completion, reliably meet or exceed
symmetrical 100 Mbps download and
upload speeds. As was the case under
the interim final rule, 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, eligible
projects may be designed to reliably
meet or exceed 100 Mbps download
speed and between at least 20 Mbps and
100 Mbps upload speed and be scalable
to a minimum of 100 Mbps download
speed and 100 Mbps upload speed.
Treasury continues to encourage
recipients to prioritize investments in
fiber-optic infrastructure wherever
feasible and to focus on projects that
will achieve last -mile connections,
whether by focusing directly on funding
last -mile projects or by ensuring that
funded middle -mile projects have
commitments in place to support new
and/or improved last -mile service.
The final rule requires recipients to
address the affordability needs of low-
income consumers in accessing
broadband networks funded by SURF,
given that such a project cannot be
considered a necessary investment in
broadband infrastructure if it is not
affordable to the population the project
would serve. Recipients must require
the service provider for a completed
broadband infrastructure investment
project that provides service to
households to either participate in the
Federal Communications Commission's
(FCC) Affordable Connectivity Program
(ACP), or otherwise provide access to a
broad -based affordability program to
low-income consumers in the proposed
service area of the broadband
infrastructure that provides benefits to
households commensurate with those
provided under the ACP.
Treasury also recognizes the
importance of affordable broadband
access for all consumers beyond those
that are low-income. As part of their
project selection process, recipients are
encouraged to consult with the
community on the general affordability
needs of the target markets in the
proposed service area. Additionally,
recipients are encouraged to require that
services provided by a broadband
infrastructure project include at least
one low-cost option offered without
data usage caps and at speeds that are
sufficient for a household with multiple
users to simultaneously telework and
engage in remote learning. Recipients
will be required to report speed, pricing,
and any data allowance information as
part of mandatory reporting to Treasury.
The final rule also clarifies that
subsidies to households and
communities impacted by the pandemic
to access the internet, broadband
adoption programs, digital literacy
programs, and device programs are
eligible programs to respond to the
public health and negative economic
impacts of the pandemic under sections
602(c)(1)(A) and 603(c)(1)(A). See
section Assistance to Households in
Negative Economic Impacts.
Treasury continues to encourage
recipients to prioritize support for
broadband networks owned, operated
by, or affiliated with local governments,
nonprofits, and cooperatives. In
addition, to the extent recipients are
considering deploying broadband to
locations where there are existing
enforceable federal or state funding
commitments for reliable service at
speeds of at least 100 Mbps download
speed and 20 Mbps upload speed,
recipients must ensure that SURF
funds are designed to address an
identified need for additional
broadband investment that is not met by
existing federal or state funding
commitments. Recipients must also
ensure that SURF funds will not be
used for costs that will be reimbursed by
the other federal or state funding
streams. Further, Treasury highlights
that recipients are subject to the
prohibition on use of grant funds to
procure or obtain certain
telecommunications and video
surveillance services or equipment as
outlined in 2 CFR 200.216 and 2 CFR
200.471 and clarifies that modernization
of cybersecurity for existing and new
broadband networks are eligible uses of
funds under sections 602(c)(1)(D) and
603(c)(1)(D).
Finally, this Supplementary
Information to the final rule
incorporates and confirms guidance
issued by Treasury following the
interim final rule regarding middle -mile
projects,333 pre -project development
costs,334 broadband connections to
schools or libraries,335 and applicability
of the National Environmental Policy
Act (NEPA) and Davis -Bacon Act.336
The remainder of this section
provides additional details on the final
rule. Specifically, these sections
address: (1) Eligible areas for
investment; (2) build -to speed
standards; (3) affordability; (4) public
networks; (5) duplication of efforts and
resources; (6) cybersecurity; and (7) use
of funds to meet non-federal match
under the Infrastructure Investment and
Jobs Act.
Eligible Areas for Investment
The interim final rule limited eligible
broadband investments to projects
focused on delivering service to
unserved or underserved locations,
defined as households or businesses
that lack access to a wireline connection
capable of reliably delivering at least
minimum speeds of 25 Mbps download
and 3 Mbps upload. This targeted
approach was generally consistent with
certain speed thresholds used in other
federal programs to identify eligible
areas for federal investment in
broadband infrastructure, such as the
FCC's Rural Digital Opportunity Fund
(RDOF) program and the National
Telecommunication and Information
Administration's (NTIA's) Broadband
Infrastructure Program, and generally
aligns with the FCC's benchmark for an
"advanced telecommunications
capability" for wireline broadband
services.
Public Comment: Many commenters
discussed the disadvantages of such an
approach. Some commenters, including
several local government recipients,
argued that limiting investments to
locations without access to reliable
wireline 25/3 Mbps 337 was too
333 See FAQ 6.10. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https.11
home.treasury.gov/system/files/136/SLFRPFAQ. pdf.
334 See FAQ 6.12. Id.
335 See FAQ 6.16. Id.
336 See FAQ 6.4, 6.17. Id.
337In the remainder of this Supplementary
Information, "25/3 Mbps" refers to broadband
infrastructure that is designed to reliably meet or
exceed at least 25 Mbps download speeds and 3
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4419
restrictive because some urban
jurisdictions are already mostly or
entirely covered by a network with at
least 25/3 Mbps speeds yet lack
widespread broadband adoption for
various reasons. Commenters suggested
that recipients would benefit from
greater flexibility to provide necessary
investments in broadband access in
areas that are nominally covered by
speeds of at least 25/3 Mbps, such as to
provide affordable broadband access in
low-income areas or to address service
quality and reliability issues. Further,
commenters argued that Treasury's
requirement that new projects meet
minimum reliable speeds of 100 Mbps
symmetrical was inconsistent with the
requirement that broadband
infrastructure projects focus on those
with access to significantly lower
speeds, and further noted that several
states have already expanded the focus
of their broadband programs beyond
those without reliable access to speeds
of 25/3 Mbps. Commenters argued that
if the limitation to unserved and
underserved households and businesses
were maintained, the definition of
unserved and underserved households
and businesses should be revised to
include households and businesses
currently served by higher standards.
Commenters proposed a number of
alternative cutoff speeds, including 25/
25 Mbps, 50/10 Mbps, and 100 Mbps
symmetrical. Others expressed support
for providing flexibility for recipients to
make their own determination on
eligible areas for investment. These
commenters referenced studies
indicating that 25/3 Mbps is inadequate
for today's modern household or
business needs.
Some commenters advocated for
unserved and underserved areas to be
prioritized while providing flexibility
for recipients to serve areas beyond
those designated as unserved or
underserved. Reflecting the perceived
restrictiveness of the interim final rule
approach, some commenters asked for
assurance that projects conducted under
other categories of SURF eligible uses,
specifically to respond to the public
health and negative economic impacts
of the pandemic under sections
602(c)(1)(A)—(C) and 603(c)(1)(A)—(C),
were not barred by the presence of 25/
3 Mbps service, including "gap
networks," which are networks
designed to offer low-cost or no -cost
internet access for lower -income
Mbps upload speeds. "100 Mbps" symmetrical
refers to broadband infrastructure that is designed
to reliably meet or exceed at least 100 Mbps
download speeds and 100 Mbps upload speeds.
households with low broadband
adoption rates.
Commenters suggested additional
factors to be incorporated in the
consideration of locations that are
eligible to be served. Many commenters
suggested that affordability should be
considered a key factor when
determining whether a community has
access to broadband, as the presence of
25/3 Mbps service does not necessarily
mean the service is financially
accessible to the area's residents.
Commenters noted that surveys indicate
that affordability, not lack of coverage,
is the most significant barrier for most
Americans who do not have robust
broadband service in their households.
Some advocated that the final rule allow
for investments in areas with existing
reliable wireline access at or above
25/3 Mbps as long as existing broadband
service has been unaffordable for a
certain segment of the population;
others advocated that Treasury presume
eligibility when investments are made
in certain areas, such as Qualified
Census Tracts or neighborhoods with
persistent poverty, or are made by Tribal
governments. Separately, some
commenters noted that Treasury should
provide more clarification on what
constitutes a "reliabl[e]" connection,
including providing details as to
latency, jitter, and other technical
specifications that would meet that
standard, and what it means for certain
technologies, such as copper and other
outdated technologies, to be deemed
presumptively unreliable.
Other commenters supported the
interim final rule's approach on eligible
areas for investment or suggested
tightening eligibility even further. They
argued that higher speed thresholds
beyond 25/3 Mbps would likely lead to
investments in or building of new
broadband infrastructure in areas
already served by broadband at speeds
these commenters considered sufficient;
these areas, commenters suggested, are
less in need of federal assistance and
permitting investments here could
divert funding away from rural areas to
more densely populated areas.
Treasury Response: The final rule
expands eligible areas for investment by
requiring recipients to invest in projects
designed to provide service to
households and businesses with an
identified need for additional
broadband infrastructure investment.
Recipients have flexibility to identify a
need for additional broadband
infrastructure investment: Examples of
need include lack of access to a
connection that reliably meets or
exceeds symmetrical 100 Mbps
download and upload speeds, lack of
affordable access to broadband service,
or lack of reliable broadband service.
Recipients are encouraged to prioritize
projects that are designed to provide
service to locations not currently served
by a wireline connection that reliably
delivers at least 100 Mbps of download
speed and 20 Mbps of upload speed, as
many commenters indicated that those
without such service constitute hard -to -
reach areas in need of subsidized
broadband deployment.
Households and businesses with an
identified need for additional
broadband infrastructure investment do
not have to be the only ones in the
service area served by an eligible
broadband infrastructure project.
Indeed, serving these households and
businesses may require a holistic
approach that provides service to a
wider area, for example, in order to
make ongoing service of certain
households or businesses within the
service area economical.
Consistent with further guidance
issued by Treasury,338 in determining
areas for investment, recipients may
choose to consider any available data,
including but not limited to
documentation of existing broadband
internet service performance, federal
and/or state collected broadband data,
user speed test results, interviews with
community members and business
owners, reports from community
organizations, and any other
information they deem relevant.
In evaluating such data, recipients
may take into account a variety of
factors, including whether users
actually receive internet service at or
above the speed thresholds at all hours
of the day, whether factors other than
speed such as latency, jitter, or
deterioration of the existing connections
make their user experience unreliable,
and whether the existing service is
being delivered by legacy technologies,
such as copper telephone lines
(typically using Digital Subscriber Line
technology) or early versions of cable
system technology (DOCSIS 2.0 or
earlier),339 and other factors related to
338 See FAQ 6.11. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home.treasury.gov/system/files/136/SLFRPFAQ. pdf.
339 Legacy technologies such as copper telephone
lines (typically using Digital Subscriber Line
technology) and early versions of cable system
technology (DOCSIS 2.0 or earlier) typically lag on
speeds, latency, and other factors, as compared to
more modern technologies like fiber-optic. See, e.g.,
https://www. fcc.gov/sites/default/files/tech_
transitions_network _upgrades _ that may of
your_service.pdf (comparing copper to fiber and
noting that copper wire networks have "limited
speeds," are "susceptible to signal interference/
loss," and have a "relatively short life"); https.11
Continued
4420 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
the services to be provided by the
project. In addition, recipients may
consider the actual experience of
current broadband customers when
making their determinations; whether
there is a provider serving the area that
advertises or otherwise claims to offer
broadband at a given speed is not
dispositive.
Build -To Speed Standards
The interim final rule provided that a
recipient may use funds to make
investments in broadband infrastructure
that is designed to, upon completion,
reliably meet or exceed symmetrical 100
Mbps download and upload speeds. In
cases where it is not practicable,
because of the excessive cost of the
project or the geography or topography
of the area to be served by the project,
eligible projects may be designed to
reliably meet or exceed 100 Mbps
download speed and between at least 20
Mbps and 100 Mbps upload speed, so
long as it is scalable to a minimum of
100 Mbps download speed and 100
Mbps upload speed. Relatedly, Treasury
in the SUPPLEMENTARY INFORMATION to
the interim final rule encouraged
recipients to prioritize investments in
fiber-optic infrastructure wherever
feasible and to prioritize projects that
achieve last -mile connections.
Public Comment: Many commenters
discussed the advantages of setting
minimum symmetrical download and
upload speeds of reliable 100 Mbps as
the speed threshold for new projects.
Some commenters indicated support for
the interim final rule's standard as it
takes into account growing demands on
internet use resulting from pandemic
broadband usage and suggested that
such a standard will help to ensure that
networks built with SURF funds
remain valuable for years to come, even
as demands continue to accelerate,
particularly on upload speeds. Some
also indicated that the interim final rule
standard has the effect of prioritizing
the use of fiber-optic infrastructure to
deliver such speeds, which some noted
was a "gold standard" future -proof
technology, although some commenters
noted that other technologies like fixed
wireless have been shown to deliver
such speeds in certain circumstances.
Other commenters suggested that 100
Mbps symmetrical speeds were
unnecessary given current broadband
data. fcc.gov/download/measuring-broodband-
ameri ca/2 o2o/2o2o-Fixed-Measuring-Broad ban d -
America-Report.pdf (comparing fiber with DSL and
cable technologies on a number of dimensions);
https://www.eff.org/wp/case fiber-home-today-why-
fiber-superior-medi um-21 st-century-broadband
(providing a technical background comparing fiber
technology to other legacy technologies).
usage needs and that such high
standards may have the potential to
slow down expansion to unserved or
underserved rural areas. Some argued
that setting this symmetrical threshold
may limit the type of technologies that
can be used, thereby decreasing
competition and limiting flexibility to
recipients whose communities might be
better served by technologies such as
wireless solutions or inexpensive gap
networks. Commenters suggested
alternate minimum speeds, ranging from
25/3 Mbps (which some argued best
balances reaching all communities and
maximizing the impact of federal funds)
to 100/20 Mbps (which some argued
best serves the typical broadband usage
patterns of households and businesses,
including new pandemic -driven needs).
A few commenters suggested a higher
minimum speed, such as gigabit speeds,
advocating that such speeds were
necessary for a network to last at least
a decade.
Many commenters supported the
interim final rule's lower speed
standards for projects where it is
impracticable to meet minimum reliable
speeds of 100 Mbps symmetrical, as it
provides flexibility for recipients to
invest in hard -to -reach areas, such as
those in mountainous regions. A few
commenters indicated that Treasury
should more clearly define the
characteristics of a location eligible for
this exception. Some indicated that the
minimum standard for all new projects
should be 100 Mbps symmetrical. In
contrast, others argued that scalability to
100 Mbps symmetrical should not be a
requirement to meet today's demands,
particularly in hard -to -reach areas.
Some commenters requested that
Treasury clarify eligibility for middle -
mile projects as these projects
potentially provide connectivity to far-
reaching areas, while other commenters
suggested that last -mile projects
generally require more capital
investment and are therefore most in
need of government support.
Treasury Response: The final rule
maintains the interim final rule's
requirement that eligible projects be
designed to, upon completion, reliably
meet or exceed symmetrical 100 Mbps
download and upload speeds, with the
interim final rule's exception for
projects where it is impracticable to
build to such speeds due to excessive
cost, geography, or topography of the
area to be served by the project. Given
the build time associated with
broadband infrastructure projects, these
standards will enable SURF funds to
fund lasting infrastructure that will be
able to accommodate increased network
demand once the network is
complete,340 while providing flexibility
for certain locations to meet lower speed
standards where 100 Mbps symmetrical
speeds are impracticable.
To illustrate the accelerating need for
higher upload speeds, by one measure,
mean upload speeds as of October 2021
increased to 75.21 Mbps as compared to
62.11 Mbps a year earlier.341
Jurisdictions are increasingly
responding to the growing demands of
their communities for high speeds; for
example, Illinois requires 100 Mbps
symmetrical service as the construction
standard for their state broadband grant
programs. The 100 Mbps symmetrical
standard accounts for increased
pandemic internet usage and provides
adequate upload speeds for individuals
and businesses to accommodate
interactive applications such as virtual
learning and videoconferencing, while
also helping ensure that funding is
responsibly used to provide a true and
lasting benefit for years to come.
Treasury continues to encourage
recipients to prioritize investments in
fiber-optic infrastructure wherever
feasible, as such advanced technology
enables the next generation of
application solutions for all
communities and is capable of
delivering superior, reliable
performance and is generally most
efficiently scalable to meet future
needs.342 In designing these projects,
recipients should ensure that the
broadband infrastructure provides
"reliable" service at required speeds
and are not required to rely on
providers' advertised speeds in their
assessments.
Consistent with further guidance
issued by Treasury,343 while recipients
are permitted to make investments in
"middle -mile" connections that
otherwise satisfy the requirements of the
final rule, Treasury continues to
encourage recipients to focus on
340 Using the Federal Communications
Commission (FCC) Broadband Speed Guide, a
household with two telecommuters and two to
three remote learners today is estimated to need 100
Mbps download to work simultaneously. See
Federal Communications Commission, Broadband
Speed Guide, available at https://www.fcc.govl
consumers/guides/broadband-speed-guide (last
visited October 28, 2021).
341 United States' Mobile and Broadband Internet
Speeds—Speedtest Global Index, available at
https://www.speedtest.net/global-index/united-
state0fixed.
342 Bennett Cyphers, The Case for Fiber to the
Home, Today: Why Fiber is a Superior Medium for
21st Century Broadband, Electronic Frontier
Foundation (October 16, 2019), https://www.eff.org/
wp/case fiber-home-today-why-fiber-superior-
medi um-21 st-century-broadband.
343 See FAQ 6.10, Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home. treasury.gov/system/files/136/SLFRPFAQ. pdf.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4421
projects that will achieve last -mile
connections —whether by focusing
directly on funding last -mile projects or
by ensuring that funded middle -mile
projects have commitments in place to
support new and/or improved last -mile
service.
Affordability
The interim final rule encouraged
recipients to consider ways to integrate
affordability options into their program
design but did not require recipients to
take particular actions. The interim final
rule also provided that assisting
households with internet access and
digital literacy is an eligible use of
SURF funds under sections
602(c)(1)(A) and 603(c)(1)(A) to respond
to the negative economic impacts of
COVID-19.
Public Comment: Many commenters
suggested that Treasury provide
recipients with a broader set of tools to
tackle what the commenters
characterized as an affordability crisis in
the broadband sector. As noted above,
some commenters proposed that
Treasury consider affordability when
determining whether an area is
unserved or underserved by broadband.
Some commenters indicated that the
final rule should allow for the
construction of broadband networks in
low-income neighborhoods including
low-cost or no -cost gap networks, even
in areas with existing service at the
speeds required under the interim final
rule. Other commenters voiced support
for direct subsidies to low-income
communities to afford broadband
service, which would provide
additional incentives for providers to
serve these communities.
Treasury Response: In response to
many commenters that highlighted the
importance of affordability in providing
meaningful access to necessary
broadband infrastructure, the final rule
provides additional requirements to
address the affordability needs of low-
income consumers in accessing
broadband networks funded by SURF.
Recipients must require the service
provider for a completed broadband
infrastructure investment project that
provides service to households to:
• Participate in the Federal
Communications Commission's (FCC)
Affordable Connectivity Program (ACP);
or
• Otherwise provide access to a
broad -based affordability program to
low-income consumers in the proposed
service area of the broadband
infrastructure that provides benefits to
households commensurate with those
provided under the ACP.
Recipients must require providers to
participate in or provide access to these
programs through the life of the ACP.
This requirement will no longer apply
once the SLFRF-funded broadband
infrastructure is no longer in use.
Furthermore, Treasury also recognizes
the importance of affordable broadband
access for all consumers beyond those
that are low income. As part of their
project selection process, recipients are
encouraged to consult with the
community on the general affordability
needs of the target markets in the
proposed service area. Additionally,
recipients are encouraged to require that
services provided by a broadband
infrastructure project include at least
one low-cost option offered without
data usage caps at speeds that are
sufficient for a household with multiple
users to simultaneously telework and
engage in remote learning. Treasury will
require recipients to report speed,
pricing, and any data allowance
information as part of their mandatory
reporting to Treasury.
Further, Treasury is clarifying that, as
a response to the public health and
negative economic impacts of the
pandemic, recipients may provide
households and communities impacted
by the pandemic with subsidies to help
pay for internet service, digital literacy
programs, broadband adoption
programs, and device programs that
provide discounted or no -cost devices
for low-income households to access the
internet. For further discussion of this
eligible use category, see the section
internet Assistance in Assistance to
Households in Public Health and
Negative Economic Impacts.
Public Networks
The interim final rule encouraged
recipients to prioritize support for local
networks owned, operated, or affiliated
with local governments, nonprofits, and
cooperatives.
Public Comment: Many commenters
voiced their support for Treasury's
encouragement that recipients work
with governmental or community
entities to establish local networks,
arguing that they have been shown to
effectively provide broadband access to
areas that would otherwise be left with
unaffordable or insufficient service.
These commenters suggested that, since
these entities are less driven by
financial returns to investment than
private providers, in some
circumstances they may be able to
provide robust service at a lower price
as compared to private providers, along
with potentially increasing local
competition in a service area.
Other commenters argued against
Treasury's encouragement, remarking
that private businesses have a robust
track record of serving hard -to -reach
customers. These commenters argued
that commercial providers have greater
technical and operational expertise in
deploying and operating broadband
networks and may be able to construct
broadband networks with greater
efficiency. Additionally, some
commenters argued that providing what
they considered an unfair competitive
advantage for government- or
community -owned or operated
networks may hurt consumers over
time.
Treasury Response: The final rule
maintains the interim final rule's
encouragement for recipients to
prioritize support for broadband
networks owned, operated by, or
affiliated with local governments,
nonprofits, and cooperatives, given that
these networks have less pressure to
generate profits and a commitment to
serve entire communities.344 This
encouragement provides flexibility for
recipients to select providers that best
fit their needs, while noting the critical
role that networks owned, operated, or
affiliated with local governments and
community organizations can play in
providing sufficient coverage, affordable
access, or increased competition in the
broadband sector.
Duplication of Efforts and Resources
Public Comment: Some commenters
raised concerns that Treasury's
encouragement in the interim final rule
that recipients avoid funding projects in
locations with an existing agreement to
provide service that reliably delivers
100/20 Mbps by December 31, 2024 was
too restrictive. Commenters noted that
many plans do not always lead to a
successful and complete deployment, as
issues may arise that prevent such
infrastructure from deploying on time or
at all, and that several existing federal
grants were designed and awarded
before the onset of the COVID-19
pandemic and do not meet the critical
broadband needs highlighted by the
pandemic. Other commenters argued
that Treasury's encouragement to avoid
duplication of resources should be
strengthened, as investing in areas with
existing agreements would be an
inefficient duplication of efforts.
Treasury Response: Given the final
rule's revised requirements on eligible
areas for investment, this
344 The Executive Office of the President,
Community -Based Broadband Solutions (January
2015), https.Ilobamawhitehouse.archives.gov/sites/
default/files/docs/comm unity-based_broadband_
report_by_executive_Office_of the_president.pdf.
4422 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
Supplementary Information to the final
rule also modifies the interim final
rule's requirements around duplication
of resources. Since recipients must
ensure that the objective of the
broadband projects is to serve locations
with an identified need for additional
broadband investment, the final rule
provides that, to the extent recipients
are considering deploying broadband to
locations where there are existing
enforceable federal or state funding
commitments for reliable service at
speeds of at least 100 Mbps download
speed and 20 Mbps upload speed,
recipients must ensure that SLFRF
funds are designed to address an
identified need for additional
broadband investment that is not met by
existing federal or state funding
commitments. Recipients must also
ensure that SLFRF funds will not be
used for costs that will be reimbursed by
the other federal or state funding
streams.
Cybersecurity
Public Comment: Several commenters
expressed concern about the
cybersecurity of new broadband projects
funded with SLFRF funds and urged
Treasury to prohibit recipients from
utilizing SLFRF funds to procure
equipment from certain providers from
the People's Republic of China that may
pose a national security risk. These
commenters pointed out that the 2019
National Defense Authorization Act
(NDAA) and the FCC's Universal
Service Fund have similar prohibitions.
Further, several commenters requested
that Treasury explicitly include
cybersecurity costs as an eligible use for
broadband infrastructure investment
given the growing threat of cyber-attacks
and cyber-intrusions into the nation's
infrastructure.
Treasury Response: Treasury
highlights that investments in
broadband infrastructure must be
carried out in ways that comply with
applicable federal laws, including the
2019 NDAA. Among other requirements
contained in 2 CFR part 200, 2 CFR
200.216 implements certain provisions
of the NDAA and contains prohibitions
on the use of federal financial assistance
to procure or obtain certain
telecommunications and video
surveillance services or equipment
provided or produced by designated
entities, including certain entities
owned or controlled by the People's
Republic of China. In addition, 2 CFR
200.471 provides that certain
telecommunications and video
surveillance costs associated with 2 CFR
200.216 are unallowable.
Further, the final rule allows for
modernization of cybersecurity for
existing and new broadband
infrastructure as an eligible use under
sections 602(c)(1)(D) and 603(c)(1)(D) as
such investments are necessary for the
reliability and resiliency of broadband
infrastructure.345 Recipients may
provide necessary investments in
cybersecurity, including modernization
of hardware and software, for existing
and new broadband infrastructure
regardless of their speed delivery
standards. The final rule maintains the
interim final rule's provision that allow, -
for broader modernization of
cybersecurity, including hardware,
software, and protection of critical
infrastructure as an eligible provision of
government services, to the extent of
revenue loss due to the pandemic,
under sections 602(c)(1)(C) and
603(c)(1)(C).
Use of Funds To Meet Non -Federal
Match Under the Infrastructure
Investment and Jobs Act
The Infrastructure Investment and
Jobs Act specifies that, except as
otherwise provided, an entity using
funding under section 60102 of the law
for broadband deployment "shall
provide, or require a subgrantee to
provide, a contribution, derived from
non -Federal funds (or funds from a
Federal regional commission or
authority) . . . of not less than 25
percent of project costs." 346 It further
states that the matching contribution
may include funds provided to an
eligible entity or subgrantee under the
American Rescue Plan Act for the
purpose of deployment of broadband
service, which includes funds provided
under the SLFRF program.
SLFRF and the program established
under section 60102 of the
Infrastructure Investment and Jobs Act
are separate programs with separate
requirements. While section 60102
allows states and other eligible entities
to use SLFRF funds as the source of
matching funds for broadband
deployment, the requirements of the
SLFRF program still apply. As such,
recipients that use SLFRF funds to meet
the section 60102 matching requirement
will continue to be subject to the
requirements of the SLFRF program.
345 For more on the importance of cybersecurity
to the reliability and resiliency of broadband
networks, see: Federal Communications
Commission, https.Ildocs. fcc.gov/public/
attachments/FCC-10-63A1.doc, Brookings Institute,
Protecting the Cybersecurity of America's Networks
(February 11, 2021), https://www.brookings.edu/
blog/tech tank/2021 /02/11 /protecting-th e-
cyb ers ec uri ty- o f-am eri ca s-n e tworks/.
346 See Infrastructure Investment and jobs Act,
Public Law 117-58 (2021).
III. Restrictions on Use
While recipients have considerable
flexibility to use funds to address the
diverse needs of their communities,
some restrictions on use of funds apply.
The ARPA includes two statutory
provisions that further define the
boundaries of the statute's eligible uses.
First, section 602(c)(2)(A) of the Social
Security Act provides that states and
territories may not "use the funds . . .
to either directly or indirectly offset a
reduction in . . . net tax revenue . . .
resulting from a change in law,
regulation, or administrative
interpretation during the covered period
that reduces any tax . . . or delays the
imposition of any tax or tax increase."
Second, sections 602(c)(2)(13) and
603(c)(2) prohibit all recipients, except
Tribal governments, from using funds
for deposit into any pension fund. These
restrictions support use of funds only
for the congressionally permitted
purposes described in the Eligible Uses
section by providing a backstop against
the use of funds for purposes outside of
the eligible use categories provided for
in the statute.
In addition to the restrictions on use
of funds provided for in the ARPA
statute, the interim final rule noted that
several uses of funds would be
ineligible under any eligible use
category, including as a response to the
public health and negative economic
impacts of the pandemic or as a
"government service" under the
revenue loss eligible use category.
Specifically, use of funds for debt
service, to replenish financial reserves,
or to satisfy an obligation arising from
a judicial settlement or judgment were
ineligible uses of funds under the
eligible use categories for public health
and negative economic impacts and
revenue loss. These restrictions apply to
all recipients.
Recipients should note that
restrictions on use of funds for debt
service, to replenish financial reserves,
or to satisfy an obligation arising from
a judicial settlement or judgment apply
to all eligible use categories, not just the
eligible use categories in which they
were discussed in the interim final rule.
Recipients are also subject to other
restrictions on use of funds in the
ARPA, the Award Terms and
Conditions, and other federal laws. As
discussed further below, uses of funds
may not conflict with the overall
statutory purpose of the ARPA to reduce
the spread of COVID-19. Per the Award
Terms and Conditions, recipients must
adopt and abide by policies to prevent
conflicts of interest. Finally, recipients
are reminded that other federal laws
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4423
also apply to uses of funds, including
environmental and civil rights laws.
To enhance clarity, this
SUPPLEMENTARY INFORMATION for the
final rule consolidates these restrictions
on use of funds into one section and
makes clear that they apply to all
eligible use categories and any use of
funds under the program by recipients
to whom each specific restriction
applies.
This section discusses the
aforementioned restrictions, public
comments received, and Treasury's
response to these comments. For clarity,
Treasury has divided the following
discussion into (A) statutory restrictions
under the ARPA, which include (1)
offsetting a reduction in net tax revenue,
and (2) deposits into pension funds, and
(B) other restrictions on use, which
include (1) debt service and
replenishing reserves, (2) settlements
and judgments, and (3) general
restrictions.
A. Ineligible Uses of Funds Under the
ARPA Statute
1. Offset a Reduction in Net Tax
Revenue
For states and territories (recipient
governments 347), section 602(c)(2)(A)—
the offset provision —prohibits the use
of SURF funds to directly or indirectly
offset a reduction in net tax revenue
resulting from a change in law,
regulation, or administrative
interpretation341, during the covered
period. If a state or territory uses SURF
funds to offset a reduction in net tax
revenue resulting from a change in law,
regulation, or interpretation, the ARPA
provides that the state or territory must
repay to Treasury an amount equal to
the lesser of (i) the amount of the
applicable reduction attributable to the
impermissible offset and (ii) the amount
of SURF funds received by the state or
territory. A state or territory that uses
SURF funds to offset a reduction in net
tax revenue does not forfeit its entire
allocation of SURF funds (unless it
misused the full allocation to offset a
reduction in net tax revenue) or any
non-SLFRF funding.
The interim final rule implements
these conditions by establishing a
framework for states and territories to
determine the cost of changes in law,
regulation, or interpretation that reduce
tax revenue and to identify and value
347In this sub -section, "recipient governments"
refers only to states and territories. In other
sections, "recipient governments" refers more
broadly to eligible governments receiving funding
from the SLFRF.
34B For brevity, this phrase is referred to as
"changes in law, regulation, or interpretation" for
the remainder of this SUPPLEMENTARY INFORMATION.
the sources of funds that will offset—
i.e., cover the cost of —any reduction in
net tax revenue resulting from such
changes. The interim final rule
recognizes three sources of funds that
may offset a reduction in net tax
revenue other than SURF funds:
Organic revenue growth, increases in
revenue due to policy changes (e.g., an
increase in a tax rate), and certain cuts
in spending.
Specifically, the interim final rule
establishes a step-by-step process for
determining whether, and the extent to
which, SURF funds have been used to
offset a reduction in net tax revenue,
based on information reported by the
recipient government:
• First, each year, each recipient
government will identify and value the
changes in law, regulation, or
interpretation that would result in a
reduction in net tax revenue, as it would
in the ordinary course of its budgeting
process. The sum of these values in the
year for which the government is
reporting is the amount it needs to "pay
for" with sources other than SURF
funds (total value of revenue reducing
changes).
• Second, the interim final rule
recognizes that it may be difficult to
predict how a change would affect net
tax revenue in future years and,
accordingly, provides that if the total
value of the changes in the year for
which the recipient government is
reporting is below a de minimis level,
as discussed below, the recipient
government need not identify any
sources of funding to pay for revenue
reducing changes and will not be
subject to recoupment.
• Third, a recipient government will
consider the amount of actual tax
revenue recorded in the year for which
it is reporting. If the recipient
government's actual tax revenue is
greater than the amount of tax revenue
received by the recipient for the fiscal
year ending 2019, adjusted annually for
inflation, the recipient government will
not be considered to have violated the
offset provision because there will not
have been a reduction in net tax
revenue.
• Fourth, if the recipient
government's actual tax revenue is less
than the amount of tax revenue received
by the recipient government for the
fiscal year ending 2019, adjusted
annually for inflation, in the reporting
year the recipient government will
identify any sources of funds that have
been used to permissibly offset the total
value of covered tax changes other than
SURF funds. These are:
o State or territory tax changes that
would increase any source of general
fund revenue, such as a change that
would increase a tax rate; and
O Spending cuts in areas not being
replaced by SURF funds.
The recipient government will
calculate the value of revenue reduction
remaining after applying these sources
of offsetting funding to the total value of
revenue reducing changes that is, how
much of the tax change has not been
paid for. The recipient government will
then compare that value to the
difference between the baseline and
actual tax revenue. A recipient
government will not be required to
repay to Treasury an amount that is
greater than the recipient government's
actual tax revenue shortfall relative to
the baseline (i.e., fiscal year 2019 tax
revenue adjusted for inflation). This
"revenue reduction cap," together with
Step 3, ensures that recipient
governments can use organic revenue
growth to offset the cost of revenue
reductions.
• Finally, if there are any amounts
that could be subject to recoupment,
Treasury will provide notice to the
recipient government of such amounts
along with an explanation of such
amounts. This process is discussed in
greater detail in section Remediation
and Recoupment of this Supplementary
Information.
Together, these steps allow Treasury
to identify the amount of reduction in
net tax revenue that both is attributable
to covered changes and has been
directly or indirectly offset with SURF
funds.
Overview of Comments: Many
commenters supported the framework
established under the interim final rule.
These commenters argued that the offset
provision, and the interim final rule's
implementation of the offset provision,
was essential to ensuring SURF funds
are used in a manner consistent with the
statute's defined eligible uses and, in
particular, to support the use of SURF
funds to build public sector capacity.
Several commenters argued that the
framework should be made more
restrictive; for example, some comments
advocated that the offset provision be
applied to local governments.
Other commenters argued that the
offset provision and the interim final
rule's implementation of the offset
provision is too restrictive, with some
asserting that the offset provision
prohibits states from making changes to
reduce taxes. Many of these commenters
argued that the offset provision presents
constitutional concerns. These
commenters asserted that the offset
provision is ambiguous and the
restriction is unrelated to the purpose of
the ARPA. These commenters also
4424 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
argued that the generous amount of
SURF funds provided to those
governments gave recipient
governments little choice as to whether
to accept the SURF funds and, as a
result, the offset provision is coercive.
In describing these concerns and
arguments, several of these commenters
referenced litigation regarding the offset
provision.349 Many of these commenters
also expressed concern regarding the
interim final rule's implementation of
the offset provision. Some of these
commenters argued that Treasury lacked
the authority to implement the
provision, asserting that the significance
of the provision required Congress to
make an explicit delegation of
rulemaking authority and provide
clearer principles by which Treasury
should implement the provision.
Finally, one commenter argued that the
offset provision should only apply if the
recipient expressly and intentionally
uses SURF funds to offset a reduction
in revenue, arguing that the term
"offset" implies a deliberate use SURF
funds to "pay for" a tax cut.
As discussed in the interim final rule,
the offset provision does not prevent a
recipient government from enacting a
broad variety of tax changes. Rather, the
offset provision prevents a recipient
government from using SURF funds to
offset a revenue reduction resulting
from a tax cut. A recipient government
would only be considered to have used
SURF funds to offset a reduction in net
tax revenue resulting from changes in
law, regulation, or interpretation if, and
to the extent that, the recipient
government could not identify sufficient
funds from sources other than SURF
funds to offset the reduction in net tax
revenue. Only if sufficient funds from
other sources cannot be identified to
cover the full cost of the reduction in
net tax revenue resulting from changes
in law, regulation, or interpretation, will
the remaining amount not covered by
these sources be considered to have
been offset by SURF funds, in
contravention of the offset provision.
Consistent with the statutory text, the
approach taken in the interim final rule
recognizes that, because money is
fungible, even if SURF funds are not
explicitly or directly used to cover the
costs of changes that reduce net tax
revenue, those funds may be used in a
manner inconsistent with the statute by
indirectly being used to substitute for
the state's or territory's funds that
349 See, e.g., State of West Virginia v. U.S.
Department of the Treasury, No. 7:21—cv-00465—
LSC, 2021 WL 2952863 (N.D. Ala. Jul. 14, 2021);
State of Ohio v. Yellen, No. 1:21—cv-181, 2021 WL
2712220 (S.D. Ohio Jul. 1, 2021).
would otherwise have been needed to
cover the costs of the reduction. As
discussed below, the scope of changes
in law, regulation, or interpretation is
further limited to those that the
recipient government voluntarily
enacted during the covered period.
Congress has the authority under the
Spending Clause in Article I, section 8
of the Constitution to specify the
permissible and impermissible uses of
federal grants. The Supreme Court has
repeatedly "upheld Congress's authority
to condition the receipt of funds on the
States' complying with restrictions on
the use of those funds, because that is
the means by which Congress ensures
that the funds are spent according to its
view of the `general Welfare.'" 350 "The
power to keep a watchful eye on
expenditures . . . is bound up with
congressional authority to spend in the
first place." 351 Assertions that the
amount of SURF funds are sufficiently
large to be coercive are inconsistent
with the Supreme Court's reasoning in
NFIB, which distinguished between
conditions placed on new federal funds
and conditions placed on existing
federal funds and not based on the size
of funds.352 Further, the conditions
placed on the use of SURF funds under
the ARPA both the eligible uses and
additional limitations on deposits into
pension funds and the offset
provision —were well known to
recipient governments prior to recipient
governments requesting to receive
SURF funds. Finally, the ARPA
provides Treasury with the express
authority "to issue such regulations as
may be necessary or appropriate to carry
out" section 602, which includes the
offset provision.
A number of commenters expressed
concern regarding the burden associated
with complying with the offset
provision and the interim final rule.
Similarly, other commenters argued that
the framework provided in the interim
final rule complicated implementation
350 National Fed'n of Indep. Bus. v. Sebelius
(NFIB), 567 U.S. 519, 580 (2012) (plurality opinion);
see, e.g., South Dakota v. Dole, 483 U.S. 203, 206-
208 (1987); Gruver v. Louisiana Bd. of Supervisors
for Louisiana State Univ. Agric. &Mech. Coll., 959
F.3d 178, 183 (5th Cir.), cert. denied, 141 S. Ct. 901
(2020). For additional discussion of these issues,
see, e.g., Brief Reply for Appellants, Ohio v. Yellen,
No. 21-3787 (6th Cir. Oct. 26, 2021).
351 Sabri v. United States, 541 U.S. 600, 608
(2004).
352 The new federal funds offered by the
Affordable Care Act totaled $100 billion per year.
Even the dissenting Justices agreed that "Congress
could have made just the new funding provided
under the ACA contingent on acceptance of the
terms of the Medicaid Expansion," although they
disagreed with the majority about whether that
funding condition was severable. NFIB at 687-688
(joint dissent).
of the offset provision. Treasury took
several steps to minimize burden for
recipient governments in the interim
final rule. For example, the interim final
rule incorporates the types of
information and modeling already used
by states and territories in their own
fiscal and budgeting processes. By
incorporating existing budgeting
processes and capabilities, states and
territories will be able to assess and
evaluate the relationship of tax and
budget decisions to uses of SURF funds
based on information they likely have or
can readily obtain. This approach
ensures that recipient governments have
the information they need to understand
the implications of their decisions
regarding the use of SURF funds —and,
in particular, whether they are using the
funds to directly or indirectly offset a
reduction in net tax revenue resulting
from a change in law, regulation, or
interpretation, making the funds
potentially subject to recoupment. To
further reduce burden, Treasury is
considering whether the scope of
reporting requirements can be further
tailored.
As described in greater detail below,
Treasury is finalizing its
implementation of the offset provision
largely without change. This approach
is consistent with the text of the ARPA.
The remainder of this section discusses
and responds to comments on specific
aspects of the framework.
1. Definitions
Covered change. The offset provision
is triggered by a reduction in net tax
revenue resulting from "a change in
law, regulation, or administrative
interpretation." Consistent with this
language, the interim final rule defines
a "covered change" to include any final
legislative or regulatory action, a new or
changed administrative interpretation,
and the phase -in or taking effect of any
statute or rule where the phase -in or
taking effect was not prescribed prior to
the start of the covered period. Thus, the
offset provision applies only to actions
for which the change in policy occurs
during the covered period; it excludes
regulations or other actions that
implement a change or law
substantively enacted prior to March 3,
2021. For example, covered changes do
not include a change in rate that is
triggered automatically and based on
statutory or regulatory criteria in effect
prior to the covered period.353 Changed
353 For example, a state law that sets its earned
income tax credit (EITC) at a fixed percentage of the
federal EITC will see its EITC payments
automatically increase —and thus its tax revenue
reduced —because of the federal government's
expansion of the EITC in the ARPA See, e.g., Tax
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4425
administrative interpretations would
not include corrections to replace prior
inaccurate interpretations; such
corrections would instead be treated as
changes implementing legislation
enacted or regulations issued prior to
the covered period. The operative
change in those circumstances is the
underlying legislation or regulation that
occurred prior to the covered period.
Moreover, only changes within the
control of the state or territory are
considered covered changes. Finally,
covered changes do not include changes
that simply conform with recent
changes in federal law (including those
to conform to recent changes in federal
taxation of unemployment insurance
benefits and taxation of loan forgiveness
under the Paycheck Protection
Program).
Scope of Covered Changes
Public Comment: Several commenters
argued that the definition of covered
change, and thus the limitations of the
offset provision, should apply to
subsidies for businesses. Similarly,
other commenters requested that
Treasury clarify that the offset provision
applies to tax abatements and
reductions in corporate taxes, even if
administered by a sub -unit of the
recipient government. Citing to
empirical research and other evidence,
these commenters argued that these
types of economic development policies
were poorly administered, reduced
public sector capacity, and were
ineffective at achieving stated objectives
of creating jobs, increasing income, and
increasing economic growth. On the
other hand, some commenters argued
that, because subsidies were
economically similar to some tax cuts,
neither action should be considered a
covered change and subject to the offset
provision. Finally, other commenters
requested that Treasury clarify whether
covered changes must be broad -based
policies or whether administrative
decisions applicable to individuals
would be considered covered changes.
Treasury Response: Section
602(c)(2)(A) applies to any change that
"reduces any tax (by providing for a
reduction in a rate, a rebate, a
deduction, a credit, or otherwise or
delays the imposition of any tax or tax
increase." Accordingly, and consistent
with this statutory text, the final rule
applies to covered changes that reduce
any tax, which can include tax
abatements, but does not apply to loans,
Policy Center, How do state earned income tax
credits work?, https://www.taxpolicycenter.org/
bri efing-b ook/ho w-d o-sta te-earned-income-tax-
credits-work/ (last visited May 9, 2021).
grants, or other types of interventions
that do not reduce tax revenue.354 In
addition, by including changes in
regulation or administrative
interpretation, in addition to changes in
law, within the scope of the offset
provision, the ARPA recognizes that a
recipient government may make a
covered change through its legislature or
may delegate the authority to make a
covered change including, but not
limited to, to a sub -unit of government.
Treasury has revised the definition of
"covered change" in the final rule using
the statutory language above to make
clear that the offset provision only
applies to such changes in law,
regulation, or administrative
interpretation. With respect to the
question of whether covered changes
could include administrative decisions
applicable to individuals, as discussed
above, a covered change includes a
change in law, regulation, or
administrative interpretation that
reduces any tax. Such changes may
apply to one or more individuals or
entities, provided that —consistent with
the statutory text —they result from a
change in law, regulation, or
administrative interpretation.
Prior Enactment and Phase -In
Public Comment: A number of
commenters expressed concern, or
requested clarification, regarding
changes that were enacted prior to the
covered period but take effect or phase -
in during the covered period. Several
commenters argued that the definition
of covered change should include
changes that were made prior to the
covered period but that phase -in during
the covered period.
Treasury Response: As discussed
above, the offset provision is triggered
by a reduction in net tax revenue
resulting from "a change in law,
regulation, or administrative
interpretation" made during the covered
period. Consistent with the statutory
text, "covered change" is defined to
include any final legislative or
regulatory action, a new or changed
administrative interpretation, and the
phase -in or taking effect of any statute
or rule where the phase -in or taking
effect was not prescribed prior to the
start of the covered period.
Conformity
Public Comment: A number of
commenters requested clarification on
the scope of covered changes.
Specifically, several commenters
354 Assistance must be consistent with eligible
uses of SLFRF funds. See section Eligible Uses of
this SUPPLEMENTARY INFORMATION.
requested clarification on the scope of
changes that would be considered as
conforming to recent changes in federal
law. These commenters requested that
Treasury clarify whether actions to
selectively conform with federal law
would be considered covered changes
and requested clarification regarding the
extent to which changes would be
considered "recent." For example, these
commenters requested clarification
regarding conformance with the Global
Intangible Low -Taxed Income provision
of the 2017 Tax Cuts and Jobs Act. Some
commenters further argued that changes
that selectively conform or decouple
from the Internal Revenue Code should
be included within scope of covered
changes and thus subject to the offset
provision.
Treasury Response: The final rule
maintains the treatment of changes that
simply conform with recent changes in
federal law, such as those to conform to
recent changes in federal taxation of
unemployment insurance benefits and
taxation of loan forgiveness under the
Paycheck Protection Program 355 and
including other changes over the past
several years. Regardless of the
particular method of conformity and the
effect on net tax revenue, Treasury
views such changes as permissible
under the offset provision.
Accordingly, and for the reasons
discussed above, Treasury is
maintaining the definition of covered
change without change.
Tax revenue. The interim final rule's
definition of "tax revenue" is based on
the Census Bureau's definition of taxes,
used for its Annual Survey of State
Government Finances.356 It provides a
consistent, well -established definition
with which states and territories will be
familiar and is consistent with the
approach taken in section Revenue Loss
of this SUPPLEMENTARY INFORMATION
describing the implementation of
sections 602(c)(1)(C) and 603(c)(1)(C) of
the Social Security Act regarding
revenue loss. A number of commenters
expressed concern and requested
clarification regarding the definition of
"tax revenue." These comments and
responses are discussed in section
Revenue Loss of this Supplemental
Information and, for the reasons
discussed above, Treasury is finalizing
the definition of tax revenue without
ass See Statement on State Fiscal Recovery Funds
and Tax Conformity, April 7, 2021, available at
https://home. treasury.gov/news/press-releases/
Iy0113.
3s6U.S. Census Bureau, Annual Survey of State
and Local Government Finances Glossary, https://
www. census.gov/programs-surveys/state/about/
glossary.html (last visited Apr. 30, 2021).
4426 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
change and maintaining a consistent
definition of "tax revenue." 357
Baseline. For purposes of measuring a
reduction in net tax revenue, the interim
final rule measures actual changes in tax
revenue relative to a revenue baseline
(baseline). The baseline is calculated as
fiscal year 2019 (FY 2019) tax revenue
indexed for inflation in each year of the
covered period, with inflation
calculated using the Bureau of
Economic Analysis's Implicit Price
Deflator.3511
Public Comment: Some commenters
expressed concern regarding the choice
of FY 2019 as the baseline, arguing that
the choice lacked justification and
would make the offset provision more
restrictive as applied to recipient
governments that experienced a decline
in revenue independent of making any
covered changes.
Treasury Response: Measuring a
"reduction" in net tax revenue requires
identification of a baseline. In other
words, a "reduction" can be assessed
only by comparing two amounts. The
Act defines "covered period" to begin
on March 3, 2021, and thus the baseline
year must end prior to March 3, 2021.
As discussed in the interim final rule,
FY 2019 is the last full fiscal year prior
to the COVID-19 public health
emergency, and thus is consistent with
the statutory definition and does not
include the extraordinary effects of the
pandemic that began in 2020. Further,
as discussed above, the interim final
rule recognizes three potential ways that
a recipient government may offset or
"pay for" a reduction in net tax revenue
due to a covered change: Increases in
taxes, decreases in spending, and
organic revenue growth. U.S. gross
domestic product rebounded to exceed
its pre -pandemic level in 2021,359
suggesting that an FY 2019 pre-
357 As discussed in section Revenue Loss of this
Supplementary Information, for purposes of
measuring revenue lost due to the pandemic under
sections 602(c)(1)(C) and 603(c)(1)(C),recipients
must adjust the amount of revenue lost to reflect
changes that resulted from a tax increase or
decrease. These adjustments do not apply to or
affect the definition of tax revenue.
358 U.S. Department of Commerce, Bureau of
Economic Analysis, GDP Price Deflator, https://
www.bea.gov/data/Prices-inflation/gdp-pn"ce-
deflator (last visited Apr. 30, 2021). The FY 2019
baseline revenue is adjusted annually for inflation
to allow for direct comparison of actual tax revenue
in each year (reported in nominal terms) to baseline
revenue in common units of measurement; without
inflation adjustment, each dollar of reported actual
tax revenue would be worth less than each dollar
of baseline revenue expressed in 2019 terms.
359Economy Statement by Catherine Wolfram,
Acting Assistant Secretary for Economy Policy, for
the Treasury Borrowing Advisory Committee
November 1, 2021 (Nov. 1, 2021), available at
https.Ilhome. treasury.gov/news/press-releases/
jy0453.
pandemic baseline is a reasonable
comparator for future revenue levels
and provides recipients with flexibility
to identify organic growth as a
permissible offset. Finally, this baseline
year is consistent with the approach
directed by sections 602(c)(1)(C) and
603(c)(1)(C), which identify the "most
recent full fiscal year of the [state,
territory, or Tribal government] prior to
the emergency" as the comparator for
measuring revenue loss. For these
reasons, Treasury is finalizing the
definition of "baseline" without change.
The interim final rule includes several
other definitions that are applicable to
the implementation of the offset
provision, such as the term "reporting
year." 360 Commenters did not express
concern regarding other definitions in
the interim final rule.
2. Framework
The interim final rule provides a step-
by-step framework, to be used in each
reporting year, to determine whether a
state or territory used SLFRF funds to
offset a reduction in net tax revenue.
Consistent with section 602(c)(2) and
the interim final rule, the final rule
ap lies to states and territories:
r1) Covered changes thatreduce tax
revenue. Under the interim final rule, a
recipient government identifies and
values covered changes that the
recipient government predicts will have
the effect of reducing tax revenue in a
given reporting year, similar to the way
it would in the ordinary course of its
budgeting process. The interim final
rule states that the value of these
covered changes may be reported based
on estimated values produced by a
budget model, incorporating reasonable
assumptions, that aligns with the
recipient government's existing
approach for measuring the effects of
fiscal policies, and that measures these
effects relative to a current law baseline.
If the recipient would prefer, the
covered changes may also be reported
based on actual values using a statistical
methodology to isolate the change in
year -over -year revenue attributable to
the covered change(s), relative to the
current law baseline prior to the
change(s).361 Further, estimation
approaches may not use dynamic
methodologies that incorporate the
360 One commenter requested clarification that
references to fiscal year refer to the fiscal year of
the recipient. "Reporting year" is defined in the
interim final rule and final rule to mean "a single
year or partial year within the covered period,
aligned to the current fiscal year of the State or
Territory during the covered period."
361 By permitting recipient governments to use
actual or estimated values, the interim final rule
and final rule provide flexibility to recipients and
thus minimizes burden.
projected effects of macroeconomic
growth because macroeconomic growth
is accounted for separately in the
framework.
Estimation
Public Comment: A number of
commenters expressed concern that
estimating the value of covered changes
required a number of assumptions and
that the actual effects of covered
changes on tax revenue would be
difficult to predict. Several commenters
expressed support for the interim final
rule's approach to dynamic scoring
methodologies, and one commenter
argued that the final rule should
prohibit the use of prior cash balances
in calculations of permissible tax cuts.
Treasury Response: Treasury
recognizes that estimating the effects of
covered changes requires assumptions
and that many other factors influence
the amount of tax revenue received. The
interim final rule addresses these
concerns in several ways. First, in
general and where possible, reporting
should be produced by the agency of the
recipient government responsible for
estimating the costs and effects of fiscal
policy changes. This approach offers
recipient governments the flexibility to
determine their reporting methodology
based on their existing budget scoring
practices and capabilities. In addition,
by relying on scoring methodologies
that do not incorporate projected effects
of macroeconomic growth, the
estimation of the value of covered
changes relies on fewer assumptions
and thus provide greater consistency
among states and territories. Finally, as
discussed below, the interim final rule
includes a de minimis threshold, below
which the sum of covered changes will
be deemed not to have any revenue -
reducing effects.
Timing of the Impact of Covered
Changes
Public Comment: Several commenters
expressed concern that recipient
governments, to evade the offset
provision, may backload the costs of
certain covered changes outside of the
covered period, and advocated that
covered changes be instead evaluated as
the net present value in the year that the
covered change is enacted. These
commenters argued that some tax cuts
could have effects on tax revenue for
many decades or could be structured to
take effect after the end of the covered
period.
Treasury Response: As discussed in
section Timeline for Use of SLFRF
Funds, SLFRF funds must be used to
cover costs incurred prior to December
31, 2024. Accordingly, SLFRF funds
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4427
generally would not be able to offset a
reduction in net tax revenue occurring
after December 31, 2024.
For these reasons, Treasury is
maintaining this element of the interim
final rule without change.
(2) In excess of the de minimis. Under
the framework established in the
interim final rule, after establishing that
a covered change occurred, the recipient
government next calculates the total
value of all covered changes in the
reporting year resulting in revenue
reductions, identified in Step 1. If the
total value of the revenue reductions
resulting from these changes is below
the de minimis level, the recipient
government is deemed not to have any
revenue -reducing changes for the
purpose of determining the recognized
net reduction. If the total is above the de
minimis level, the recipient government
must identify sources of in -year revenue
to cover the full costs of changes that
reduce tax revenue. Under the interim
final rule, the de minimis level is
calculated as 1 percent of the reporting
year's baseline.
Public Comment: Many commenters
supported the inclusion of the de
minimis, noting that the de minimis
protects recipients from penalty
resulting from minor or incidental
changes, minimizes administrative
burden, and enhances predictability of
the application of the offset provision.
Some commenters expressed concern
that the fixed threshold could result in
Cliff effects.
Treasury Response: A clear de
minimis threshold supports recipient
governments' compliance with the offset
provision. A de minimis level
recognizes the inherent challenges and
uncertainties that recipient governments
face, and thus allows relatively small
reductions in tax revenue without
consequence. In other words, states and
territories may make many small
changes to alter the composition of their
tax revenues or implement other
policies with marginal effects on tax
revenues. They may also make changes
based on projected revenue effects that
turn out to differ from actual effects,
unintentionally resulting in minor
revenue changes that are not fairly
described as "resulting from" tax law
changes. However, a de minimis does
not automatically result in
consequences under the offset
provision, since a recipient government
could demonstrate that other, non-
SLFRF funds to offset a net reduction in
tax revenue. Accordingly, any cliff
effects associated with a clear de
minimis threshold are mitigated by
other aspects of the framework.
Public Comment: Commenters
expressed a range of views regarding the
amount of the de minimis. Some
commenters argued that the de minimis
was too generous, noting that the choice
of 1 percent could, in some cases,
permit reductions in net tax revenue of
hundreds of millions of dollars. These
commenters advocated that the de
minimis be lowered (e.g., to 25 basis
points) or be tied to a fixed amount.
Other commenters argued that the
choice of de minimis was not well
supported by the statute, advocated for
a larger de minimis and suggested that
the amount be tied to the recipient
government's total expenditures in the
prior fiscal year.
Treasury Response: Treasury adopted
a de minimis threshold as an
administrative accommodation for the
reasons discussed above. As discussed
in the interim final rule, Treasury
determined that the 1 percent de
minimis level reflects the historical
reductions in revenue due to minor
changes in state fiscal policies and was
determined by assessing the historical
effects of state -level tax policy changes
in state EITCs implemented to effect
policy goals other than reducing net tax
revenues.362
For these reasons, Treasury is
adopting the 1 percent de minimis
without change.
(3) Safe harbor. Next, under the
interim final rule, if the revenue
reduction caused by the covered
changes exceeds the 1 percent de
minimis threshold, the recipient
government compares the reporting
year's actual tax revenue to the baseline.
If actual tax revenue is greater than the
baseline, Treasury will deem the
recipient government not to have any
recognized net reduction for the
reporting year, and therefore to be in a
safe harbor and outside the ambit of the
offset provision. This approach is
consistent with the ARPA, which
contemplates recoupment of SLFRF
funds only in the event that such funds
are used to offset a reduction in net tax
revenue. If net tax revenue has not been
reduced, the offset provision does not
apply. In the event that actual tax
revenue is above the baseline, the
organic revenue growth that has
occurred, plus any other revenue -raising
changes, by definition must have been
enough to offset the in -year costs of any
covered changes. One commenter
argued that the offset for organic growth
be adjusted to reflect population growth.
To minimize administrative burden, and
362 Data provided by the Urban -Brookings Tax
Policy Center for state -level EITC changes for 2004-
2017.
for the reasons discussed above,
Treasury is maintaining the
measurement of actual tax revenue
without adjustment for population
growth.
(4) Consideration of other sources of
funding. The recipient government will
then identify and calculate the total
value of changes that could pay for
revenue reduction due to covered
changes and sum these items. This
amount can be used to pay for up to the
total value of revenue -reducing changes
in the reporting year. These changes
consist of two categories:
(a) Tax and other increases in
revenue. The recipient government must
identify and consider covered changes
in policy that the recipient government
predicts will have the effect of
increasing general revenue in a given
reporting year. Recipient governments
should use the same approach to
identify and value covered changes that
increase tax revenue as applied to
covered changes that reduce tax
revenue. For the reasons discussed
above, Treasury is adopting these
aspects of identifying and valuing
covered changes without change.
(b) Covered spending cuts. A recipient
government also may cut spending in
certain areas to pay for covered changes
that reduce tax revenue, up to the
amount of the recipient government's
net reduction in total spending as
described below. These changes must be
reductions in government outlays in an
area where the recipient government has
not spent SLFRF funds. To better align
with existing reporting and accounting,
the interim final rule considers the
department, agency, or authority from
which spending has been cut and
whether the recipient government has
spent SLFRF funds on that same
department, agency, or authority. If the
recipient government has not spent
SLFRF funds in a department, agency,
or authority, the full amount of the
reduction in spending counts as a
covered spending cut, up to the
recipient government's net reduction in
total spending. If they have spent SLFRF
funds in such department, agency, or
authority, the SLFRF funds generally
would be deemed to have replaced the
amount of spending cut and only
reductions in spending above the
amount of SLFRF funds spent on the
department, agency, or authority would
count. This approach —allowing only
spending reductions in areas where the
recipient government has not spent
SLFRF funds to be used as an offset for
a reduction in net tax revenue —aims to
prevent recipient governments from
using SLFRF funds to supplant state or
territory funding in the eligible use
4428 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
areas, and then using those state or
territory funds to offset tax cuts. Such
an approach helps ensure that SLFRF
funds are not used to "indirectly" offset
revenue reductions due to covered
changes.
Department, Agency, or Authority
Public Comment: Several commenters
supported the interim final rule's
approach to considering spending cuts
at the department, agency, or authority
level, on the basis that this approach is
supported by the statutory language
prohibiting SLFRF funds from being
used to "directly or indirectly" offset a
reduction in net tax revenue. On the
other hand, some commenters argued
that the methodology for identifying
offsetting spending cuts was too
restrictive; specifically, that
measurement at the agency or
department -level may not adequately
account for the size and various
programs that could occur in one agency
or department. One commenter argued
that recipient governments should
instead be permitted to consider
spending cuts on a more granular sub-
unit of a department but noted that this
additional flexibility would come at the
cost of transparency and clarity.
Treasury Comment: Treasury
recognizes that some recipients may
vary in their budgeting processes, with
some budgeting on a department level
and others budgeting at more or less
granular sub -units of government.
Relying on spending at a department,
agency, or authority level allows
recipient governments to report how
SLFRF funds have been spent using
reporting units already incorporated
into their budgeting process.
Spending Cuts Baseline
Under the interim final rule, to
calculate the amount of spending cuts
that are available to offset a reduction in
tax revenue, the recipient government
must first consider whether there has
been a reduction in total net spending,
excluding SLFRF funds (net reduction
in total spending). This approach
ensures that reported spending cuts
actually create fiscal space, rather than
simply offset other spending increases.
A net reduction in total spending is
measured as the difference between
total spending in each reporting year,
excluding SLFRF funds spent, relative
to total spending for the recipient's
fiscal year ending in 2019, adjusted for
inflation. Measuring reductions in
spending relative to 2019 reflects the
fact that the fiscal space created by a
spending cut persists so long as
spending remains below its original
level, even if it does not decline further,
relative to the same amount of revenue.
Public Comment: Several commenters
expressed concern regarding the
measurement of spending cuts relative
to the recipient's FY 2019, for example
arguing that the choice did not take into
account increases in spending in 2020.
As one commenter noted, the fiscal year
2020 required extraordinary
intervention by recipient governments
and the ongoing public health
emergency continues to require
extraordinary intervention.
Treasury Response: FY 2019 provides
a reasonable and relatively generous
baseline for considering spending
because it is the last full fiscal year prior
to the COVID-19 public health
emergency and governments'
extraordinary efforts to address the
impact of the pandemic. This approach
also aligns with the FY 2019 baseline for
measuring revenue loss. Measuring
spending cuts from year to year would,
by contrast, not recognize any available
funds to offset revenue reductions
unless spending continued to decline,
failing to reflect the actual availability of
funds created by a persistent change and
limiting the discretion of states and
territories.
For the reasons discussed above,
Treasury is adopting the approach taken
in the interim final rule without change.
(5) Identification of amounts subject
to recoupment. If a recipient
government (i) reports covered changes
that reduce tax revenue (Step 1); (ii) to
a degree greater than the de minimis
(Step 2); (iii) has experienced a
reduction in net tax revenue (Step 3);
and (iv) lacks sufficient revenue from
other, permissible sources to pay for the
entirety of the reduction (Step 4), then
the recipient government will be
considered to have used SLFRF funds to
offset a reduction in net tax revenue, up
to the amount that revenue has actually
declined. That is, the maximum value of
the reduction revenue due to covered
changes that a recipient government
must cover is capped at the difference
between the baseline and actual tax
revenue.31,3 In the event that the
baseline is above actual tax revenue but
the difference between them is less than
the sum of revenue reducing changes
that are not paid for with other,
permissible sources, organic revenue
growth has implicitly offset a portion of
the reduction. The revenue reduction
cap implements this approach for
363 This cap is applied in section 35.8(c) of the
final rule, calculating the amount of funds used in
violation of the tax offset provision.
permitting organic revenue growth to
cover the cost of tax cuts.
Finally, a recipient government may
request reconsideration of any amounts
identified in a notice from Treasury as
subject to recoupment under this
framework. Comments and responses to
the recoupment process are discussed in
section Remediation and Recoupment of
this Supplemental Information.
3. Reporting
To facilitate the implementation of
the framework above, and in addition to
reporting required on eligible uses,
recipient governments are required to
report certain information. The interim
final rule indicated that Treasury would
provide additional guidance at a later
date and that, on an annual basis, it
expected each recipient government
would be required to provide the
following information:
• Actual net tax revenue for the
reporting year;
• Each revenue -reducing change
made to date during the covered period
and the in -year value of each change;
• Each revenue -raising change made
to date during the covered period and
the in -year value of each change; and
• Each covered spending cut made to
date during the covered period, the in -
year value of each cut, and
documentation demonstrating that each
spending cut is covered as prescribed
under the interim final rule.
Since the adoption of the interim final
rule, Treasury has provided guidance on
reporting regarding eligible uses and has
required recipient governments to
indicate whether they have made
covered changes and the value of such
changes.364
Reporting Burden
Public Comment: Some commenters
argued that the framework for
identifying and reporting impermissible
offsets was burdensome and that the
burdens should be accounted for under
Executive Order 13132 (Federalism,
August 4, 1999).
Treasury Response: Taking into
consideration comments received
regarding burden, Treasury is
considering a tiered approach to
reporting on the offset provision.
Specifically, under this approach, a
recipient would only be required to
report information to the extent needed
to determine whether SLFRF funds had
been used to offset a reduction in net tax
revenue. For example, a recipient
government would be required to report
36 See Reporting Guidance, Section CA1,
available at https.Ilhome.treasury.gov/system/files/
136/SLFRF-Com pliance-and-Reporting-
Guidance.pdf.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4429
information regarding permissible
offsets only if it had also reported
covered changes that were in excess of
the de minimis and had reported a net
reduction in tax revenue. Treasury will
provide additional guidance and
instructions on the reporting
requirements at a later date.
As discussed in section Regulatory
Analyses of this Supplemental
Information, Treasury maintains that the
final rule does not have federalism
implications within the meaning of
Executive Order 13132 (Federalism,
August 4, 1999). In the ARPA, Congress
requires states and territories to repay
the Secretary for amounts used in
violation of the prohibition on using
SLFRF funds to offset reductions in net
tax revenue, and it authorizes the
Secretary to issue regulations to carry
out this limitation and other
requirements of the statute. Section 6(b)
of Executive Order 13132 contemplates
that certain regulations will be required
by statute, as is the case with the
interim final rule and the final rule, in
which case section 6(b)(2)(B)'s
requirement to include a federalism
summary impact statement in the
Supplementary Information to the
regulation does not apply.
Notwithstanding the above, Treasury
has engaged in efforts to consult and
work cooperatively with affected state,
local, and Tribal government officials
and associations in the process of
developing the interim final rule.
Reporting Transparency
Public Comment: Several commenters
argued that information supporting the
net tax offset calculation should be
publicly available. Some of these
commenters requested that reporting be
made available in a machine-readable
format, and others advocated that
recipient governments disclose this
information on their local budget
agency's website. These commenters
argued that making information
regarding tax changes publicly available
would increase transparency and
accountability. Further, several
commenters suggested that Treasury
provide a mechanism for citizens to
register their concerns about particular
tax actions.
Treasury Response: As discussed in
other sections, reporting requirements
promote transparency and
accountability for the general public and
constituents of recipient governments to
understand how state, local, and Tribal
governments have used SLFRF funds.
Since the publication of the interim
final rule, Treasury issued
supplementary reporting guidance in
the Compliance and Reporting Guidance
and in the User Guide: Treasury's Portal
for Recipient Reporting (User Guide),
which addresses the particular content
and form of required reporting. Treasury
will continue to issue updated guidance
prior to each reporting period clarifying
any modifications to requested report
content and will continue to consider
how reporting can best support
transparency and accountability while
minimizing recipient administrative
burden. Further, as discussed in the
section Remediation and Recoupment,
Treasury may address potential
violations of this final rule based on
both information submitted from
recipients, either through quarterly
reports or self -reporting, and from other
sources of information (e.g., information
submitted from the public).
2. Deposit Into Pension Funds
Background: Subsection 602(c)(2)(13)
of the Social Security Act provides that
"[n]o State or territory may use funds
made available under this section for
deposit into any pension fund."
Similarly, subsection 603(c)(2) of the
Social Security Act provides that "[n]o
metropolitan city, nonentitlement unit
of local government, or county may use
funds made available under this section
for deposit into any pension fund."
For purposes of this restriction on
pension deposits, the interim final rule
defined deposit to mean "an
extraordinary payment of an accrued,
unfunded liability." The interim final
rule also specified that a deposit does
not include routine contributions made
as part of a payroll obligation, such as
the normal cost component of a pension
contribution or the component that
consists of amortization of unfunded
liabilities calculated by reference to the
employer's payroll costs. The interim
final rule applied the restriction on
pension deposits to all recipients.
Public Comment: Several commenters
observed that the statutory restriction on
deposits into pension funds does not
apply to Tribal governments.
Treasury Response: In response,
Treasury is clarifying in the final rule
that the pension restriction does not
apply to Tribal governments.
Public Comment: Treasury also
received a comment expressing concern
that the interim final rule permitted
recipients to make a larger than usual
pension contribution, so long as the
timing of that contribution aligns with
the historical timing of contributions.
Treasury Response: The interim final
rule prohibited the use of SLFRF funds
from the ARPA to make extraordinary
payments, and the SUPPLEMENTARY
INFORMATION to the interim final rule
said that a payment would be an
extraordinary payment if it reduces a
liability incurred prior to the start of the
COVID-19 public health emergency and
occurs outside the recipient's regular
timing for making the payment. At the
same time, however, as suggested by the
comment Treasury received, a payment
made at the regular time for pension
contributions may very well be an
extraordinary payment, for example, if it
is larger than a regular payment would
have been. Such a payment would be a
restricted use.
Public Comment: Other commenters
asked which pension contributions are
permitted.
Treasury Response: To be an eligible
use of SLFRF funds, a use must (1) be
eligible under one of the eligible use
categories and (2) not contravene any of
the applicable restrictions on uses of
funds. Some pension contributions may
be eligible because they both fit within
an eligible use category and do not
contravene the restriction on deposits
into pension funds (i.e., they are not an
extraordinary payment of an accrued,
unfunded liability). For example,
payroll and covered benefits for public
health and safety staff responding to
COVID-19 are an eligible use of funds
to respond to the public health and
negative economic impacts of the
pandemic; routine pension
contributions as part of an employee's
regular covered benefits are permissible
under that eligible use category.
B. Other Restrictions on Use of Funds
1. Debt Service and Replenishing
Financial Reserves
The SUPPLEMENTARY INFORMATION to
the interim final rule provided that debt
service is not an eligible use of funds
either to respond to the public health
emergency or its negative economic
impacts or as a provision of government
services to the extent of revenue 1088.365
The interim final rule also provided that
replenishing financial reserves (e.g.,
rainy day funds) is not an eligible use
of funds either to respond to the public
health emergency or its negative
economic impacts or as a provision of
365 "[G]overnment services would not include
interest or principal on any outstanding debt
instrument, including, for example, short-term
revenue or tax anticipation notes, or fees or
issuance costs associated with the issuance of new
debt. For the same reasons, government services
would not include satisfaction of any obligation
arising under or pursuant to a settlement agreement,
judgment, consent decree, or judicially confirmed
debt restructuring in a judicial, administrative, or
regulatory proceeding, except if the judgment or
settlement required the provision of government
services." 86 FR 26796-97 (May 17, 2021).
4430 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
government services to the extent of
revenue JOSS.366
As explained in greater detail below,
Treasury, in the final rule, has retained
these restrictions and is clarifying that
these restrictions on the use of SLFRF
funds apply to all eligible use
categories.
Public Comments
Several commenters suggested that
debt service and reserve replenishment
should qualify as the provision of a
government service and be an eligible
use of funds, up to the amount of
revenue loss due to the pandemic. Many
commenters indicated that they had
been forced to borrow money or dip into
reserve funds to continue providing
government services during the public
health emergency and that using SLFRF
funds for resulting debt service or
reserve replenishment costs should
therefore be considered a government
service.
Many comments from Tribal
governments noted that their
governments depend on revenue from
Tribal enterprises to pay government
debts and provide services. The
comments suggest that it should be an
eligible use of SLFRF to replace lost
revenue from these enterprises that
would typically be used to pay debt
service costs. Other commenters argued
that paying the interest or principal on
debt should in some cases be considered
provision of government services and an
eligible use of funds as such
expenditures facilitate the provision of
government services.
Some commenters argued that debt
costs or reserve drawdowns during the
public health emergency constitute a
negative economic impact to recipient
governments, and thus debt service or
reserve replenishment should be an
eligible use to respond to that negative
economic impact. For example, several
commenters suggested that there should
be a specific carve -out allowing the use
of SLFRF funds for debt service on debt
incurred for government services after
January 27, 2020, the start of the public
health emergency, or short-term debt
incurred for this purpose. Others
suggested that recipient governments
should be able to service debt, up to the
amount of debt incurred in direct
response to the pandemic. These
commenters generally reasoned that the
cost of responding to the public health
emergency and its negative economic
impacts prior to APRA's passage
ass "In addition, replenishing financial reserves
(e.g., rainy day or other reserve funds) would not
be considered provision of a government service,
since such expenses do not directly relate to the
provision of government services."
constitutes a negative economic impact
of the pandemic.
Some commenters argued that the
specific impacts of the pandemic on the
travel, tourism, and hospitality sector
had affected their ability to meet debt
service costs. For example, some
commenters explained that specific tax
streams (e.g., hotel room taxes) or
revenue sources (e.g., hospitality
generally) are tied to specific debt
instruments and that these revenue
sources had declined during the public
health emergency; commenters argued
that this constitutes a negative economic
impact that SLFRF funds should be
permitted to address.
Finally, some commenters questioned
why servicing debt incurred after March
3, 2021 for an otherwise eligible project
(e.g., a broadband infrastructure project)
would not be an eligible use of funds.
On the other hand, many commenters
expressed support for the interim final
rule's prohibition on use of funds for
debt service and reserve replenishment.
These commenters largely argued that
SLFRF funds should be used to provide
current services to communities in
response to the public health emergency
and that use of funds for debt service or
reserve replenishment represented,
respectively, payment for past costs or
savings for potential future costs. In
addition to the prohibition on debt
service and reserve replenishment, some
commentors suggested that the final rule
should also prevent funds from being
used for state UI trust fund
replenishment or for paying off debt
owed through UI trust funds. One
commenter argued that Treasury should
further restrict recipient governments,
for example by preventing recipients
from making cuts to an allowable budget
item, filling the budget gap with SLFRF
funds, and then using the savings from
the initial cut for debt service or reserve
replenishment.
Treasury Response
The final rule maintains the
restriction on the use of funds for debt
service or reserve replenishment for the
reasons described below and clarifies
that this restriction applies to all eligible
use categories.
First, debt service and reserve
replenishment costs do not constitute
the provision of services to constituents.
As noted in the interim final rule,
financing expenses —such as issuance of
debt or payment of debt service —do not
provide services or aid to citizens.
Similarly, contributions to rainy day
funds and similar financial reserves
constitute savings for future spending
needs. As such, these expenses do not
respond to the current and ongoing
public health and negative economic
impacts of the pandemic, nor do they
provide a government service.
Second, payments from the SLFRF are
intended to be used prospectively (see
section Timeline for Use of SLFRF
Funds). The interim final rule provided
that funds may be used for costs
incurred beginning on March 3, 2021,
which Treasury has maintained in the
final rule. Use of funds for debt service
on indebtedness issued prior to March
3, 2021 necessarily entails using funds
for costs incurred during prior time
periods, rather than the present
response to the public health emergency
and its negative economic impacts or to
provide government services.
Third, SLFRF funds provide
recipients with substantial latitude to
use funds to support the diverse needs
in their communities. With SLFRF
resources available, recipients have less
need to incur debt for otherwise -eligible
SLFRF uses.
Finally, given the strong performance
of overall revenues and low municipal
bond yields, state and local
governments generally do not face high
levels of fiscal stress. Limits on debt
service or replenishment of reserves
would not have a substantial impact on
recipients' ability to provide services.
The ratio of state and local debt -to -GDP,
which spiked briefly during the
pandemic, has recovered to its pre -
pandemic level and remains well below
levels seen during the Great
Recession.36'
2. Settlements and Judgments
The interim final rule also provided
that satisfaction of any obligation arising
under or pursuant to a settlement
agreement, judgment, consent decree, or
judicially confirmed debt restructuring
in a judicial, administrative, or
regulatory proceeding would not be an
eligible use of funds to respond to the
public health and negative economic
impacts of the pandemic or as a
government service provided under the
revenue loss eligible use category.
However, if the judgment or settlement
requires the recipient to provide
services that are otherwise eligible
under an SLFRF eligible use category,
specifically if the settlement or
judgment requires the recipient to
provide services to respond to the
COVID-19 public health emergency or
its negative economic impacts or to
provide government services, then those
costs are eligible uses of SLFRF funds.
367 Table Z.1 of the Financial Accounts of the
United States, Board of Governors of the Federal
Reserve System, and Table 1.1.5 of National Income
and Product Accounts, Bureau of Economic
Analysis.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4431
In other words, satisfaction of a
settlement or judgment itself is not itself
an eligible use of funds, unless the
settlement requires the recipient to
provide services or incur other costs
that are eligible uses of SLFRF funds.
In the final rule, Treasury is
maintaining the interim final rule
approach and clarifying that it applies
to all eligible use categories and any use
of funds under the SLFRF program.
3. General Restrictions
In addition to the above restrictions,
there are three general restrictions that
apply to SLFRF funds. These
restrictions, which reflect existing laws
and regulations, the Award Terms and
Conditions, and application of the
ARPA statute, applied under the interim
final rule, and they continue to apply
under the final rule.
A primary purpose of the SLFRF in
the ARPA is to support efforts to stop
the spread of COVID-19.368 As
discussed above, recipients of SLFRF
funds are required to comply with the
Award Terms and Conditions
established for the use of such funds.
The interim final rule and final rule
implement this objective by, in part,
providing that recipients may use
SLFRF funds for COVID-19 mitigation
and prevention.369 See section Public
Health in Public Health and Negative
Economic Impacts.
The CDC has provided
recommendations and guidelines to
help mitigate and prevent COVID-19
and has identified vaccines and masks
as two of the best tools to prevent the
spread of COVID-19. The interim final
rule and final rule help support
recipients in stopping the spread of
COVID-19 through these
recommendations and guidelines.
Consistent with the purpose of the
ARPA and as implemented through the
interim final rule and final rule, a
recipient may not use SLFRF funds for
a program, service, or capital
expenditure that includes a term or
condition that undermines efforts to
stop the spread of COVID-19. A
program or service that imposes
conditions on participation or
acceptance of the service that would
undermine efforts to stop the spread of
COVID-19 or discourage compliance
with recommendations and guidelines
in CDC guidance for stopping the spread
of COVID-19 is not a permissible use of
SLFRF funds.
In other words, recipients may not use
funds for a program that undermines
368See Sec. 602(a)(1); 603(a)(1); 602(c)(1);
603(c)(1).
369 See 35.6(b); Coronavirus State and Local Fiscal
Recovery Funds, 86 FR at 26786.
practices included in the CDC's
guidelines and recommendations for
stopping the spread of COVID-19. This
includes programs that impose a
condition to discourage compliance
with practices in line with CDC
guidance (e.g., paying off fines to
businesses incurred for violation of
COVID-19 vaccination or safety
requirements), as well as programs that
require households, businesses,
nonprofits, or other entities not to use
practices in line with CDC guidance as
a condition of receiving funds (e.g.,
requiring that businesses abstain from
requiring mask use or employee
vaccination as a condition of receiving
SLFRF funds).
Second, a recipient may not use
SLFRF funds in violation of the conflict
of interest requirements contained in
the Award Terms and Conditions or the
Office of Management and Budget's
Uniform Guidance, including any self -
dealing or violation of ethics rules.
Recipients are required to establish
policies and procedures to manage
potential conflicts of interest.370
Treasury may provide further guidance
on the types of activities or conflicts
that the recipient's policies and
procedures must cover.
Lastly, recipients should also be
cognizant that federal, state, and local
laws and regulations, outside of SLFRF
program requirements, may apply.
Recipients may not use revenue loss
funds, for instance, to violate other
background laws that limit the scope of
activities that may be conducted as
"government services," including other
state and federal laws. State and local
procurement, contracting, and conflicts -
of -interest laws and regulations may
include applicable requirements,
including, for example, required
procurement processes for contractor
selection or competitive price setting.
Furthermore, recipients are also
required to comply with other federal,
state, and local background laws,
including environmental laws 371 and
federal civil rights and
nondiscrimination requirements, which
include prohibitions on discrimination
on the basis of race, color, national
origin, sex, (including sexual orientation
370 Specifically, the Award Terms and Conditions
provide that "[r)ecipient understands and agrees it
must maintain a conflict of interest policy
consistent with 2 CFR 200.318(c), and that such
conflict -of -interest policy is applicable to each
activity funded under this award. Recipients and
subrecipients must disclose in writing to Treasury
or the pass -through agency, as appropriate, any
potential conflict of interest affecting the awarded
funds in accordance with 2 CFR 200.112."
371 An exception is statutes that do not apply
unless explicitly stated, including, e.g., the National
Environmental Policy Act and the Davis -Bacon Act.
and gender identity), religion, disability,
or age, or familial status (having
children under the age of 18).
IV. Program Administration Provisions
The interim final rule included
several sections that described the
processes and requirements for
administering the program on an
ongoing basis, specifically: Distribution
of funds, transfer of funds, use of funds
for program administration, reporting on
the use of funds, and remediation and
recoupment of funds used for ineligible
purposes.
To enhance clarity, this
SUPPLEMENTARY INFORMATION for the
final rule organizes these issues into one
section on Program Administration
Provisions. Recipients should also
consult Treasury's Compliance and
Reporting Guidance for additional
information on program administration
processes and requirements, including
the applicability of the Uniform
Guidance.
A. Payments in Tranches to Local
Governments and Certain States
Section 602(b)(6)(A)(ii) of the Social
Security Act authorizes the Secretary to
withhold payment of up to 50 percent
of the amount allocated to each state
and territory for a period of up to 12
months from the date on which the state
or territory provides its statutorily -
required certification to the Secretary.
The Social Security Act requires any
such withholding be based on the
unemployment rate in the state or
territory as of the date of the
certification.
Under the interim final rule, Treasury
provided that it would withhold 50
percent of the amount allocated from
any state that had an unemployment
rate less than two percentage points
above its unemployment rate in
February 2020 as of the date the state
submitted its initial certification for
payment of funds pursuant to section
602(d)(1) of the Social Security Act.
Based on data available at the time of
the issuance of the interim final rule,
this threshold was expected to result in
a majority of states being paid in two
tranches. Treasury did not split the
payments of any territories.
Public Comment: One commenter
asked Treasury to allow a state to
request release of the portion of the
state's second tranche payment after the
state could demonstrate that it had
allocated the entirety of the first
tranche, a need to continue ongoing
programs, and a desire to avoid
borrowing costs. Another commenter
asked Treasury to clarify whether states
that received half their funding in the
4432 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
first payment would receive their
second half payment within 12 months.
Similarly, some recipients requested
clarification on whether they could
obligate second tranche funds before
receipt or use second tranche funds for
costs incurred prior to receipt.
Treasury Response: The final rule
maintains the approach in the interim
final rule with two modifications. As
described in the interim final rule,
splitting payments for most states
provides consistency with payments to
local governments and encourages states
to adapt their use of funds to
developments that arise in the course of
the economic recovery. Moreover,
SLFRF funds may be used for costs
incurred during the period of
performance. Recipients may use their
jurisdiction's budgeting and
procurement practices and laws to
determine how and when second
tranche funds may be obligated.
The final rule makes two adjustments
for operational purposes. First, the final
rule provides that Treasury expects to
make all second tranche payments to
states available beginning 12 months
from the date that funding was first
made available by Treasury (May 10,
2021) regardless of when each
individual state submitted its initial
certification. This should increase
clarity and consistency on the timing of
second tranche payments for both states
and Treasury. Second, also to ease
recipient states' administrative burden,
the final rule strikes a requirement from
the interim final rule that states must
certify for their second tranche
payments and file all required reports at
least 30 days prior to the date on which
their second payment is made available.
The final rule simply requires that states
certify for their second tranche payment
and file all required reports before
receiving their second tranche payment,
with no 30 day wait period required.
B. Payments to Nonentitlement Units of
Local Government (NEUs) and Units of
Local Government (UGLGs) Within Non-
UGLG Counties
The interim final rule established
requirements related to distributions of
SLFRF funds by states and territories to
NEUs and UGLGs within non-UGLG
counties. Specifically, the interim final
rule provided that the total distribution
to an NEU cannot exceed 75 percent of
the most recent budget for the NEU (the
75 percent budget cap); a requirement
set forth in section 603(b)(2)(C)(iii) of
the Social Security Act. The interim
final rule SUPPLEMENTARY INFORMATION
defined the NEU's budget for purposes
of calculating the 75 percent budget cap
as the NEU's "most recent annual total
operating budget, including its general
fund and other funds, as of January 27,
2020." The interim final rule further
provided that states and territories must
permit NEUs without formal budgets as
of January 27, 2020 to self -certify their
most recent annual expenditures as of
January 27, 2020 for the purpose of
calculating the 75 percent budget cap.
Further, the interim final rule
prohibited states and territories from
placing additional conditions or
requirements on distributions to NEUs
beyond those required by the statute,
the interim final rule, or Treasury's
guidance and from offsetting any debt
owed by such NEUs against such
distributions.
Commenters predominantly focused
on the definition of an NEU's budget for
purposes of calculating the 75 percent
budget cap, NEU allocations and
eligibility, and the prohibition on states
and territories imposing additional
conditions or requirements in the NEU
distribution process.
Definition of NEU Budget
Public Comment: Commenters
suggested that Treasury provide greater
clarification on the definition of an
NEU's "most recent budget" for
purposes of the 75 percent budget cap
calculation. Treasury provided updated
guidance on its interpretation of the 75
percent budget cap on June 30, 2021,
and a commenter suggested that
Treasury incorporate such updated
interpretation into the SUPPLEMENTARY
INFORMATION of the final rule.
Treasury Response: Consistent with
the Update on Interpretation for the 75
Percent Budget Cap Calculation
published on June 30, 2021,372 the
SUPPLEMENTARY INFORMATION of the final
rule defines an NEU's budget for
purposes of calculating the 75 percent
budget cap as its total annual budget,
including both operating and capital
expenditure budgets, in effect as of
January 27, 2020. The guidance also
gives states and territories flexibility to
provide further guidance to their NEUs
to operationalize the 75 percent budget
cap. Given the variance in local
financial accounting, this updated
definition will better facilitate states'
and territories' distribution of SLFRF
funds to NEUs.
Allocations and Eligibility
Public Comment: Many commenters
provided feedback on specific allocation
calculations and eligibility of local
governments for NEU funding.
372 Treasury's Update on Interpretation for the 75
Percent Budget Cap Calculation can be found at:
https.Ilhome. treasury.gov/system/files/136/NEU-
Update-75-Percent-Budget-Ca p. pd f.
Commenters addressed how a locality
was classified as an NEU or
metropolitan city, deviations between
Treasury's allocation calculations and
earlier estimates from other sources,
treatment of unincorporated areas,
sources for population data, and
Treasury's allocation of NEU funding to
states and territories based on the
population of a state and territory
outside of its metropolitan cities. Two
commenters proposed that Treasury
provide an appeal process for localities
that were not identified on the List of
Local Governments used by states and
territories as part of the process in
which a state or territory determines the
eligibility of an NEU in accordance with
Treasury guidance, or for Minor Civil
Divisions (MCDs) that were denied
funding as part of a facts -and -
circumstances test undertaken by a
weak-MCD state.
Treasury Response: Neither the
interim final rule nor the final rule
addresses eligibility or allocations
issues, and comments on these topics
are outside the scope of this rulemaking.
These questions are addressed in other
Treasury guidance, including the
Guidance on Distribution of Funds to
Non -entitlement Units of Local
Government and Non -entitlement Unit
of Local Government Definitional and
Data Methodology guidance documents
available on Treasury's website.373
Because Treasury interpreted the
definition of an NEU 374 in accordance
with the statute and established an NEU
distribution process in May 2021, the
final rule does not incorporate an
appeals process regarding the
definitions or the facts -and -
circumstances test used for eligibility
determinations.
Prohibition on Additional Conditions or
Requirements in the NEU Distribution
Process
Public Comment: One commenter
expressed support for Treasury's
prohibition on states and territories
373 The Guidance on Distribution of Funds to
Nonentitlement Units of Local Government can be
found at this link: https.Ilhome.treasury.govl
system/files/136/NEU_Guidance.pdf. The
Nonentitlement Unit of Local Government
Definitional and Data Methodology can be found at
this link: https.Ilhome.treasury.gov/system/files/
136/NEU_ Methodology. pdf.
374 Treasury has interpreted NEU to generally
include both incorporated places and MCDs with
active functioning governments, subject to the state
determining, in the case of weak-MCD States, that
a weak MCD has the legal and operational capacity
to accept SLFRF funds and provides abroad range
of services that would constitute eligible uses under
ARPA. More details can be found in the
Nonentitlement Unit of Local Government
Definitional and Data Methodology, available at
https.Ilh ome. treasury.gov/system/files/136/NEU_
Methodology. pdf.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4433
placing additional conditions or
requirements on distributions to NEUs.
This prohibition restricts states and
territories from imposing limitations on
NEUs' use of SLFRF funds based on an
NEU's proposed spending plan or other
policies, offsetting any debt owed by an
NEU against the NEU's distribution, or
providing funding on a reimbursement
model. In particular, the commenter
noted that a reimbursement model
would lead to inequities in accessing
SLFRF funds.
Treasury Response: The final rule
maintains and finalizes the prohibition
on states and territories placing
additional conditions or requirements
on distributions to NEUs as well as to
any UGLGs within counties that are
non-UGLGs. Such conditions or
requirements may contravene the
statutory requirement that states and
territories make distributions based on
population and within the statutorily
defined timeframe.
Other Provisions
Treasury did not receive substantive
comments on the requirement that states
and territories permit NEUs without
formal budgets as of January 27, 2020 to
self -certify their most recent annual
expenditures as of January 27, 2020 for
the purpose of calculating the 75
percent budget cap, or Treasury's
interpretation of the 75 percent budget
cap applying only to a consolidated
government's NEU allocation under
section 603(b)(2) but not to a
consolidated government's county
allocation under section 603(b)(3).
Further, Treasury did not receive
substantive comments on the interim
final rule's allowance that states and
territories be able to use SLFRF funds
under section 602(c)(1)(A) to fund
expenses related to administering
payments to NEUs and units of general
local government. As such, the final rule
maintains these provisions as written in
the interim final rule without
modification.
Treasury received some comments
that are not addressed because they are
beyond the scope of the NEU provision
of the interim final rule or not
authorized by the statute, including
comments related to state accounting
practices, re -allocations of NEU
allocations that exceed the 75 percent
budget cap, and concerns around
eligible uses under SLFRF that small
local governments may find particularly
salient.
C. Timeline for Use of SLFRF Funds
The interim final rule provided that
"[a] recipient may only use funds to
cover costs incurred during the period
beginning March 3, 2021 and ending
December 31, 2024." The interim final
rule also provides that the period of
performance will run until December
31, 2026, which will provide recipients
an additional two years during which
they may expend funds for costs
incurred (i.e., obligated).
As explained in more detail below, in
the final rule Treasury is maintaining
these time periods. Treasury will retain
March 3, 2021 as the first date when
costs may be incurred, to provide for
forward -looking or prospective use of
funds and to align with the start date of
the "covered period" as such term is
used in section 602(c)(2)(A). The
deadline for costs to be incurred —
which the final rule clarifies means
obligated —December 31, 2024, is
specified in the ARPA statute, and
Treasury will retain December 31, 2026
as the end of the period of performance
to provide a reasonable amount of time
for recipients to liquidate obligations
incurred by the statutory deadline.
Public Comments. Some commenters
expressed concerns about costs incurred
before March 3, 2021 not being covered
and recommended the "start date" be
changed to January 2020 to coincide
with the declaration of the public health
emergency. These commenters argued
that recipient governments began
incurring costs to respond to COVID-19
and its economic impacts in January
2020 and that prior federal fiscal relief,
such as relief provided in the
Coronavirus Aid, Relief, and Economic
Security Act, did not fully compensate
recipient governments for these costs.
These commenters recommended that
costs incurred before March 3, 2021 that
otherwise fit within eligible use
categories for SLFRF should be
permissible uses of funds.
Some commenters asked Treasury to
clarify whether local governments are
subject to the same covered period as
states and territories beginning March 3,
2021. Commenters noted that section
603(g) of the Social Security Act does
not contain the same definition of
"covered period" as section 602(g)(1) of
the Social Security Act, which
references a statutory provision that
only applies to states and territories.
Many commenters requested that the
deadline for costs to be incurred and the
period of performance be extended due
to the longer timeline for completing
water and sewer projects. One
commenter requested that recipients be
able to split projects into different
phases so that funds could be expended
on larger, longer term projects (e.g., by
obligating funds on one portion of the
project by the statutory deadline). One
commenter recommended that the
period of performance be extended for
at least two additional years beyond the
expenditure deadline set forth in the
interim final rule, i.e., until December
31, 2028. One commenter wrote that the
final rule should allow for extended
projects (e.g., over a time horizon of
more than ten years) for recipients
working to develop long-term water
supplies to prepare for extreme drought.
Treasury Response. In the final rule,
Treasury is maintaining March 3, 2021
as the date when recipients may begin
to incur costs using SLFRF funds. As
described in the interim final rule, use
of SLFRF funds is forward looking and
the eligible use categories provided by
statute are all prospective in nature.
While recipients may identify and
respond to negative economic impacts
that occurred during 2020, the costs
incurred to respond to these impacts
remain prospective. Further, Treasury
considers the beginning of the covered
period for purposes of determining
compliance with section 602(c)(2)(A) to
be a relevant reference point for this
purpose that provides some flexibility
for recipients that began incurring costs
in the anticipation of enactment of the
ARPA or in advance of the issuance of
the interim final rule and receipt of
payment.
Finally, establishing an earlier start
date would permit governments to use
funds received in 2021 to satisfy
obligations incurred in 2020. This use
raises a substantial risk of SLFRF funds
being used to supplant other recipient
funds previously used to pay for such
2020 obligations, freeing funds for
recipients to use for any purpose rather
than eligible uses of SLFRF funds under
the ARPA. Permitting such usage would
undermine the provisions setting forth
permissible and impermissible uses in
the statute. Therefore, a reading of the
statute permitting use of funds prior to
March 3, 2021 would be inconsistent
with the statutory structure.
In the final rule, Treasury is also
maintaining the deadlines by which
funds must be obligated (i.e., December
31, 2024) and by which such obligations
must be liquidated (i.e., December 31,
2026). The December 31, 2024 deadline
by which eligible costs must be incurred
is established by statute. Treasury is
finalizing its interpretation of
"incurred" to be equivalent to the
definition of "obligation," based on the
definition used for purposes of the
Uniform Guidance. Treasury is also
maintaining the period of performance,
which will run through December 31,
2026, and provides the deadline by
which recipients must expend obligated
funds. Most recipients received SLFRF
funds in the spring and summer of 2021,
4434 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
meaning that they have over three years
to obligate and over five years to expend
funds. This provides a sufficient amount
of time for recipients to plan and
execute projects.
D. Transfers of Funds
Under section 602(c)(3) of the Social
Security Act, a state, territory, or Tribal
government may transfer SLFRF funds
to a "private nonprofit organization . . .
a Tribal organization . . . a public
benefit corporation involved in the
transportation of passengers or cargo, or
a special-purpose unit of state or local
government." Similarly, section
603(c)(3) authorizes a local government
to transfer SLFRF funds to the same
entities (other than Tribal
organizations). Separately, section
603(c)(4) authorizes a local government
to transfer SLFRF funds to the state in
which it is located.
Entities Eligible for a Transfer Under
Sections 602(c)(3) and 603(c)(3)
Regarding transfers permitted under
sections 602(c)(3) and 603(c)(3) of the
Act, the interim final rule
Supplementary Information clarified
that the lists of transferees in these
sections are not exclusive and that state,
local, territorial, and Tribal governments
may transfer funds to other constituent
units of government or private entities
beyond those specified in the statute.
Public Comment: Several commenters
supported Treasury's interpretation of
eligible transferees in sections 602(c)(3)
and 603(c)(3) as nonexclusive. However,
many commenters asked for greater
clarity as to whether specific entities not
listed in Treasury's examples of eligible
subrecipients, such as nonprofits and
Tribal governments, were eligible
transferees. One commenter also asked
whether a recipient may transfer SLFRF
funds to a higher level of government,
such as a locality to the county in which
it is located.
Treasury Response: The final rule
clarifies that, in addition to the entities
enumerated in sections 602(c)(3) and
603(c)(3), recipients may transfer SLFRF
funds to any entity to carry out as a
subrecipient an eligible use of funds by
the transferor, as long as they comply
with the Award Terms and Conditions
and other applicable requirements,
including the Uniform Guidance at 2
CFR 200.331-200.333. Eligible
subrecipients include, but are not
limited to, other units of government
(including Tribal governments),
nonprofits and other civil society
organizations, and private entities.
Further, the final rule clarifies that
transfers may be made to both
constituent or non -constituent units of
government. For example, county A
may transfer SLFRF funds to county B
as long as county B abides by the use
restrictions applicable to county A and
the transfer would constitute an eligible
use of the funds by county A. County A
must receive a benefit proportionate to
the amount transferred.
As detailed in the interim final rule
Supplementary Information, once
transfers are received, the transferee
must abide by the restrictions on use
applicable to the transferor under the
ARPA and other applicable law,
regulations, and program guidance.
Further, the transferor remains
responsible for monitoring and
overseeing the subrecipient's use of
SLFRF funds and other activities related
to the award to ensure that the
subrecipient complies with the statutory
and regulatory requirements and the
Award Terms and Conditions.
Recipients also remain responsible for
reporting to Treasury on their
subrecipients' use of payments from the
SLFRF for the duration of the award.
Pooling Funds
Public Comment: Several commenters
asked for clarification about whether
they may pool SLFRF funds for a project
with other recipients, including when
doing so involves a transfer to another
entity, such as a regional organization or
government that undertakes projects on
behalf of a number of local
governments. Commenters also asked
for clarification on the oversight and
reporting obligations that would result
from such transfers.
Treasury Response: Consistent with
guidance issued following the interim
final rule,375 the final rule clarifies that
recipients may pool SLFRF funds for
projects, provided that the project is
itself an eligible use of SLFRF funds for
each recipient that is contributing to the
pool of funds and that recipients are
able to track the use of funds in line
with the reporting and compliance
requirements of the SLFRF. In general,
when pooling funds for regional
projects, recipients may expend funds
directly on the project or transfer funds
to another government or other entity
that is undertaking the project on behalf
of multiple recipients. To the extent
recipients undertake regional projects
via transfer to another organization or
government, recipients would need to
comply with the rules on transfers
specified in the final rule
SUPPLEMENTARY INFORMATION. A
375 Coronavirus State and Local Fiscal Recovery
Funds, Frequently Asked Questions, as of July 19,
2021; https://home.treasury.gov/system/files/136/
SLFRPFAQ. pdf.
recipient may transfer funds to a
government outside its boundaries (e.g.,
county transfers to a neighboring
county), provided that the transferor can
document that the transfer constitutes
an eligible expense of the transferor
government and that its jurisdiction
receives a benefit proportionate to the
amount transferred.
Blending and Braiding of Funds
Treasury is clarifying in the final rule
that, consistent with further guidance
issued by Treasury following the
interim final rule,376 recipients may
fund a project with both SLFRF funds
and other sources of funding, provided
that the costs are eligible costs under
each source program and are compliant
with all other related statutory and
regulatory requirements and policies.
The recipient must comply with
applicable reporting requirements for all
sources of funds supporting the SLFRF
projects and with any requirements and
restrictions on the use of funds from the
supplemental funding sources and the
SLFRF program. Specifically,
• All funds provided under the
SLFRF program must be used for
projects, investments, or services that
are eligible under the SLFRF program.
SLFRF funds may not be used to fund
an activity that is not, in its entirety, an
eligible use under the SLFRF program.
For example:
o SLFRF funds may be used in
conjunction with other sources of funds
to make an investment in water
infrastructure that is eligible under
section 602 or 603 of the Social Security
Act and the final rule.
o SLFRF funds could not be used to
fund the entirety of a water
infrastructure project that was partially,
although not entirely, an eligible use
under Treasury's final rule. However,
the recipient could use SLFRF funds
only for a smaller component project
that does constitute an eligible use,
while using other funds for the
remaining portions of the larger planned
water infrastructure project that do not
constitute an eligible use. In this case,
the "project" for SLFRF purposes under
this program would be only the eligible
use component of the larger project.
• In addition, because SLFRF funds
must be obligated by December 31,
2024, and recipients must expend all
funds under the award no later than
December 31, 2026, recipients must be
able to, at a minimum, determine and
report to Treasury on the amount of
SLFRF funds obligated and expended
and when such funds were obligated
and expended.
376 See FAQ 4.10. Id.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4435
Scope of a 603(c)(4) Transfer
Unlike in the case of a transfer under
sections 602(c)(3) or 603(c)(3), the
interim final rule SUPPLEMENTARY
INFORMATION specified that transfers
from a local government to the state
under section 603(c)(4) will result in a
cancellation or termination of the award
on the part of the transferor local
government and a modification of the
award to the transferee state.
Public Comment: Two commenters
suggested that Treasury expand section
603(c)(4) beyond transfers from
localities to the state to include transfers
from counties to their constituent local
governments, which would incentivize
counties to augment funds to address
the needs of local governments. These
commenters noted that counties are
disincentivized to make transfers under
section 603(c)(3), as is currently
allowed, as such transfers would require
that counties provide oversight and
monitoring over its subrecipients.
Treasury Response: Section 603(c)(4),
by its terms, applies only to transfers
from local governments to states.
Accordingly, the final rule must
maintain the interim final rule's
limitation of section 603(c)(4) transfers
as applicable only to transfers from local
governments to states. Expansions of
section 603(c)(4) transfer authority
beyond transfers from local
governments to states were not
explicitly authorized by Congress. As
such, transfers under section 603(c)(4)
may only be made by local governments
to the state in which they are located.
Congress enumerated two separate
transfer provisions for local
governments —section 603(c)(3) and
section 603(c)(4)—that use different
language and were intended to operate
differently. Section 603(c)(4) contains
prefatory language ("Notwithstanding
paragraph (1)"—a reference to the
eligible SLFRF uses) that section
603(c)(3) does not. In other words,
section 603(c)(4) transfers are not
required to constitute an eligible use of
the funds from the perspective of the
transferor local government, but section
603(c)(3) transfers are required to
constitute an eligible use. A transfer to
accomplish an eligible use fits within
the recipient-subrecipient framework.
Further, treating section 603(c)(3)
transfers as leading to a cancellation of
the award for the transferor local
government would result in scenarios
that are inconsistent with the statutory
language. An award cancellation
pursuant to a section 603(c)(3) transfer
would result in either (1) non-
governmental entities becoming award
recipients under the program, which
would contravene the purpose of SLFRF
or (2) transfers to governmental and
non -governmental entities being treated
in a distinct and inconsistent manner.
That is, section 603(c)(3) transfers to
governmental entities would lead to
award cancellation but section 603(c)(3)
transfers to non -governmental entities
would lead to a recipient-subrecipient
relationship. Therefore, in the final rule,
Treasury maintains its distinct
treatment of a section 603(c)(3) transfer
and section 603(c)(4) transfer.
The final rule clarifies that a transfer
under section 603(c)(4) will result in a
modification, termination, or
cancellation of the award on the part of
the transferor local government and a
modification of the award to the
transferee state or territory. As detailed
in the SUPPLEMENTARY INFORMATION to
the interim final rule, the transferor
must provide notice of the transfer to
Treasury in a format specified by
Treasury. Until the local government
provides such notice and Treasury
provides confirmation of its acceptance
of the notice, the local government will
remain responsible for ensuring that the
SLFRF award is being used in
accordance with the Award Terms and
Conditions, section 602 or 603 of the
Social Security Act, the final rule, and
program guidance including reporting
on such uses of the award funds to
Treasury.
A state that receives a transfer from a
local government under section
603(c)(4) will be bound, by statute, by
all of the use restrictions set forth in
section 602(c) with respect to the use of
those SLFRF funds, including the
prohibitions on use of such SLFRF
funds to offset certain reductions in
taxes or to make deposits into pension
funds. The state will be responsible as
the prime recipient for the use and
reporting on any funds transferred
under section 603(c)(4) by the local
government. Such transferred funds will
be subject to the Award Terms and
Conditions previously accepted by the
state in connection with its SLFRF
award.
Subrecipient Transfers
Public Comment: Commenters sought
clarification as to how funds may be
transferred from a recipient to another
entity. For instance, one commenter
requested that recipients be able to
advance funds to subrecipients as
opposed to reimbursing subrecipients
for expenses incurred.
Treasury Response: Treasury did not
specify in the interim final rule whether
recipients may advance funds to
subrecipients. This omission was not
intended to prevent recipients from
advancing funds to subrecipients,
consistent with the various methods
permitted under the Uniform Guidance.
Given the broad flexibility that
recipients have in selecting eligible uses
and the broad variety of potential
subrecipients, Treasury believes that
specifying a single method of
advancement or reimbursement would
add unnecessary administrative
difficulty to program administration.
Recipients may determine the optimal
payment structure for the transfer of
funds (e.g., advance payments,
reimbursement basis, etc.) from
recipients to subrecipients. Ultimately,
recipients must comply with the eligible
use requirements and any other
applicable laws or requirements and are
responsible for the actions of their
subrecipients.
E. Administrative Expenses
The interim final rule permitted,
under the heading "[e]xpenses to
improve efficacy of public health or
economic relief programs," use of funds
for "[a]dministrative costs associated
with the recipient's COVID-19 public
health emergency assistance programs,
including services responding to the
COVID-19 public health emergency or
its negative economic impacts, that are
not federally funded."
Following release of the interim final
rule, Treasury issued Compliance and
Reporting Guidance that provided that
"recipients may use funds for
administering the SLFRF program,
including costs of consultants to
support effective management and
oversight, including consultation for
ensuring compliance with legal,
regulatory, and other requirements.
Further, costs must be reasonable and
allocable as outlined in 2 CFR 200.404
and 2 CFR 200.405. Pursuant to the
SLFRF Award Terms and Conditions,
recipients are permitted to charge both
direct and indirect costs to their SLFRF
award as administrative costs. Direct
costs are those that are identified
specifically as costs of implementing the
SLFRF program objectives, such as
contract support, materials, and
supplies for a project. Indirect costs are
general overhead costs of an
organization where a portion of such
costs are [sic] allocable to the SLFRF
award such as the cost of facilities or
administrative functions like a director's
office." 377 Several commenters
377 U.S. Department of the Treasury, Recipient
Compliance and Reporting Responsibilities, as of
November 5, 2021; https://home.treasury.govl
poli cy-iss u es/coronavirus/assistan ce-for-state-1 ocal-
and-tribal-governments/state-and-local fiscal -
Continued
4436 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
requested clarity on which
administrative expenses are permissible
uses of funds and how recipients should
structure administrative costs.
In the final rule, Treasury is clarifying
that direct and indirect administrative
expenses are permissible uses of SLFRF
funds and are a separate eligible use
category from "[e]xpenses to improve
efficacy of public health or economic
relief programs," which refers to efforts
to improve the effectiveness of public
health and economic programs through
use of data, evidence, and targeted
consumer outreach. For details on
permissible direct and indirect
administrative costs, recipients should
refer to Treasury's Compliance and
Reporting Guidance.378 Costs incurred
for the same purpose in like
circumstances must be treated
consistently as either direct or indirect
costs.
F. Treatment of Loans
The interim final rule allowed
recipients to use SLFRF funds to make
loans for uses that are otherwise eligible
(for example, for small business
assistance). Subsequent guidance
clarified how recipients must track and
dispose of program income from loans,
consistent with the statutory
requirements for the timing of SLFRF
expenditures.
SLFRF funds must be used to cover
"costs incurred" by the recipient
between March 3, 2021 and December
31, 2024. The interim final rule
provided that SLFRF funds must be
obligated by December 31, 2024 and
expended by December 31, 2026. In
using SLFRF funds to make loans,
recipients must be able to determine the
amount of funds used to make a loan
and must comply with restrictions on
the timing of the use of funds and with
restrictions in the Uniform Guidance.
When SLFRF funds are used as the
principal for loans, there is an
expectation that a significant share of
the loaned funds will be repaid. Thus,
recipients may not simply consider the
full amount of loaned funds to be
permanently expended and must
appropriately account for the return of
loaned funds.
For loans that mature or are forgiven
on or before December 31, 2026, the
recipient must account for the use of
funds on a cash flow basis, consistent
with Treasury's guidance regarding
loans made by recipients using
payments from the Coronavirus Relief
recovery-funds/reci pient-com pliance-and-reporting-
responsibilities.
3 78 Id.
Fund.379 Recipients may use SLFRF
funds to fund the principal of the loan
and in that case must track repayment
of principal and interest (i.e., "program
income," as defined under 2 CFR 200).
When the loan is made, recipients must
report the principal of the loan as an
expense.
Repayment of principal may be re-
used only for eligible uses and is subject
to restrictions on the timing of the use
of funds. Interest payments received
prior to the end of the period of
performance will be considered an
addition to the total award and may be
used for any purpose that is an eligible
use of funds under the statute and final
rule. Recipients are not subject to
restrictions under 2 CFR 200.307(e)(1)
with respect to such payments.
For loans with maturities longer than
December 31, 2026, the recipient must
estimate the cost to the recipient of
extending the loan over the life of the
loan. In other words, at origination, the
recipient must measure the projected
cost of the loan and may use SLFRF
funds for the projected cost of the loan.
Recipients have two options for
estimating this amount: They may
estimate the subsidy cost (i.e., net
present value of estimated cash flows)
or the discounted cash flow under
current expected credit losses (i.e.,
CECL method). See further guidance
issued by Treasury for further
explanation.380
Public Comment: Many commenters
asked for further clarification on the
treatment of loans and the calculation of
"costs incurred." Some commenters
requested that grants made for eligible
activities prior to December 31, 2024 to
a revolving loan fund, an economic
development corporation, a land bank,
or a similar facility should be
considered obligated and expended at
the time of the grant. This would allow
funds to be expended by the grantee
beyond the covered period and for
funds returned to the grantee to be re-
invested in further uses outside of the
covered period.
Treasury Response: The final rule
maintains the treatment of loans from
the interim final rule and subsequent
guidance, as discussed above. This
approach is consistent with the
statutory requirement that funds be used
for costs incurred for eligible purposes
by December 31, 2024 and is consistent
379 Coronavirus Relief Fund for States, Tribal
Governments, and Certain Eligible Local
Governments, 86 FR at 4192.
380 See FAQ 4.11. Coronavirus State and Local
Fiscal Recovery Funds, Frequently Asked
Questions, as of July 19, 2021; https://
home. treasury.gov/system/files/136/SLFRPFAQ. pdf.
with standard accounting practices and
the Uniform Guidance.
G. Use of Funds for Match or Cost -Share
Requirements
As a general matter and as referenced
in the SUPPLEMENTARY INFORMATION to
the interim final rule, funds provided
under one federal program may not be
used by a recipient to meet the non-
federal match or cost -share
requirements of another federal
program.
However, Treasury has since
determined that, consistent with this
general principle and the requirements
of the Uniform Guidance at 2 CFR
200.306(b)(5), the funds available under
sections 602(c)(1)(C) and 603(c)(1)(C) of
the Social Security Act for the provision
of government services, up to the
amount of the recipient's reduction in
revenue due to the public health
emergency, generally may be used to
meet the non-federal cost -share or
matching requirements of other federal
programs. Federal funds that constitute
revenue sharing to state and local
governments may generally be used to
meet non-federal match
requirements.381 The broad eligible uses
of the SLFRF funds available under
sections 602(c)(1)(C) and 603(c)(1)(C) of
the Social Security Act, combined with
the purpose of these provisions (which
is to provide general fiscal assistance to
governments facing revenue losses due
to the public health emergency),
demonstrate that these funds are
revenue sharing. They thus should
generally be permitted to be used to
meet the non-federal match and cost -
share requirements of other federal
programs. As such, the SLFRF funds
available for the provision of
government services, up to the amount
of the recipient's reduction in revenue
due to the public health emergency,
may be used to meet the non-federal
match requirements of the Drinking
Water State Revolving Fund and Clean
Water State Revolving Fund programs
administered by the EPA, for example.
Pursuant to 2 CFR 200.306(b) of the
Uniform Guidance, if funds are legally
available to meet the match or cost -
share requirements of an agency's
federal program, such awarding agency
is required to accept such funds for the
purpose of that program's match or cost -
share requirements except in the
circumstances enumerated in that
section. The Office of Management and
Budget has authority under 2 CFR
381 See U.S. Government Accountability Office,
Principles of Federal Appropriations Law, Third
Edition, Volume R, p. 10-99, GAO-06-382SP
(February 2006), https://www.gao.govlassetslgao-
06-382sp.pdf.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4437
200.102 of the Uniform Guidance to
issue waivers of this requirement on
request of the relevant awarding agency.
Analogous requirements and waiver
authorities may be present in other
regulations. If a recipient seeks to use
SLFRF funds to satisfy match or cost -
share requirements for a federal grant
program, it should first confirm with the
relevant awarding agency that no waiver
has been granted for that program, that
no other circumstances enumerated
under 2 CFR 200.306(b) would limit the
use of SLFRF funds to meet the match
or cost -share requirement, and that there
is no other statutory or regulatory
impediment to using the SLFRF funds
for the match or cost -share requirement.
Note that SLFRF funds may not be used
as the non-federal share for purposes of
a state's Medicaid and CHIP programs
because the Office of Management and
Budget has approved a waiver as
requested by the Centers for Medicare &
Medicaid Services pursuant to 2 CFR
200.102 of the Uniform Guidance and
related regulations.
SLFRF funds beyond those that are
available under sections 602(c)(1)(C) or
603(c)(1)(C) of the Social Security Act
for the provision of government services
may not be used to meet the non-federal
match or cost -share requirements of
other federal programs other than as
specifically provided for by statute. For
example, as discussed in other sections
of this final rule, section 40909 of the
Infrastructure Investment and Jobs Act
provides that SLFRF funds may be used
to meet the non-federal match
requirements of any authorized Bureau
of Reclamation project, and section
60102 of the Infrastructure Investment
and Jobs Act provides that the SLFRF
may be used to meet the non-federal
match requirements of the broadband
infrastructure program authorized under
that section (see sections Water and
Sewer Infrastructure and Broadband
Infrastructure).
H. Reporting
The interim final rule established
Treasury's authority to collect
information from recipients through
requested reports and any additional
requests for information. The interim
final rule also provided Treasury
flexibility to extend or accelerate
reporting deadlines and to modify
requested content for the Interim
Report, Project and Expenditure reports,
and Recovery Plan Performance reports.
The SUPPLEMENTARY INFORMATION of
the interim final rule provided initial
guidance on the reporting requirements
for the SLFRF funds. States (defined to
include the District of Columbia),
territories, metropolitan cities, counties,
and Tribal governments were required
to submit one interim report and
quarterly Project and Expenditure
reports thereafter. Non -entitlement units
of local government were not required
to submit an interim report. States,
territories, and metropolitan cities and
counties with a population greater than
250,000 residents were also required to
submit an annual Recovery Plan
Performance report to Treasury. The
Supplementary Information of the
interim final rule provided guidance on
the deadlines and content required for
each type of report.
Public Comment: Treasury received
many comments on the content and
specific data elements required of
program reporting. Some commenters
expressed enthusiasm for including
particular details in reporting to
promote transparency. Other
commenters requested that Treasury
streamline reporting requirements to
avoid imposing undue administrative
burdens and compliance costs. Many
commenters requested further
clarification on or amendments to
particular elements of reporting content.
Some commenters requested that
reports and specific reporting elements
be public, including a request for a
public website with a number of
programmatic data metrics about the use
of SLFRF funds. Some commenters
sought clarification and guidance for
using the reporting portal, which allows
recipients to upload the required
information, or requested user
modifications to the portal. Finally,
some commenters requested that
Treasury provide example materials and
reporting metrics to aid recipient
understanding.
Treasury Response: Since the
publication of the interim final rule,
Treasury issued supplementary
reporting guidance in the Compliance
and Reporting Guidance and in the User
Guide: Treasury's Portal for Recipient
Reporting (User Guide).382 Treasury has
addressed many of these comments in
the Compliance and Reporting Guidance
and User Guide and will continue to
issue updated guidance prior to each
reporting period clarifying any
modifications to requested report
content. Treasury notes that the interim
final rule did not address the specific
content and data elements required in
reporting, the reporting portal or
submission process, and the specific
382 U.S. Department of the Treasury, Recipient
Compliance and Reporting Responsibilities, as of
November 5, 2021; https.Ilhome.treasury.govl
policy-issues/coronavirus/assistance for-state-local-
and-tribal-governments/state-and-local-fiscal-
recovery funds/recipient-compliance-and-reporting-
responsibilities.
form of reporting (e.g., example
templates, machine readability);
comments on these topics are outside
the scope of the final rule and, as noted,
are addressed instead in Compliance
and Reporting Guidance.
Reporting Deadlines
Public Comment: Treasury received
comments requesting various changes to
reporting deadlines to ease compliance
burdens. For example, Treasury
received several comments requesting
that Treasury delay early reporting
deadlines for various reasons, including
to align with the timeline for issuing a
final rule and to allow for more time for
recipients to determine SLFRF
allocations. Commenters also requested
changes to the immediacy of reporting,
for example requesting that Treasury
allow expenses to be reported with a lag
instead of the quarter in which they
were accrued or that reports be due 90
days after period close instead of 30
days after the close of a reporting
period. Some commenters requested
changes to the reporting frequency, for
example to report biannually rather than
quarterly.
Treasury Response: Treasury has
clarified reporting deadlines in the
Compliance and Reporting guidance.383
Treasury is retaining the reporting
deadline of 30 days after the close of the
reporting period to ensure timely
accounting of the use of SLFRF funds;
this timeline also aligns with practices
in many other federal programs. The
final rule maintains Treasury's
discretion to extend or delay reporting
deadlines.
Administrative Costs for Reporting and
Compliance
Public Comment: Many commenters
sought clarification about whether
various administrative costs related to
reporting and compliance were eligible
uses of funds and asked for clarification
on the limits of such use.
Treasury Response: Treasury notes
that administrative costs are generally
allowable uses of SLFRF funds,
including for reporting. For additional
information on administrative expenses,
please see section Administrative
Expenses under Program
Administration Provisions.
Uniform Guidance
Public Comment: The SUPPLEMENTARY
INFORMATION of the interim final rule
clarified that SLFRF funds were
generally subject to the provisions of the
Uniform Administrative Requirements,
Cost Principles, and Audit
383 Id.
4438 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
Requirements for Federal Awards (2
CFR part 200) (the Uniform Guidance),
including the cost principles and
restrictions on general provisions for
selected items of cost. Treasury received
many comments requesting clarification
about or modifications to the
applicability of the Uniform Guidance
on various issues.
For example, one commenter
requested that Treasury remove
requirements that expenditures of funds
be made in conformance with the
Uniform Guidance, particularly in case
of expenditures made during period
from March 3, 2021 to the release of the
interim final rule, while other
comments requested that Treasury raise
the single -audit threshold from
$750,000 to $5 million. Commenters
sought clarification on items such as:
The applicability of the Uniform
Guidance for funds that are used for the
provision of government services, the
applicability of particular sections of the
cost principles provided in subpart E of
the Uniform Guidance, the applicability
of the procurement provisions of the
Uniform Guidance, and requirements
for subrecipient reporting.
Treasury Response: Recipients of
SLFRF funds are subject to the
provisions of the Uniform Guidance (2
CFR part 200) from the date of award to
the end of the period of performance on
December 31, 2026 unless otherwise
specified in this rule or program -
specific guidance. Costs must follow the
requirements in 2 CFR 200 Subpart E,
Cost Principles, including procurement
standards. Recipients that receive an
aggregate amount of federal financial
assistance in a given fiscal year that
exceeds the Single Audit threshold are
subject to the requirements in 2 CFR 200
Subpart F, Audit Requirements, unless
otherwise specified in program -specific
guidance.
SLFRF funds transferred to
subrecipients are also subject to
reporting and Uniform Guidance
requirements. Additional information
about the definition of subrecipients is
available in the section Distinguishing
Subrecipients versus Beneficiaries.
Recipients should refer to the
Assistance Listing for details on the
specific provisions of the Uniform
Guidance that do not apply to this
program. The Assistance Listing is
available on SAM.gov. Additional
changes to compliance and reporting
guidelines, including any clarifications
on Uniform Guidance requirements,
will be addressed in Compliance and
Reporting Guidance and the User
Guide.384
L Remediation and Recoupment
Sections 602(e) and 603(e) of the
Social Security Act provide the
Secretary with the power to recoup
"funds used in violation" of the Social
Security Act. The interim final rule
implemented these provisions by
establishing a process for recoupment.
Treasury may identify funds used in
violation of the Social Security Act
based on information submitted by
recipients, including as part of reporting
requirements, as well as information
from other sources.385 If a potential
violation is identified, Treasury will
provide the recipient an initial written
notice of the amount subject to
recoupment along with an explanation
of such amounts. A recipient then has
60 calendar days following receipt of a
recoupment notice to submit a request
for reconsideration containing any
information it believes supports its use
of funds. Within 60 calendar days of
receipt of the request for
reconsideration, the interim final rule
provided that a recipient will receive a
final notice of the Secretary's decision
to affirm, withdraw, or modify the
recoupment notice. If the recipient did
not submit a request for reconsideration,
the initial notice of recoupment would
be deemed a final notice. A recipient
would then be required to repay any
amounts subject to recoupment within
120 calendar days of either the initial
recoupment notice, if the recipient does
not request reconsideration, or the final
recoupment notice, if the recipient does
request reconsideration.
Public Comments
Treasury received several comments
on the process for recoupment. For
instance, some commenters, including
many Tribal governments, requested
additional time to file a request for
reconsideration and submit repayment
to ensure that small entities have the
time necessary to carry out any
logistical steps and consult with
counsel. Treasury was also asked to
align its recoupment process with that
of the Office of the Inspector General
and other departmental administrative
processes to resolve findings, agency
decisions, and related timelines. One
commenter asked if the 120-calendar-
day time limit for repayment was based
on the initial notice, rather than a final
decision issued by the Secretary.
Several commenters expressed concern
regarding the recoupment process,
arguing that consideration of "all
relevant facts and circumstances"
provided Treasury with too much
authority and created ambiguity. Other
commenters urged Treasury to establish
a robust enforcement and compliance
program and process and advocated for
the creation of a whistleblower
mechanism or public complaint process
to allow public and private entities to
report suspected misuses of funds.
Finally, some commenters requested
clarification regarding the process after
a violation is identified and becomes
final. One commenter also asked to
allow recipients to amend reports
deemed to contain ineligible expenses
and inform recipients how the agency
intends to resolve instances where a use
was later deemed unacceptable. Another
commenter asked if recouped funds
could be released back to the recipient.
Commenters also expressed concern
about Treasury's authority to recoup
funds used in violation of the tax offset
provision. Some commenters requested
additional clarity around when tax cuts
would trigger Treasury's recoupment
authority and the duration of Treasury's
authority to seek recoupment of such
funds.
Treasury Response
The final rule largely preserves the
process established in the interim final
rule but includes several adjustments to
clarify certain elements.
Like the interim final rule, the final
rule provides that, after an initial
determination is made that a recipient
has used SLFRF funds in violation of
the law, a recipient may submit a
request for reconsideration concerning
any amounts identified in a notice
provided by Treasury. If a recipient
chooses to seek reconsideration of the
initial notice, the recipient must submit
a request for reconsideration as
provided under the final rule. If a
recipient does not request
reconsideration, the initial notice that
the recipient received will be deemed
the final notice.386 Treasury has
clarified that a recipient must invoke
and exhaust the procedures available
under section 35.10 of the final rule
prior to seeking judicial review of a
recoupment decision. Consistent with
Section 602(b)(6)(A)(ii)(III) of the Social
Security Act, if a state or territory is
required to repay funds pursuant to the
Secretary's recoupment authority, the
Secretary may reduce the amount
payable to the state or territory in a
second tranche payment by the amount
that the state or territory would be
required to repay as recoupment.
In the final rule, Treasury has
clarified that, if it identifies a potential
385 Treasury will also consider the tax offset 386Funds subject to recoupment cannot later be
384Id. provision on an annual basis. returned.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4439
violation,387 it may request additional
information from a recipient before
initiating the recoupment process and,
where necessary, provide written notice
to the recipient along with an
explanation of such amounts potentially
subject to recoupment. Furthermore,
Treasury has also made clear that it
retains the ability to expedite or extend
timelines in any adjudication or pre -
adjudication process pursuant to section
35.4(b) of the final rule, although the
general timelines set forth in the interim
final rule are maintained in the final
rule.
This process is intended to provide
the recipient with an adequate
opportunity to present additional
information regarding its uses of funds
and provides flexibility for recipients to
determine the information relevant to
the particular facts and circumstances. It
is also flexible enough to align with
other adjudication procedures in other
ARPA recovery programs administered
by the Office of Recovery Programs at
Treasury. As discussed above, the initial
notice will provide recipients with an
explanation of the identified potential
violation in order to provide recipients
with a meaningful opportunity to
respond. Such initial notice will
generally include information regarding
the specific use of SLFRF funds and the
source of such information. 3I'll This
process also will allow the Secretary to
take into consideration the information
provided by recipients, along with other
relevant information, to ensure SLFRF
funds are used in a manner consistent
with the Social Security Act.
Finally, Treasury expects to work
with recipients to support the use of
SLFRF funds consistent with the law.
For example, Treasury may request
additional information from a recipient
before initiating the recoupment
process. In addition, Treasury may
pursue other forms of remediation and
monitoring in conjunction with, or as an
alternative to, recoupment.389 These
efforts may include working with
recipients to identify and substitute
permissible uses of SLFRF funds or
amending uses of SLFRF funds to
comply with applicable restrictions.
In response to comments regarding
the amount of time provided to respond
to an initial notice, the final rule
clarifies that Treasury retains the ability
388 Treasury may address potential violations
based on information submitted from recipients,
either through quarterly reports or self -reported
information, and from other sources of information
as Treasury deems necessary and appropriate (e.g.,
press, information submitted from the public).
389 Treasury intends to work with recipients to
support the use of SURF funds consistent with the
law.
to expedite or extend timelines in any
adjudication or pre -adjudication process
pursuant to section 35.4(b) of the final
rule, although the general timelines set
forth in the interim final rule are
maintained in the final rule.
V. Regulatory Analyses
Executive Orders 12866 and 13563
Regulatory Impact Assessment
This final rule is a "significant
regulatory action" under section 3(f) of
Executive Order 12866 for the purposes
of Executive Orders 12866 and 13563
because it is likely to have an annual
effect on the economy of $100 million
or more.
As explained below, this regulation
meets a substantial need: ensuring that
recipients —states, territories, Tribal
governments, and local governments —
of SLFRF funds fully understand the
requirements and parameters of the
program as set forth in the statute and
deploy funds in a manner that best
reflects Congress' intent to provide
necessary relief to recipient
governments adversely impacted by the
COVID-19 public health emergency.
Furthermore, as required by Executive
Orders 12866 and 13563, Treasury has
weighed the costs and benefits of this
final rule and varying alternatives and
has reasonably determined that the
benefits of the final rule to recipients
and their communities far outweigh any
costs.
The rule has been reviewed by the
Office of Management and Budget
(OMB) in accordance with Executive
Order 12866.
Executive Orders 12866 and 13563
Under Executive Order 12866, OMB
must determine whether this regulatory
action is "significant," and therefore,
subject to the requirements of the
Executive Order and subject to review
by OMB. Section 3(f) of Executive Order
12866 defines a significant regulatory
action as an action likely to result in a
rule that may, among other things, have
an annual effect on the economy of $100
million or more. This rule is likely to
have an annual effect on the economy
of $100 million or more, and therefore,
it is subject to review by OMB under
section 3(f) of Executive Order 12866.
Treasury has also reviewed these
regulations under Executive Order
13563, which supplements and
explicitly reaffirms the principles,
structures, and definitions governing
regulatory review established in
Executive Order 12866. To the extent
permitted by law, section 1(b) of
Executive Order 13563 requires that an
agency: (1) Propose or adopt regulations
only upon a reasoned determination
that their benefits justify their costs
(recognizing that some benefits and
costs are difficult to quantify); (2) tailor
its regulations to impose the least
burden on society, consistent with
obtaining regulatory objectives taking
into account, among other things, and to
the extent practicable, the costs of
cumulative regulations; (3) select, in
choosing among alternative regulatory
approaches, those approaches that
maximize net benefits (including
potential economic, environmental,
public health and safety, and other
advantages; distributive impacts; and
equity); (4) to the extent feasible, specify
performance objectives, rather than the
behavior or manner of compliance a
regulated entity must adopt; and (5)
identify and assess available alternatives
to direct regulation, including providing
economic incentives —such as user fees
or marketable permits to encourage the
desired behavior, or providing
information that enables the public to
make choices. Executive Order 13563
also requires an agency "to use the best
available techniques to quantify
anticipated present and future benefits
and costs as accurately as possible."
OMB's Office of Information and
Regulatory Affairs (OIRA) has
emphasized that these techniques may
include "identifying changing future
compliance costs that might result from
technological innovation or anticipated
behavioral changes."
Based on the analysis that follows and
the reasons stated elsewhere in this
document, Treasury believes that this
final rule is consistent with the
principles set forth in Executive Orders
12866 and 13563. This Regulatory
Impact Analysis discusses the need for
regulatory action, the potential benefits,
and the potential costs. Treasury has
assessed the potential costs and
benefits, both quantitative and
qualitative, of this regulatory action, and
is issuing this final rule only on a
reasoned determination that the benefits
exceed the costs. In choosing among
alternative regulatory approaches,
Treasury selected those approaches that
would maximize net benefits.
Need for Regulatory Action
This final rule implements the $350
billion SLFRF program of the ARPA,
which Congress passed to help states,
territories, Tribal governments, and
localities respond to the ongoing
COVID-19 public health emergency and
its economic impacts. As the agency
charged with execution of these
programs, Treasury has concluded that
this final rule is needed to ensure that
recipients of SLFRF funds fully
4440 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
understand the requirements and
parameters of the program as set forth in
the statute and deploy funds in a
manner that best reflects Congress'
mandate for targeted fiscal relief. This
final rule governs the use of $350 billion
in grant funds from the federal
government to states, territories, Tribal
governments, and localities, generating
a significant macroeconomic effect on
the U.S. economy. Treasury has sought
to implement the program in ways that
maximize its potential benefits while
minimizing its costs. It has done so by:
aiming to target relief in key areas
according to the congressional mandate;
offering clarity to states, territories,
Tribal governments, and localities while
maintaining their flexibility to respond
to local needs; and limiting
administrative burdens.
Analysis of Benefits
Relative to a pre -statutory baseline,
the SLFRF funds provide a combined
$350 billion to state, local, and Tribal
governments for fiscal relief and support
for costs incurred responding to the
COVID-19 pandemic. Treasury believes
that this transfer will generate
substantial additional economic
activity, although given the flexibility
accorded to recipients in the use of
funds, it is not possible to precisely
estimate the extent to which this will
occur and the timing with which it will
occur. Economic research has
demonstrated that state fiscal relief is an
efficient and effective way to mitigate
declines in jobs and output during an
economic downturn.39e Absent such
fiscal relief, fiscal austerity among state,
local, and Tribal governments could
exert a prolonged drag on the overall
economic recovery, as occurred
following the 2007-2009 recession.391
This final rule provides benefits
across several areas by implementing
the four eligible use categories, as
defined in statute: strengthening the
response to the COVID-19 public health
emergency and its negative economic
impacts; replacing lost revenue to ease
fiscal pressure on state, local, and Tribal
governments that might otherwise lead
to harmful cutbacks in employment or
government services; providing
premium pay to essential workers; and
making necessary investments in water,
sewer, and broadband infrastructure.
These benefits are achieved in the
final rule through a broadly flexible
390 See, e.g., Gabriel Chodorow-Reich et al., Does
state Fiscal Relief During Recessions Increase
Employment? Evidence from the American
Recovery and Reinvestment Act, 4 American
Economic Journal 118-145 (2012) http://dx.doi.orgl
10.1257/p ol. 4.3.118.
391 See, e.g., Fitzpatrick, supra note 278.
approach that sets clear guidelines on
eligible uses of SLFRF funds and
provides state, local, and Tribal
government officials discretion within
those eligible uses to direct SLFRF
funds to areas of greatest need within
their jurisdiction. While preserving
recipients' overall flexibility, the final
rule includes several provisions that
implement statutory requirements and
will help support use of SLFRF funds to
achieve the intended benefits.
Preserving flexibility for recipients not
only serves an important public policy
goal by allowing them to meet
particularized and diverse needs of their
local communities but also enhances the
economic benefits of the final rule by
allowing recipients to choose eligible
uses of funds that provide the highest
utility in their jurisdictions.
In implementing the ARPA, Treasury
has also prioritized supporting
underserved communities that have
been disproportionately impacted by the
pandemic. The SLFRF program as
implemented by the final rule provides
even greater flexibility to recipients for
uses of funds in underserved
communities, recognizing that pre-
existing health and economic disparities
in these communities amplified the
impact of the pandemic there. In
general, investments in improving
health outcomes and economic
opportunities provide high economic
returns, so this approach is likely to
achieve substantial near -term economic
and public health benefits, in addition
to the longer -term benefits arising from
the allowable investments in water,
sewer, and broadband infrastructure.
The remainder of this section clarifies
how Treasury's approach to key
provisions in the final rule will
contribute to greater realization of
benefits from the program.
Public Health and Negative Economic
Impacts
The eligible use category for
responding to the public health and
negative economic impacts of the
pandemic covers a wide range of
eligible uses of funds. Treasury
addresses several key uses of funds in
this analysis, as well as ways that
Treasury has structured this eligible use
to minimize recipient administrative
burden while also maintaining targeting
of the funding to entities that
experienced negative impacts from the
pandemic.
Government Employment: In order to
bolster the government's ability to
effectively administer services, the final
rule allows for a broader set of eligible
uses to restore and support public sector
employment relative to the interim final
rule. In particular, eligible uses include
hiring up to a pre -pandemic baseline
that is adjusted for historic
underinvestment in the public sector by
allowing funds to be used to pay for
payroll and covered benefits associated
with the recipient increasing its number
of employees up to 7.5 percent above its
pre -pandemic baseline. Eligible uses
also include providing additional funds
for employees who experienced pay
cuts or were furloughed, avoiding
layoffs, providing worker retention
incentives, and paying for ancillary
administrative costs related to hiring.
Treasury believes this expanded
approach, relative to the interim final
rule, provides useful flexibility to
recipients, which may increase a state or
local government's ability to effectively
deliver services to its residents. While
the interim final rule already explicitly
permitted using funds to restore
recipients' workforces up to pre -
pandemic levels, the final rule's
inclusion of an upward adjustment
factor recognizes that, as the population
or economy of a jurisdiction grows over
time, more workers are generally needed
to effectively meet responsibilities. It
also provides recipients greater room to
employ funds toward building back the
public sector workforce after years of
chronic underinvestment since the
Great Recession. Treasury arrived at the
7.5 percent adjustment factor through an
analysis of data from the Bureau of
Labor Statistics on state and local
government employment and data from
the Census Bureau on population to
estimate the extent of underinvestment
in the public sector since the onset of
the Great Recession. While Treasury
considered a range of methodologies
and point estimates to set the
adjustment factor, a 7.5 percent factor
errs on the side of recipient flexibility.
Treasury believes this adjustment
enhances recipients' ability to identify
and meet the particularized needs of
their communities. Treasury also
believes that the additional enumerated
eligible uses for supporting the
workforce provide recipients several
means to help retain current workers,
decreasing turnover costs.
Identifying Eligible Populations
Treasury has provided several
methods for recipients to identify
households, populations, and
communities eligible for services that
respond to the public health and
negative economic impacts of the
pandemic. In general, these methods
seek to provide recipients options to
identify eligible populations with
minimal administrative burden, while
also maintaining targeting of the funds
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4441
to entities impacted by the pandemic.
Recipients also retain flexibility to
identify and serve other populations
and entities that experienced pandemic
impacts, ensuring that recipients can
meet the particularized needs of their
local communities.
Defining Low and Moderate Income:
To streamline the provision of funds
relating to negative economic impacts
resulting from the pandemic, Treasury
has created an eligibility standard
making it easier for recipients to provide
assistance to low- and moderate -income
populations without needing to identify
and document a specific negative
economic impact. Populations falling
under the definition of low income are
presumed to have been
disproportionately impacted by the
pandemic, while those falling under the
definition of moderate income are
presumed to have been impacted by the
pandemic. In addition, the final rule
recognizes categorical eligibility for
certain enumerated programs and
populations if a recipient chooses to
implement categorical eligibility when
identifying impacted and
disproportionately impacted
populations. Treasury considered
several options for eligibility standards
that would reduce administrative
burdens for recipients when
determining who qualifies as low and
moderate income.
One option involved defining a
household as low income or moderate
income based only on FPG thresholds
and could use levels lower than those
selected. This option involved setting
uniform thresholds throughout the
country.
A second option took a broader
approach, defining a household as low
income if it has (i) income at or below
185 percent of the FPG for the size of
its household or (ii) income at or below
40 percent of the AMI for its county and
size of household. The option defined a
household as moderate income if it has
(i) income at or below 300 percent of the
FPG for the size of its household or (ii)
income at or below 65 percent of the
AMI for its county and size of
household. The combination of an FPG
floor with AMI allows for a regional
adjustment in areas with substantially
higher costs and incomes. Finally,
Treasury also considered a range of FPG
and AMI thresholds above and below
these levels.
Treasury chose the second option.
Treasury believes that the higher FPG
floor will ease administrative burdens
by making more households
presumptively eligible for funds meant
to address negative economic impacts in
a targeted manner. With respect to the
low-income cutoff, 185 percent of the
FPG for a family of four is $49,025,
which is approximately the wage
earnings for a two -earner household
where both earners receive the median
wage in occupations, such as waiters
and waitresses and hotel clerks, that
were heavily impacted by COVID-19.
As such, this cutoff is likely to include
more workers in industries heavily
impacted by COVID-19, who may be
most likely to face disproportionate
impacts of the pandemic, than a lower
threshold.392 With respect to the
moderate -income cutoff, many
households with incomes between 200
percent and 300 percent of the FPG
struggle with a lack of economic
security, suggesting that 300 percent of
the FPG was an appropriate cutoff for
moderate income.
Treasury also considered relatively
higher thresholds for both an FPG and
AMI approach; however, increasing
income thresholds for presumed
eligibility increases the likelihood that
higher -income workers, who generally
experienced fewer economic impacts
from the pandemic, would become
presumed eligible for responsive
services. Providing services to
households that did not experience a
negative economic impact, or
experienced a relatively minimal
impact, would provide much less
benefit than serving households that
experienced more severe impacts,
diluting the benefits of the SLFRF
funds.
In all, Treasury anticipates that these
selected thresholds, combined with the
regional adjustment, will allow
resources to be targeted toward
individuals and households with the
greatest need while also reducing
administrative burdens on recipients.
Disproportionately Impacted
Populations: In the interim final rule,
Treasury enumerated a broader set of
eligible uses for disproportionately
impacted communities, in recognition
of the pre-existing health, economic,
and social disparities that contributed to
disproportionate pandemic impacts in
certain communities and that
addressing root causes of those
disparities constitutes responding to the
public health and negative economic
impacts of the pandemic. To identify
these communities and reduce
administrative burden, Treasury
allowed recipients to presume that
certain populations —those in QCTs and
those being served by Tribal
392 See U.S. Bureau of Labor Statistics,
Occupational Employment and Wage Estimates,
https://www.bls.govloes/currentloes_nat.htm (last
visited November 9, 2021).
governments —were disproportionately
impacted. In the final rule, to further
decrease administrative burden and
enhance recipient flexibility, Treasury is
allowing recipients to also presume that
low-income households were
disproportionately impacted. Treasury
anticipates that adding low-income
households as a presumed eligible
population will maintain targeting of
funds to populations and communities
most likely to have experienced severe
pandemic impacts, while providing a
more flexible approach for recipients.
Identifying Impacted Classes: In the
final rule, Treasury reiterated its stance
in the interim final rule allowing
recipients to designate a class of
households or other entities as impacted
or disproportionately impacted and
provide responsive services. After
designating a class, recipients can serve
a household or entity by simply
identifying that the household or entity
is a member of the class. Relative to
restricting services to only presumed
eligible populations identified by
Treasury, this decision provides vital
administrative flexibility for recipients
that may identify particular impacted
classes in the context of their
jurisdiction. Treasury anticipates that
SLFRF funds will be targeted to
impacted or disproportionately
impacted communities, as recipients
must demonstrate that the designated
class experienced negative economic
impacts or meaningfully more severe
negative economic impacts. This
approach maintains the requirement
that entities served have to have
experienced a negative economic
impact, while simultaneously
minimizing any administrative costs
associated with meeting this
requirement.
Additional Enumerated Uses
The interim final rule enumerated
eligible uses of SLFRF funds to serve
both impacted and disproportionately
impacted communities. For example,
enumerated eligible uses to serve
impacted communities included food
assistance; rent, mortgage, or utility
assistance; and counselling and legal aid
to prevent eviction or homelessness.
Examples of enumerated eligible uses to
serve disproportionately impacted
communities included remediation of
lead paint or other lead hazards and
housing vouchers and assistance
relocating to neighborhoods with higher
levels of economic opportunity. In the
final rule, Treasury had the option to
retain, expand, or reduce enumerated
eligible uses, or shift use eligibility
between disproportionately impacted
and impacted communities. Many
4442 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
public comments suggested potential
expansions of uses, including shifting
enumerated eligible uses for
disproportionately impacted
communities to serve a broader
population of impacted communities.
Taking these comments into account,
Treasury generally took this approach,
in anticipation that the benefits of the
program will increase while recipient
administrative costs in identifying and
justifying non -enumerated uses of funds
will decrease.
Specifically, Treasury added
enumerated eligible uses for impacted
populations including paid sick,
medical, or family leave; health
insurance subsidies; and services for the
unbanked and underbanked, on the
basis that impacts of the pandemic that
were broadly experienced by many
communities would be addressed by
these uses. Treasury also shifted some
eligible uses, formerly restricted only to
disproportionately impacted
communities, to impacted communities.
These uses included community
violence intervention, assistance
accessing or applying to public benefits
and services, affordable housing
development, and services to promote
healthy childhood environments like
childcare and early learning. These uses
were shifted on the basis that the
associated impacts of the pandemic
were experienced by a broader
population, and responses are,
accordingly, eligible to benefit a broader
population.
Additionally, the final rule clarified
that investments in parks and other
public outdoor recreation spaces are
enumerated eligible uses for
disproportionately impacted
communities. In including these uses,
Treasury took into account evidence on
the social determinants of health, or the
ways that social context, like the
neighborhood built environment,
impacts health outcomes. By taking a
more holistic approach to public health,
the final rule allows recipients to
respond more broadly to factors that
contributed to the pandemic's health
impacts and more fully mitigate those
health impacts.
To balance administrative flexibility
with a maintenance of focus on impacts
of the pandemic, Treasury considered,
but did not include, other proposed
enumerated uses that did not respond to
the impacts of the pandemic or
responded to impacts that were not
experienced generally across the
country by many jurisdictions and
populations. For example, Treasury did
not include pollution remediation
broadly, a proposed enumerated eligible
use for disproportionately impacted
communities, on the basis that
associated projects would only respond
to disproportionate impacts of the
pandemic depending on the specific
issue addressed. In sum, Treasury
expanded enumerated eligible uses
while retaining a focus on broadly
experienced impacts of the pandemic.
Treasury anticipates that this will give
recipients further flexibility to presume
eligibility and respond to pandemic
impacts without increasing
administrative burden.
Capital Expenditures: In the interim
final rule, Treasury permitted funds to
be used for a limited number of capital
expenditures mostly related to the
COVID-19 public health response. This
decision granted recipients some
discretion to use SLFRF funds to
address COVID-19 prevention and
mitigation through certain investments
in equipment, real property, and
facilities, which Treasury recognized as
critical components of the public health
response. In the final rule, Treasury
considered maintaining the provisions
in the interim final rule or expanding
allowable capital expenditures to
provide recipients greater flexibility to
pursue other capital investments that
are responsive to the public health
emergency and its negative economic
impacts. While expanding allowable
capital expenditures may increase the
risk that recipients will undertake large
expenditures that do not sufficiently
address intended harms, or address
harms in a less cost-efficient manner
than an alternative investment (e.g., a
program or service), expanding
allowable capital expenditures would
likely help fill critical gaps in
recipients' response to the pandemic
and provide equipment and facilities
that generate benefits beyond SLFRF's
period of performance. To preserve
flexibility while mitigating risks, the
final rule allows recipients to undertake
an expanded set of capital expenditures
while requiring additional written
justifications for projects with an
expected total cost at or over $1 million.
Treasury believes this approach
balances the implementation of
appropriate risk -based compliance
requirements and the provision of
administrative convenience for smaller
capital expenditures, while generally
allowing recipients the flexibility to
undertake a greater variety of responsive
capital expenditures.
Revenue Loss
Revenue Loss Formula: In this final
rule, Treasury's approach to revenue
loss allows recipients to compute the
extent of reduction in revenue by
comparing actual revenue to a
counterfactual trend representing what
could have plausibly been expected to
occur in the absence of the pandemic.
The counterfactual trend begins with
the last full fiscal year prior to the
public health emergency (as required by
statute) and projects forward with an
annualized growth adjustment. Treasury
has made several adjustments in the
final rule to decrease administrative
burden, reducing costs for recipients,
while still accurately capturing
reductions in revenue due to the
pandemic.
Under the interim final rule, Treasury
specified that recipients calculate
revenue loss on a calendar year basis. In
this final rule, Treasury is providing
recipients the option to calculate
revenue loss on a calendar year or fiscal
year basis, which will allow recipients
the administrative flexibility to
minimize administrative burdens based
on the data available to them.
Treasury's decision to incorporate a
growth adjustment into the calculation
of revenue loss ensures that the formula
more fully captures revenue shortfalls
relative to recipients' pre -pandemic
expectations. Recipients will have the
opportunity to calculate revenue loss at
several points throughout the program,
recognizing that some recipients may
experience revenue effects with a lag.
This option to re -calculate revenue loss
on an ongoing basis is intended to result
in more support for recipients to avoid
harmful cutbacks in future years. In
calculating revenue loss, recipients will
look at general revenue in the aggregate,
rather than on a source -by -source basis,
given that recipients may have
experienced offsetting changes in
revenues across sources. The final rule
also provides for removing the impact of
tax increasing or decreasing changes,
which affect the amount of revenue
collected but are not "due to" the
pandemic, from the calculation of
revenue loss due to the public health
emergency. Both of these components of
Treasury's approach provide a more
accurate representation of the effect of
the pandemic on overall revenues.
Revenue Loss Standard Allowance: In
addition to largely preserving the
formula to calculate revenue loss from
the interim final rule, Treasury also
added an alternative "standard
allowance" option for the revenue loss
calculation to this final rule. Treasury's
decision to elect to allow a fixed amount
of loss that can be used to fund
"government services" allows recipients
the flexibility to use minimal
administrative capacity on the
calculation if desired. The decision also
benefits recipients by allowing them to
avoid expending administrative
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4443
resources to determine how unique
variations in revenue interact with the
revenue loss formula.
Premium Pay
Per the ARPA statute, recipients have
broad latitude to designate critical
infrastructure sectors and make grants to
third -party employers for the purpose of
providing premium pay. While the final
rule provides significant flexibility to
implement the statutory requirement
that premium pay respond to essential
workers, it requires recipients give
written justification in the case that
premium pay would increase a worker's
annual pay above a certain threshold or
is awarded to an individual whose
annual pay is already above that
threshold. To set this threshold,
Treasury analyzed data from the Bureau
of Labor Statistics to determine a level
that would not require further
justification for premium pay to the vast
majority of essential workers, while
requiring higher scrutiny for provision
of premium pay to higher earners who,
even without premium pay, would
likely have greater personal financial
resources to cope with the effects of the
pandemic. Alternatively, a recipient
need not submit written justification to
Treasury if the worker receiving
premium pay is eligible for overtime
under the FLSA. Treasury believes this
alternative, which is an addition to the
final rule, will give recipients more
flexibility and will simplify application
of the final rule as employers, public
and private, are already legally required
to determine whether an employee is
eligible for overtime pay under the
FLSA. Treasury believes the threshold
and overtime eligibility provision in the
final rule strike the appropriate balance
between preserving flexibility and
helping encourage use of these
resources to help those in greatest need.
The final rule also requires that workers
eligible for premium pay have regular
in -person interactions or regular
physical handling of items that were
also handled by others. This
requirement will help encourage use of
financial resources for those who have
endured the heightened risk of
performing essential work.
Water and Sewer Infrastructure
In the interim final rule, Treasury
aligned eligible uses of funds for water
and sewer infrastructure to those
projects eligible to receive financial
assistance through the DWSRF and
CWSRF administered by the EPA.
The benefits of this approach
included giving recipients an existing
list that would provide them clarity as
well as flexibility in identifying eligible
projects, particularly given the broad
range of projects eligible under the
CWSRF and DWSRF. The approach also
ensured that projects would conform to
vetted project types from a widely used
program. Treasury received comments
from recipients requesting additional
project categories to be considered
eligible, indicating a potential cost to
maintaining alignment with the CWSRF
and DWSRF.
For the final rule, Treasury has
expanded eligibility to include several
additional project types beyond those
covered by the CWSRF and DWSRF.
Treasury believes that expanded
eligibility will benefit recipients by
allowing them additional flexibility to
pursue beneficial projects, including
project categories that support the
provision of drinking water and the
removal, management, and treatment of
wastewater and stormwater: Additional
stormwater management projects,
private well infrastructure, additional
projects that address lead in water, and
certain dam and reservoir rehabilitation
projects undertaken to address the
provision of drinking water. A potential
cost of this approach is that uses beyond
the CSWRF and DWSRF may have less
public guidance available to understand
project eligibilities. However, Treasury
anticipates that this eligibility
expansion will provide a net benefit to
recipients by allowing them to pursue
projects relevant to their goals that were
ineligible under the interim final rule.
The expansion to allow private well
infrastructure may also affect the
distributional impact of SLFRF. Private
wells disproportionately serve rural
Americans, including low-income
households, and expanding eligibility to
include this use may allow SURF funds
to benefit such households. While
distributional impacts are uncertain,
Treasury believes that the potential for
benefits to accrue to rural and low-
income households makes it important
to clarify that these types of projects are
eligible.
Broadband Infrastructure
In the final rule, Treasury expands
eligible areas for broadband investment
by requiring that recipients invest in
projects designed to provide service to
households and businesses with an
identified need for additional
broadband investment, including
increasing access to high-speed
broadband, increasing the affordability
of broadband services, and improving
the reliability of broadband service.393
393 Further, the final rule encourages, but does not
require, that recipients pursue broadband
infrastructure projects in locations not currently
Treasury considered multiple
alternatives when selecting this
standard. The threshold for the interim
final rule allowed benefits to accrue in
a more targeted manner to the
approximately 9 percent of the country
with access to speeds under the 25/3
Mbps threshold.394 However, since
SLFRF funds are distributed to tens of
thousands of governments across the
country with a variety of broadband
needs, Treasury believes that allowing
recipients greater flexibility to
determine locations to serve in their
jurisdictions —including considering
affordability and competition barriers —
will lead to greater long-term public
benefit. Further, given that many federal
broadband grant programs are focused
solely on unserved and underserved
areas, Treasury believes that the final
rule's flexibility enables these funds to
fill an important role in the overall
federal broadband landscape.
In the final rule, Treasury also
requires that broadband projects must
meet a standard of reliably delivering at
least 100 Mbps download speeds and
upload speeds, or in cases where it is
not practicable to do so, reliably
delivering at least 100 Mbps download
speed and between at least 20 Mbps and
100 Mbps upload speed while being
scalable to 100 Mbps upload and
download speeds. Treasury expects that
this threshold will yield long-term
benefits and allow networks to meet
both pandemic -related and future needs.
The Federal Communications
Commission (FCC) estimates that
currently a household with two to three
remote learners using the internet
simultaneously needs a connection
supporting 100 Mbps download
speeds.395 While a lower threshold may
have resulted in lower near -term costs
to build, it would have potentially
constrained future utility from the
infrastructure by producing
infrastructure that would more
quickly —potentially in the near -term —
become obsolete and no longer meet
household needs, potentially requiring
sooner replacement and generally
decreasing the return on investment. As
served by a wireline connection that reliably
delivers at least 100 Mbps of download speed and
20 Mbps of upload speed.
394 Data from the Federal Communications
Commission shows that as of June 2020, 9.07
percent of the U.S. population had no available
cable or fiber broadband providers providing greater
than 25 Mbps download speeds and 3 Mbps upload
speeds. Federal Communications Commission,
Fixed Broadband Deployment, https.11
broadbandmop.fcc.gov/#/ (last visited May 9, 2021).
395 See Federal Communications Commission,
Broadband Speed Guide, available at https.11
www. fcc.gov/consumers/guides/broadband-speed-
guide (last visited October 28, 2021).
4444 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
such, projects meeting a lower threshold two payments separated by at least
could not be considered "necessary" twelve months, and the interim final
investments in broadband rule provided for split payments to a
infrastructure, so Treasury has retained
the threshold from the interim final
rule.
Further, the final rule adds a
requirement that recipients address the
affordability needs of low-income
consumers in accessing broadband
networks funded by SURF, either by
requiring service providers that provide
service to households to either
participate in the FCC's Affordable
Connectivity Program (ACP), or a broad -
based affordability program with
commensurate benefits. Treasury
believes that this requirement will
increase the number of customers that
are able to take advantage of broadband
infrastructure funded by SURF,
increasing the effectiveness of funds in
connecting households and businesses
to high-speed internet that is critical to
work, health, and education. There is a
potential that this requirement may
marginally increase project costs for
recipients and providers, but this
impact is uncertain, given the varying
business models and pricing structures
of broadband projects and providers.
Labor Standards
In this Supplementary Information for
the final rule, Treasury encourages
recipients to ensure that capital
expenditures to respond to the public
health and negative economic impacts
of the pandemic and water, sewer, and
broadband projects use strong labor
standards, including, for example,
project labor agreements and
community benefits agreements that
offer wages at or above the prevailing
rate and include local hire provisions.
Treasury believes that its
encouragement of labor standards
carries benefits because it will ensure
that workers have access to strong
employment opportunities associated
with infrastructure projects, which will
in turn aid the economic recovery.
Treasury believes that infrastructure
projects may also benefit from stronger
labor standards due to the potential of
these standards to ensure a stronger
skilled labor supply and minimize labor
disputes and workplace injuries, which
can result in costly disruptions to
projects. Treasury assesses that these
benefits will increase the economy and
efficiency of infrastructure projects
undertaken through SURF and will
outweigh the potential for a marginal
increase in labor costs.
Splitting Payments to Recipients
Treasury is required by statute to
deliver funds to local governments in
majority of states as well. As discussed
above, splitting payments ensures that
recipients can adapt spending plans to
evolving economic conditions and that
at least some of the economic benefits
will be realized in 2022 or later.
However, consistent with authorities
granted to Treasury in the statute,
Treasury recognizes that a subset of
states with significant remaining
elevation in the unemployment rate
could face heightened additional near
term needs to aid unemployed workers
and stimulate the recovery. Therefore,
for a subset of state governments,
Treasury has provided funds in one
payment. Treasury believes that this
approach strikes an appropriate balance
between the general reasons to provide
funds in two payments and the
heightened additional near -term needs
in specific states. As discussed above,
Treasury set a threshold based on
historical analysis of unemployment
rates in recessions.
Reaching Underserved Communities
Finally, the final rule aims to promote
and streamline the provision of
assistance to individuals and
communities in greatest need,
particularly communities that have been
historically underserved and have
experienced disproportionate impacts of
the COVID-19 crisis. Targeting relief is
in line with Executive Order 13985,
"Advancing Racial Equity and Support
for Underserved Communities Through
the Federal Government," which laid
out an Administration -wide priority to
support "equity for all, including people
of color and others who have been
historically underserved, marginalized,
and adversely affected by persistent
poverty and inequality." To this end,
the final rule enumerates a list of
services that may be provided using
SURF funds in disproportionately
impacted communities, including low-
income areas, to address the more
severe impacts of the pandemic in these
communities; establishes the
characteristics of essential workers
eligible for premium pay and
encouragement to serve workers based
on financial need; provides that
recipients may use SURF funds to
restore state and local workforces,
where women and people of color are
disproportionately represented; and
requires that broadband infrastructure
projects participate in programs to
support affordability of broadband
service. Collectively, these provisions
will promote use of resources to
facilitate the provision of assistance to
individuals and communities with the
greatest need.
Analysis of Costs
This regulatory action will generate
administrative costs relative to a pre -
statutory baseline. This includes,
chiefly, costs required to administer
SURF funds, oversee subrecipients and
beneficiaries, and file periodic reports
with Treasury. It also requires states to
allocate SURF funds to nonentitlement
units, which are smaller units of local
government that are statutorily required
to receive their funds through states.
Treasury expects that the administrative
burden associated with this program
will be moderate for a grant program of
its size. Treasury expects that many
recipients receive direct or indirect
funding from federal government
programs and that many have
familiarity with how to administer and
report on federal funds or grant funding
provided by other entities. In particular,
states, territories, and large localities
will have received funds from the
Coronavirus Relief Fund (CRF) and
Treasury expects them to rely heavily
on established processes developed
through that program or other prior
grant funding, mitigating burden on
these governments. Treasury has
enhanced the level of recipient
reporting as compared to the CRF,
incorporating feedback from the
Government Accountability Office and
others that additions would improve the
oversight of recipients' use of funds. To
balance the oversight benefits with the
costs of added reporting burdens,
Treasury has incorporated other
mechanisms to mitigate burden. For
example, Treasury is "tiering" reporting
requirements so that recipients that
receive relatively lesser amounts of
SURF funds are required to submit less
frequent reports than recipients
receiving greater amounts of funds.
Treasury is noting administrative costs
as a generally allowable use of SURF
funds, which defrays administrative
expenses to recipients that may be
needed to comply with reporting
requirements. Treasury has also
provided options for recipients to use
eligibility thresholds they are already
familiar with during administration of
SURF funds, which will enable
recipients to avoid the costs of setting
up new programs and reporting
mechanisms to meet reporting and
compliance requirements. For example,
Treasury has permitted recipients to use
"categorical eligibility" when delivering
assistance to particular groups, such as
impacted or disproportionately
impacted households.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4445
In making implementation choices,
Treasury has hosted numerous
consultations with a diverse range of
direct recipients —states, cities,
counties, and Tribal governments —
along with various communities across
the United States, including those that
are underserved. Furthermore, Treasury
has made clear in guidance that SLFRF
funds may be used to cover certain
expenses related to administering
programs established using SLFRF
funds.396
Executive Order 13132
Executive Order 13132 (entitled
Federalism) prohibits an agency from
publishing any rule that has federalism
implications if the rule either imposes
substantial, direct compliance costs on
state, local, and Tribal governments, and
is not required by statute, or preempts
state law, unless the agency meets the
consultation and funding requirements
of section 6 of the Executive Order. This
final rule does not have federalism
implications within the meaning of the
Executive Order and does not impose
substantial, direct compliance costs on
state, local, and Tribal governments or
preempt state law within the meaning of
the Executive Order. The compliance
costs are imposed on state, local, and
Tribal governments by sections 602 and
603 of the Social Security Act, as
enacted by the ARPA. Notwithstanding
the above, Treasury has engaged in
efforts to consult and work
cooperatively with affected state, local,
and Tribal government officials and
associations in the process of
developing the interim final rule and
this final rule. Pursuant to the
requirements set forth in section 8(a) of
Executive Order 13132, Treasury
certifies that it has complied with the
requirements of Executive Order 13132.
Administrative Procedure Act
The Administrative Procedure Act
(APA), 5 U.S.C. 551 et seq., generally
requires public notice and an
opportunity for comment before a rule
becomes effective. However, the APA
provides that the requirements of 5
U.S.C. 553 do not apply "to the extent
that there is involved . . , a matter
relating to agency . . . grants." The
APA also provides an exception to
ordinary notice -and -comment
procedures "when the agency for good
cause finds (and incorporates the
finding and a brief statement of reasons
therefor in the rules issued) that notice
and public procedure thereon are
impracticable, unnecessary, or contrary
to the public interest." 5 U.S.C.
553(b)(B). The interim final rule was
issued without prior notice and
comment procedures because it
implemented statutory conditions on
the eligible uses of SLFRF funds, and
addressed the payment of those funds,
the reporting on uses of funds, and
potential consequences of ineligible
uses to help address the economic and
public health emergency. See the
SUPPLEMENTARY INFORMATION section of
the May 17, 2021 interim final rule for
the applicability of the requirements of
5 U.S.C. 553. In addition, under the
exception discussed in that section for
matters relating to agency grants, the
requirements of 5 U.S.C. 553 also do not
apply to this final rule. After careful
consideration of the comments received,
this final rule adopts the May 17, 2021
interim final rule with the revisions
discussed in this SUPPLEMENTARY
INFORMATION.
Congressional Review Act
The Administrator of OIRA has
determined that this is a major rule for
purposes of Subtitle E of the Small
Business Regulatory Enforcement and
Fairness Act of 1996 (also known as the
Congressional Review Act or CRA) (5
U.S.C. 804(2) et seq.). Under the CRA,
a major rule generally may take effect no
earlier than 60 days after the rule is
published in the Federal Register. 5
U.S.C. 801(a)(3).
Paperwork Reduction Act
The information collections
associated with the SLFRF program
have been reviewed and approved by
OMB pursuant to the Paperwork
Reduction Act (44 U.S.C. Chapter 35)
(PRA) and assigned control number
1505-0271. Under the PRA, an agency
may not conduct or sponsor, and a
respondent is not required to respond
to, an information collection unless it
displays a valid OMB control number.
Estimates of hourly burden under this
program are set forth in the table below.
Reporting
Number
respondents
p
Number
responses
per
p
respondent
Total
responses
p
Hours per
response
p
Total
burden
in hours
Cost to
respondents
($48.80 per
hour")
Recipient Payment Form ......................................
5,050
1
5,050
.25 (15 minutes) ....
1,262.5
$61,610
Acceptance of Award Terms ................................
5,050
1
5,050
.25 (15 minutes) ....
1,262.5
61,610
Title VI Assurances ..............................................
5,050
1
5,050
.50 (30 minutes) ....
2,525
123,220
Tribal Employment Information Form ...................
584
1
584
.75 (45 minutes) ....
438
21,374
Request for Extension Form ................................
96
1
96
1 ............................
96
4,685
Annual Recovery Plan Performance Report ........
430
1
430
100 ........................
43,000
2,098,400
NEU Distribution Template ...................................
55
2
110
10 ..........................
1,100
53,680
Non-UGLG Distribution Template ........................
55
2
110
5 ............................
550
26,840
Transfer Forms .....................................................
1,500
1
1,500
1 ............................
1,500
73,200
Project and Expenditure Report ...........................
37,000
1
37,000
5 ............................
185,000
9,028,000
54,870
....................
54,980
...............................
236,735
11,552,619
Total..............................................................
"Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, Accountants and Auditors, on the internet at https://
www.bls.gov/ooh/business-and-financial/accountants-and-auditors.htm (visited March 28, 2020). Base wage of $33.89/hour increased by 44 per-
cent to account for fully loaded employer cost of employee compensation (benefits, etc.) for a fully loaded wage rate of $48.80.
Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA)
generally requires that when an agency
issues a proposed rule, or a final rule
pursuant to section 553(b) of the
Administrative Procedure Act or
another law, the agency must prepare a
regulatory flexibility analysis that meets
the requirements of the RFA and
396 See Coronavirus State and Local Fiscal as of July 19, 2021; https.Ilhome.treasury.govl
Recovery Funds, Frequently Asked Questions, 10.2, system/files/1361SLFRPFAQ.pdf.
publish such analysis in the Federal
Register. 5 U.S.C. 603, 604.
Rules that are exempt from notice and
comment under the APA or any other
law are also exempt from the RFA
4446 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
requirements, including the requirement
to conduct a regulatory flexibility
analysis, when among other things the
agency for good cause finds that notice
and public procedure are impracticable,
unnecessary, or contrary to the public
interest. Because this rule is exempt
from the notice and comment
requirements of the APA, Treasury is
not required to conduct a regulatory
flexibility analysis.
Rule Text
List of Subjects in 31 CFR Part 35
Executive compensation, State and
Local Governments, Tribal
Governments, Public health emergency.
For the reasons stated in the
preamble, the United States Department
of the Treasury amends 31 CFR part 35
as follows:
PART 35—PANDEMIC RELIEF
PROGRAMS
■ 1. Revise Subpart A to read as follows
Subpart A—Coronavirus State and
Local Fiscal Recovery Funds
Sec.
35.1 Purpose.
35.2 Applicability.
35.3 Definitions.
35.4 Reservation of authority, reporting.
35.5 Use of funds.
35.6 Eligible uses.
35.7 Pensions.
35.8 Tax.
35.9. Compliance with applicable laws.
35.10. Recoupment.
35.11 Payments to States.
35.12. Distributions to nonentitlement units
of local government and units of general
local government.
Authority: 42 U.S.C. 802(f); 42 U.S.C.
803 (f).
§35.1 Purpose.
This part implements section 9901 of
the American Rescue Plan Act (Subtitle
M of Title IX of Pub. L. 117-2), which
amends Title VI of the Social Security
Act (42 U.S.C. 801 et seq.) by adding
sections 602 and 603 to establish the
Coronavirus State Fiscal Recovery Fund
and Coronavirus Local Fiscal Recovery
Fund.
§35.2 Applicability.
This part applies to states, territories,
Tribal governments, metropolitan cities,
nonentitlement units of local
government, counties, and units of
general local government that accept a
payment or transfer of funds made
under section 602 or 603 of the Social
Security Act.
§35.3 Definitions.
Baseline means tax revenue of the
recipient for its fiscal year ending in
2019, adjusted for inflation in each
reporting year using the Bureau of
Economic Analysis's Implicit Price
Deflator for the gross domestic product
of the United States.
Capital expenditures has the same
meaning given in 2 CFR 200.1.
County means a county, parish, or
other equivalent county division (as
defined by the Census Bureau).
Covered benefits include, but are not
limited to, the costs of all types of leave
(vacation, family -related, sick, military,
bereavement, sabbatical, jury duty),
employee insurance (health, life, dental,
vision), retirement (pensions, 401(k)),
unemployment benefit plans (Federal
and State), workers' compensation
insurance, and Federal Insurance
Contributions Act taxes (which includes
Social Security and Medicare taxes).
Covered change means a change in
law, regulation, or administrative
interpretation that reduces any tax (by
providing for a reduction in a rate, a
rebate, a deduction, a credit, or
otherwise) or delays the imposition of
any tax or tax increase. A change in law
includes any final legislative or
regulatory action, a new or changed
administrative interpretation, and the
phase -in or taking effect of any statute
or rule if the phase -in or taking effect
was not prescribed prior to the start of
the covered period.
Covered period means, with respect to
a state or territory, the period that:
(1) Begins on March 3, 2021; and
(2) Ends on the last day of the fiscal
year of such State or territory in which
all funds received by the State or
territory from a payment made under
section 602 or 603 of the Social Security
Act have been expended or returned to,
or recovered by, the Secretary.
COVID-19 means the Coronavirus
Disease 2019.
COVID-19 public health emergency
means the period beginning on January
27, 2020 and lasting until the
termination of the national emergency
concerning the COVID-19 outbreak
declared pursuant to the National
Emergencies Act (50 U.S.C. 1601 et
seq.).
Deposit means an extraordinary
payment of an accrued, unfunded
liability. The term deposit does not refer
to routine contributions made by an
employer to pension funds as part of the
employer's obligations related to
payroll, such as either a pension
contribution consisting of a normal cost
component related to current employees
or a component addressing the
amortization of unfunded liabilities
calculated by reference to the
employer's payroll costs.
Eligible employer means an employer
of an eligible worker who performs
essential work.
Eligible workers means workers
needed to maintain continuity of
operations of essential critical
infrastructure sectors, including health
care; emergency response; sanitation,
disinfection, and cleaning work;
maintenance work; grocery stores,
restaurants, food production, and food
delivery; pharmacy; biomedical
research; behavioral health work;
medical testing and diagnostics; home -
and community -based health care or
assistance with activities of daily living;
family or childcare; social services
work; public health work; vital services
to Tribes; any work performed by an
employee of a State, local, or Tribal
government; educational work, school
nutrition work, and other work required
to operate a school facility; laundry
work; elections work; solid waste or
hazardous materials management,
response, and cleanup work; work
requiring physical interaction with
patients; dental care work;
transportation and warehousing; work at
hotel and commercial lodging facilities
that are used for COVID-19 mitigation
and containment; work in a mortuary;
and work in critical clinical research,
development, and testing necessary for
COVID-19 response.
(1) With respect to a recipient that is
a metropolitan city, nonentitlement unit
of local government, or county, workers
in any additional non-public sectors as
each chief executive officer of such
recipient may designate as critical to
protect the health and well-being of the
residents of their metropolitan city,
nonentitlement unit of local
government, or county; or
(2) With respect to a State, territory,
or Tribal government, workers in any
additional non-public sectors as each
Governor of a State or territory, or each
Tribal government, may designate as
critical to protect the health and well-
being of the residents of their State,
territory, or Tribal government.
Essential work means work that:
(1) Is not performed while
teleworking from a residence; and
(2) Involves:
(i) Regular in -person interactions with
patients, the public, or coworkers of the
individual that is performing the work;
or
(ii) Regular physical handling of items
that were handled by, or are to be
handled by patients, the public, or
coworkers of the individual that is
performing the work.
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4447
Funds means, with respect to a
recipient, amounts provided to the
recipient pursuant to a payment made
under section 602(b) or 603(b) of the
Social Security Act or transferred to the
recipient pursuant to section 603(c)(4)
of the Social Security Act.
General revenue means money that is
received from tax revenue, current
charges, and miscellaneous general
revenue, excluding refunds and other
correcting transactions and proceeds
from issuance of debt or the sale of
investments, agency or private trust
transactions, and intergovernmental
transfers from the Federal Government,
including transfers made pursuant to
section 9901 of the American Rescue
Plan Act. General revenue also includes
revenue from liquor stores that are
owned and operated by state and local
governments. General revenue does not
include revenues from utilities, except
recipients may choose to include
revenue from utilities that are part of
their own government as general
revenue provided the recipient does so
consistently over the remainder of the
period of performance. Revenue from
Tribal business enterprises must be
included in general revenue.
Intergovernmental transfers means
money received from other
governments, including grants and
shared taxes.
Low-income household means a
household with:
(1) Income at or below 185 percent of
the Federal Poverty Guidelines for the
size of its household based on the
poverty guidelines published most
recently by the Department of Health
and Human Services; or
(2) Income at or below 40 percent of
the Area Median Income for its county
and size of household based on data
published most recently by the
Department of Housing and Urban
Development.
Micro -business means a small
business that has five or fewer
employees, one or more of whom owns
the small business.
Moderate -income household means a
household with:
(1) Income at or below 300 percent of
the Federal Poverty Guidelines for the
size of its household based on poverty
guidelines published most recently by
the Department of Health and Human
Services; or
(2) Income at or below 65 percent of
the Area Median Income for its county
and size of household based on data
published most recently by the
Department of Housing and Urban
Development.
Metropolitan city has the meaning
given that term in section 102(a)(4) of
the Housing and Community
Development Act of 1974 (42 U.S.C.
5302(a)(4)) and includes cities that
relinquish or defer their status as a
metropolitan city for purposes of
receiving allocations under section 106
of such Act (42 U.S.C. 5306) for fiscal
year 2021.
Net reduction in total spending is
measured as the State or territory's total
spending for a given reporting year
excluding its spending of funds,
subtracted from its total spending for its
fiscal year ending in 2019, adjusted for
inflation using the Bureau of Economic
Analysis's Implicit Price Deflator for the
gross domestic product of the United
States for that reporting year.
Nonentitlement unit of local
government means a "city," as that term
is defined in section 102(a)(5) of the
Housing and Community Development
Act of 1974 (42 U.S.C. 5302(a)(5)), that
is not a metropolitan city.
Nonprofit means a nonprofit
organization that is exempt from Federal
income taxation and that is described in
section 501(c)(3) or 501(c)(19) of the
Internal Revenue Code.
Obligation means an order placed for
property and services and entering into
contracts, subawards, and similar
transactions that require payment.
Pension fund means a defined benefit
plan and does not include a defined
contribution plan.
Period of performance means the time
period described in § 35.5 during which
a recipient may obligate and expend
funds in accordance with sections
602(c)(1) and 603(c)(1) of the Social
Security Act and this subpart.
Premium pay means an amount of up
to $13 per hour that is paid to an
eligible worker, in addition to wages or
remuneration the eligible worker
otherwise receives, for all work
performed by the eligible worker during
the COVID-19 public health emergency.
Such amount may not exceed $25,000 in
total over the period of performance
with respect to any single eligible
worker. Premium pay may be awarded
to non -hourly and part-time eligible
workers performing essential work.
Premium pay will be considered to be
in addition to wages or remuneration
the eligible worker otherwise receives if,
as measured on an hourly rate, the
premium pay is:
(1) With regard to work that the
eligible worker previously performed,
pay and remuneration equal to the sum
of all wages and remuneration
previously received plus up to $13 per
hour with no reduction, substitution,
offset, or other diminishment of the
eligible worker's previous, current, or
prospective wages or remuneration; or
(2) With regard to work that the
eligible worker continues to perform,
pay of up to $13 per hour that is in
addition to the eligible worker's regular
rate of wages or remuneration, with no
reduction, substitution, offset, or other
diminishment of the worker's current
and prospective wages or remuneration.
Qualified census tract has the same
meaning given in 26 U.S.C.
42(d)(5)(B)(ii)(I).
Recipient means a State, territory,
Tribal government, metropolitan city,
nonentitlement unit of local
government, county, or unit of general
local government that receives a
payment made under section 602(b) or
603(b) of the Social Security Act or
transfer pursuant to section 603(c)(4) of
the Social Security Act.
Reporting year means a single year or
partial year within the covered period,
aligned to the current fiscal year of the
State or territory during the covered
period.
Secretary means the Secretary of the
Treasury.
State means each of the 50 States and
the District of Columbia.
Small business means a business
concern or other organization that:
(1) Has no more than 500 employees
or, if applicable, the size standard in
number of employees established by the
Administrator of the Small Business
Administration for the industry in
which the business concern or
organization operates, and
(2) Is a small business concern as
defined in section 3 of the Small
Business Act (15 U.S.C. 632).
Tax revenue means revenue received
from a compulsory contribution that is
exacted by a government for public
purposes excluding refunds and
corrections and, for purposes of § 35.8,
intergovernmental transfers. Tax
revenue does not include payments for
a special privilege granted or service
rendered, employee or employer
assessments and contributions to
finance retirement and social insurance
trust systems, or special assessments to
pay for capital improvements.
Territory means the Commonwealth
of Puerto Rico, the United States Virgin
Islands, Guam, the Commonwealth of
the Northern Mariana Islands, or
American Samoa.
Title I eligible schools means schools
eligible to receive services under section
1113 of Title I, Part A of the Elementary
and Secondary Education Act of 1965,
as amended (20 U.S.C. 6313), including
schools served under section
1113(b)(1)(C) of that Act.
Tribal enterprise means a business
concern:
4448 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
(1) That is wholly owned by one or
more Tribal governments, or by a
corporation that is wholly owned by one
or more Tribal governments; or
(2) That is owned in part by one or
more Tribal governments, or by a
corporation that is wholly owned by one
or more Tribal governments, if all other
owners are either United States citizens
or small business concerns, as these
terms are used and consistent with the
definitions in 15 U.S.C. 657a(b)(2)(D).
Tribal government means the
recognized governing body of any
Indian or Alaska Native Tribe, band,
nation, pueblo, village, community,
component band, or component
reservation, individually identified
(including parenthetically) in the list
published on January 29, 2021, pursuant
to section 104 of the Federally
Recognized Indian Tribe List Act of
1994 (25 U.S.C. 5131).
Unemployment rate means the U-3
unemployment rate provided by the
Bureau of Labor Statistics as part of the
Local Area Unemployment Statistics
program, measured as total
unemployment as a percentage of the
civilian labor force.
Unemployment trust fund means an
unemployment trust fund established
under section 904 of the Social Security
Act (42 U.S.C. 1104).
Unit of general local government has
the meaning given to that term in
section 102(a)(1) of the Housing and
Community Development Act of 1974
(42 U.S.C. 5302(a)(1)).
§ 35.4 Reservation of authority, reporting.
(a) Reservation of authority. Nothing
in this part shall limit the authority of
the Secretary to take action to enforce
conditions or violations of law,
including actions necessary to prevent
evasions of this subpart.
(b) Extensions or accelerations of
timing. The Secretary may extend or
accelerate any deadline or compliance
date of this part, including reporting
requirements that implement this
subpart, if the Secretary determines that
such extension or acceleration is
appropriate. In determining whether an
extension or acceleration is appropriate,
the Secretary will consider the period of
time that would be extended or
accelerated and how the modified
timeline would facilitate compliance
with this subpart.
(c) Reporting and requests for other
information. During the period of
performance, recipients shall provide to
the Secretary periodic reports providing
detailed accounting of the uses of funds,
modifications to a State or Territory's
tax revenue sources, and such other
information as the Secretary may
require for the administration of this
section. In addition to regular reporting
requirements, the Secretary may request
other additional information as may be
necessary or appropriate, including as
may be necessary to prevent evasions of
the requirements of this subpart. False
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.
§35.5 Use of funds.
(a) In general. 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
Social Security Act, as applicable,
including those enumerated in § 35.6,
subject to the restrictions set forth in
sections 602(c)(2) and 603(c)(2) of the
Social Security Act, as applicable.
(b) Costs incurred. A cost shall be
considered to have been incurred for
purposes of paragraph (a) of this section
if the recipient has incurred an
obligation with respect to such cost by
December 31, 2024.
(c) Return of funds. A recipient must
return any funds not obligated by
December 31, 2024. A recipient must
also return funds obligated by December
31, 2024 but not expended by December
31, 2026.
§35.6 Eligible uses.
(a) In general. Subject to §§ 35.7 and
35.8, a recipient may use funds for one
or more of the purposes described in
paragraphs (b) through (f) of this
section.
(b) Responding to the public health
emergency or its negative economic
impacts. A recipient may use funds to
respond to the public health emergency
or its negative economic impacts if the
use meets the criteria provided in
paragraph (b)(1) of this section or is
enumerated in paragraph (b)(3) of this
section; provided that, in the case of a
use of funds for a capital expenditure
under paragraphs (b)(1) or (b)(3) of this
section, the use of funds must also meet
the criteria provided in paragraph (b)(4)
of this section. Treasury may also
articulate additional eligible programs,
services, or capital expenditures from
time to time that satisfy the eligibility
criteria of this paragraph (b), which
shall be eligible under this paragraph
(b).
(1) Identifying eligible responses to
the public health emergency or its
negative economic impacts. (i) A
program, service, or capital expenditure
is eligible under this paragraph (b)(1) if
a recipient identifies a harm or impact
to a beneficiary or class of beneficiaries
caused or exacerbated by the public
health emergency or its negative
economic impacts and the program,
service, or capital expenditure responds
to such harm.
(ii) A program, service, or capital
expenditure responds to a harm or
impact experienced by an identified
beneficiary or class of beneficiaries if it
is reasonably designed to benefit the
beneficiary or class of beneficiaries that
experienced the harm or impact and is
related and reasonably proportional to
the extent and type of harm or impact
experienced.
(2) Identified harms: Presumptions of
impacted and disproportionately
impacted beneficiaries. A recipient may
rely on the following presumptions to
identify beneficiaries presumptively
impacted or disproportionately
impacted by the public health
emergency or its negative economic
impacts for the purpose of providing a
response under paragraph (b)(1) or (b)(3)
of this section:
(i) Households or populations that
experienced unemployment;
experienced increased food or housing
insecurity; qualify for the Children's
Health Insurance Program (42 U.S.C.
1397aa et seq.), Childcare Subsidies
through the Child Care and
Development Fund Program (42 U.S.C.
9857 et seq. and 42 U.S.C. 618), or
Medicaid (42 U.S.C. 1396 et seq.); if
funds are to be used for affordable
housing programs, qualify for the
National Housing Trust Fund (12 U.S.C.
4568) or the Home Investment
Partnerships Program (42 U.S.C. 12721
et seq.); if funds are to be used to
address impacts of lost instructional
time for students in kindergarten
through twelfth grade, any student who
did not have access to in -person
instruction for a significant period of
time; and low- and moderate -income
households and populations are
presumed to be impacted by the public
health emergency or its negative
economic impacts;
(ii) The general public is presumed to
be impacted by the public health
emergency for the purposes of providing
the uses set forth in subparagraphs
(b)(3)(i)(A) and (b)(3)(i)(C); and
(iii) The following households,
communities, small businesses, and
nonprofit organizations are presumed to
be disproportionately impacted by the
public health emergency or its negative
economic impacts:
(A) Households and populations
residing in a qualified census tract;
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4449
households and populations receiving
services provided by Tribal
governments; households and
populations residing in the territories;
households and populations receiving
services provided by territorial
governments; low-income households
and populations; households that
qualify for Temporary Assistance for
Needy Families (42 U.S.C. 601 et seq.),
the Supplemental Nutrition Assistance
Program (7 U.S.C. 2011 et seq.), Free
and Reduced Price School Lunch and/
or Breakfast programs (42 U.S.C. 1751 et
seq. and 42 U.S.C. 1773), Medicare Part
D Low-income Subsidies (42 U.S.C.
1395w-114), Supplemental Security
Income (42 U.S.C. 1381 et seq.), Head
Start (42 U.S.C. 9831 et seq.), Early Head
Start (42 U.S.C. 9831 et seq.), the
Special Supplemental Nutrition
Program for Women, Infants, and
Children (42 U.S.C. 1786), Section 8
Vouchers (42 U.S.C. 1437f), the Low -
Income Home Energy Assistance
Program (42 U.S.C. 8621 et seq.), Pell
Grants (20 U.S.C. 1070a), and, if SLFRF
funds are to be used for services to
address educational disparities, Title I
eligible schools;
(B) Small businesses operating in a
qualified census tract, operated by
Tribal governments or on Tribal lands,
or operating in the territories; and
(C) Nonprofit organizations operating
in a qualified census tract, operated by
Tribal governments or on Tribal lands,
or o erating in the territories.
(3yEnumerated eligible uses:
Responses presumed reasonably
proportional. A recipient may use funds
to respond to the public health
emergency or its negative economic
impacts on a beneficiary or class of
beneficiaries for one or more of the
following purposes unless such use is
grossly disproportionate to the harm
caused or exacerbated by the public
health emergency or its negative
economic impacts:
(i) Responding to the public health
impacts of the public health emergency
for purposes including:
(A) COWD-19 mitigation and
prevention in a manner that is
consistent with recommendations and
guidance from the Centers for Disease
Control and Prevention, including
vaccination programs and incentives;
testing programs; contact tracing;
isolation and quarantine; mitigation and
prevention practices in congregate
settings; acquisition and distribution of
medical equipment for prevention and
treatment of COVID-19, including
personal protective equipment; COVID-
19 prevention and treatment expenses
for public hospitals or health care
facilities, including temporary medical
facilities; establishing or enhancing
public health data systems; installation
and improvement of ventilation systems
in congregate settings, health facilities,
or other public facilities; and assistance
to small businesses, nonprofits, or
impacted industries to implement
miti ation measures;
(B� Medical expenses related to
testing and treating COVID-19 that are
provided in a manner consistent with
recommendations and guidance from
the Centers for Disease Control and
Prevention, including emergency
medical response expenses, treatment of
long-term symptoms or effects of
COVID-19, and costs to medical
providers or to individuals for testing or
treating COVID-19;
(C) Behavioral health care, including
prevention, treatment, emergency or
first -responder programs, harm
reduction, supports for long-term
recovery, and behavioral health
facilities and equipment; and
(D) Preventing and responding to
increased violence resulting from the
public health emergency, including
community violence intervention
programs, or responding to increased
gun violence resulting from the public
health emergency, including payroll and
covered benefits associated with
community policing strategies;
enforcement efforts to reduce gun
violence; and investing in technology
and equipment;
(ii) Responding to the negative
economic impacts of the public health
emergency for purposes including:
(A) Assistance to households and
individuals, including:
(1) Assistance for food; emergency
housing needs; burials, home repairs, or
weatherization; internet access or digital
literacy; cash assistance; and assistance
accessing public benefits;
(2) Paid sick, medical, or family leave
programs, or assistance to expand access
to health insurance;
(3) Childcare, early learning services,
home visiting, or assistance for child
welfare -involved families or foster
youth;
(4) Programs to address the impacts of
lost instructional time for students in
kindergarten through twelfth grade;
(5) Development, repair, and
operation of affordable housing and
services or programs to increase long-
term housing security;
(6) Financial services that facilitate
the delivery of Federal, State, or local
benefits for unbanked and underbanked
individuals;
(7) Benefits for the surviving family
members of individuals who have died
from COVID-19, including cash
assistance to surviving spouses or
dependents of individuals who died of
COVID-19;
(8) Assistance for individuals who
want and are available for work,
including those who are unemployed,
have looked for work sometime in the
past 12 months, who are employed part
time but who want and are available for
full-time work, or who are employed but
seeking a position with greater
opportunities for economic
advancement;
(9) Facilities and equipment related to
the provision of services to households
provided in subparagraphs
(b) (3) (ii) (A) (1)—(8);
(10) The following expenses related to
Unemployment Trust Funds:
(i) Contributions to a recipient
Unemployment Trust Fund and
repayment of principal amounts due on
advances received under Title XII of the
Social Security Act (42 U.S.C. 1321) up
to an amount equal to the difference
between the balance in the recipient's
Unemployment Trust Fund as of
January 27, 2020 and the balance of
such account as of May 17, 2021 plus
the principal amount outstanding as of
May 17, 2021 on any advances received
under Title XII of the Social Security
Act between January 27, 2020 and May
17, 2 02 1; provided that if a recipient
repays principal on Title XII advances
or makes a contribution to an
Unemployment Trust Fund after April
1, 2022, such recipient shall not reduce
average weekly benefit amounts or
maximum benefit entitlements prior to
December 31, 2024; and
(ii) Any interest due on such advances
received under Title XII of the Social
Security Act (42 U.S.C. 1321); and
(11) A program, service, capital
expenditure, or other assistance that is
provided to a disproportionately
impacted household, population, or
community, including:
(i) Services to address health
disparities of the disproportionately
impacted household, population, or
community;
(ii) Housing vouchers and relocation
assistance;
(iii) Investments in communities to
promote improved health outcomes and
public safety such as parks, recreation
facilities, and programs that increase
access to healthy foods;
(iv) Capital expenditures and other
services to address vacant or abandoned
properties;
(v) Services to address educational
disparities; and
(vi) Facilities and equipment related
to the provision of these services to the
disproportionately impacted household,
population, or community.
4450 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
(B) Assistance to small businesses,
including:
(1) Programs, services, or capital
expenditures that respond to the
negative economic impacts of the
COVID-19 public health emergency,
including loans or grants to mitigate
financial hardship such as declines in
revenues or impacts of periods of
business closure, or providing technical
assistance; and
(2) A program, service, capital
expenditure, or other assistance that
responds to disproportionately
impacted small businesses, including
rehabilitation of commercial properties;
storefront and fagade improvements;
technical assistance, business
incubators, and grants for start-ups or
expansion costs for small businesses;
and programs or services to support
micro -businesses;
(C) Assistance to nonprofit
organizations including programs,
services, or capital expenditures,
including loans or grants to mitigate
financial hardship such as declines in
revenues or increased costs, or technical
assistance;
(D) Assistance to tourism, travel,
hospitality, and other impacted
industries for programs, services, or
capital expenditures, including support
for payroll costs and covered benefits
for employees, compensating returning
employees, support for operations and
maintenance of existing equipment and
facilities, and technical assistance; and
(E) Expenses to support public sector
capacity and workforce, including:
(1) Payroll and covered benefit
expenses for public safety, public
health, health care, human services, and
similar employees to the extent that the
employee's time is spent mitigating or
responding to the COVID-19 public
health emergency;
(2) Payroll, covered benefit, and other
costs associated with programs or
services to support the public sector
workforce and with the recipient:
(i) Hiring or rehiring staff to fill
budgeted full-time equivalent positions
that existed on January 27, 2020 but that
were unfilled or eliminated as of March
3, 2021; or
(ii) Increasing the number of its
budgeted full-time equivalent
employees by up to the difference
between the number of its budgeted full-
time equivalent employees on January
27, 2020, multiplied by 1.075, and the
number of its budgeted full-time
equivalent employees on March 3, 2021,
TABLE 1 TO PARAGRAPH (b)(4)
provided that funds shall only be used
for additional budgeted full-time
equivalent employees above the
recipient's number of budgeted full-time
equivalent employees as of March 3,
2021;
(3) Costs to improve the design and
execution of programs responding to the
COVID-19 pandemic and to administer
or improve the efficacy of programs
addressing the public health emergency
or its negative economic impacts; and
(4) Costs associated with addressing
administrative needs of recipient
governments that were caused or
exacerbated by the pandemic.
(4) Capital expenditures. A recipient,
other than a Tribal government, must
prepare a written justification for certain
capital expenditures according to Table
1 to paragraph (b)(4) of this section.
Such written justification must include
the following elements:
(i) Describe the harm or need to be
addressed;
(ii) Explain why a capital expenditure
is appropriate; and
(iii) Compare the proposed capital
expenditure to at least two alternative
capital expenditures and demonstrate
why the proposed capital expenditure is
superior.
If a project has total expected and the use is enumerated in (b)(3), then and the use is not enumerated in (b)(3), then
capital expenditures of
Less than $1 million ........................ No Written Justification required ............................... No Written Justification required.
Greater than or equal to $1 million, Written Justification required but recipients are not Written Justification required and recipients must
but less than $10 million. required to submit as part of regular reporting to submit as part of regular reporting to Treasury.
Treasury.
$10 million or more ......................... Written Justification required and recipients must
submit as part of regular reporting to Treasury.
(c) Providing premium pay to eligible
workers. A recipient may use funds to
provide premium pay to eligible
workers of the recipient who perform
essential work or to provide grants to
eligible employers that have eligible
workers who perform essential work,
provided that any premium pay or
grants provided under this paragraph (c)
must respond to eligible workers
performing essential work during the
COVID-19 public health emergency. A
recipient uses premium pay or grants
provided under this paragraph (c) to
respond to eligible workers performing
essential work during the COVID-19
public health emergency if:
(1) The eligible worker's total wages
and remuneration, including the
premium pay, is less than or equal to
150 percent of the greater of such
eligible worker's residing State's or
county's average annual wage for all
occupations as defined by the Bureau of
Labor Statistics' Occupational
Employment and Wage Statistics;
(2) The eligible worker is not exempt
from the Fair Labor Standards Act
overtime provisions (29 U.S.C. 207); or
(3) The recipient has submitted to the
Secretary a written justification that
explains how providing premium pay to
the eligible worker is responsive to the
eligible worker performing essential
work during the COVID-19 public
health emergency (such as a description
of the eligible workers' duties, health, or
financial risks faced due to COVID-19,
and why the recipient determined that
the premium pay was responsive
despite the worker's higher income).
(d) Providing government services. A
recipient may use funds for the
provision of government services to the
extent of the reduction in the recipient's
general revenue due to the public health
emergency, calculated according to this
paragraph (d). A recipient must make a
one-time election to calculate the
amount of the reduction in the
recipient's general revenue due to the
public health emergency according to
either paragraph (d)(1) or (d)(2) of this
section:
(1) Standard allowance. The
reduction in the recipient's general
revenue due to the public health
emergency over the period of
performance will be deemed to be ten
million dollars; or
(2) Formula. The reduction in the
recipient's general revenue due to the
public health emergency over the period
of performance equals the sum of the
reduction in revenue, calculated as of
each date identified in paragraph
(d)(2)(i) of this section and according to
the formula in paragraph (d)(2)(ii) of
this section:
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022/Rules and Regulations 4451
(i) A recipient must make a one-time
election to calculate the reduction in its
general revenue using information as of
either:
(A) December 31, 2020, December 31,
2021, December 31, 2022, and December
31, 2023; or
(B) The last day of each of the
recipient's fiscal years ending in 2020,
2021, 2022, and 2023.
(ii) A reduction in a recipient's
general revenue for each date identified
in paragraph (d)(2)(i) of this section
equals:
Max {(Base Year Revenue * (1 + Growth
Adjustment)^(nt/12)] —Actual
General Revenue; 01
Where:
(A) Base Year Revenue is the
recipient's general revenue for the most
recent full fiscal year prior to the
COVID-19 public health emergency;
(B) Growth Adjustment is equal to the
greater of 5.2 percent (or 0.052) and the
recipient's average annual revenue
growth over the three full fiscal years
prior to the COVID-19 public health
emergency;
(C) n equals the number of months
elapsed from the end of the base year to
the calculation date;
(D) Subscript t denotes the specific
calculation date; and
(E) Actual General Revenue is a
recipient's actual general revenue
collected during the 12-month period
ending on each calculation date
identified in paragraph (d)(2)(i) of this
section, except:
(1) For purposes of all calculation
dates on or after April 1, 2022, in the
case of any change made after January
69 2022 to any law, regulation, or
administrative interpretation that
reduces any tax (by providing for a
reduction in a rate, a rebate, a
deduction, a credit, or otherwise) or
delays the imposition of any tax or tax
increase and that the recipient assesses
has had the effect of decreasing the
amount of tax revenue collected during
the 12-month period ending on the
calculation date relative to the amount
of tax revenue that would have been
collected in the absence of such change,
the recipient must add to actual general
revenue the amount of such decrease in
tax revenue;
(2) For purposes of any calculation
date on or after April 1, 2022, in the
case of any change made after January
69 2022 to any law, regulation, or
administrative interpretation that
increases any tax (by providing for an
increase in a rate, the reduction of a
rebate, a deduction, or a credit, or
otherwise) or accelerates the imposition
of any tax or tax increase and that the
recipient assesses has had the effect of
increasing the amount of tax revenue
collected during the 12-month period
ending on the calculation date relative
to the amount of tax revenue that would
have been collected in the absence of
such change, the recipient must subtract
from actual general revenue the amount
of such increase in tax revenue;
(3) If the recipient makes a one-time
election to adjust general revenue to
reflect tax changes made during the
period beginning on January 27, 2020
and ending on January 6, 2 022 , for
purposes of each calculation date
identified in paragraph (d)(2)(i) of this
section:
(i) In the case of any change made
during such prior period to any law,
regulation, or administrative
interpretation that reduces any tax (by
providing for a reduction in a rate, a
rebate, a deduction, a credit, or
otherwise) or delays the imposition of
any tax or tax increase and that the
recipient assesses has had the effect of
decreasing the amount of tax revenue
collected during the 12-month period
ending on the calculation date relative
to the amount of tax revenue that would
have been collected in the absence of
such change, the recipient must add to
actual general revenue the amount of
such decrease in tax revenue; and
(ii) In the case of any change made
during such prior period to any law,
regulation, or administrative
interpretation that increases any tax (by
providing for an increase in a rate, the
reduction of a rebate, a deduction, or a
credit, or otherwise) or accelerates the
imposition of any tax or tax increase
and that the recipient assesses has had
the effect of increasing the amount of
tax revenue collected during the 12-
month period ending on the calculation
date relative to the amount of tax
revenue that would have been collected
in the absence of such change, the
recipient must subtract from actual
general revenue the amount of such
increase in tax revenue; and
(4) With respect to any calculation
date during the period beginning on
January 6, 2022 and ending on March
31, 2022, if the recipient makes the
election in paragraph (d)(3) of this
section, the recipient must also make
the adjustments referenced in paragraph
(d)(3) of this section with respect to any
such changes in law, regulation, or
administrative interpretation during the
period beginning on January 6, 2022 and
ending on such calculation date.
(e) Making necessary investments in
water, sewer, and broadband
infrastructure. A recipient may use
funds to make the following
investments in water, sewer, and
broadband infrastructure.
(1) Water and sewer investments—(i)
Clean Water State Revolving Fund
projects. Projects or activities of the type
that meet the eligibility requirements of
section 603(c) of the Federal Water
Pollution Control Act (33 U.S.C.
1383(c));
(ii) Additional stormwater projects.
Projects to manage, reduce, treat, or
recapture stormwater or subsurface
drainage water regardless of whether
such projects would improve water
quality if such projects would otherwise
meet the eligibility requirements of
section 603(c)(5) of the Federal Water
Pollution Control Act (33 U.S.C.
1383(c)(5));
(iii) Drinking Water State Revolving
Fund projects. Projects or activities of
the type that meet the eligibility
requirements of section 1452 of the Safe
Drinking Water Act (42 U.S.C. 300j-12)
as implemented by the regulations
adopted by the Environmental
Protection Agency (EPA) under 40 CFR
35.3520, provided that:
(A) The recipient is not required to
comply with the limitation under 40
CFR 35.3520(c)(2) to acquisitions of
land from willing sellers or the
prohibition under 40 CFR 35.3520(e)(6)
on uses of funds for certain Tribal
projects; and
(B) In the case of lead service line
replacement projects, the recipient must
replace the full length of the service line
and may not replace only a partial
portion of the service line.
(iv) Additional lead remediation and
household water quality testing. Projects
or activities to address lead in drinking
water or provide household water
quality testing that are within the scope
of the programs the EPA is authorized
to establish under sections 1459A(b)(2),
145913(b)(1), 1464(d)(2), and 1465 of the
Safe Drinking Water Act (42 U.S.C.
300j-19a(b)(2), 300j-19b(b)(1), 300j-
24 (d) (2) , and 300j-25), provided that:
(A) In the case of lead service line
replacement projects, the recipient must
replace the full length of the service line
and may not replace only a partial
portion of the service line; and
(B) In the case of projects within the
scope of the program the EPA is
authorized to establish under section
145913(b)(1) of the Safe Drinking Water
Act, the recipient may determine the
income eligibility of homeowners
served by lead service line replacement
projects in its discretion.
(v) Drinking water projects to support
increased population. Projects of the
type that meet the eligibility
requirements of 40 CFR 35.3520 other
than the requirement of subparagraph
4452 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
(b)(1) of such regulation to address
present or prevent future violations of
health -based drinking water standards,
if the following conditions are met:
(A) The project is needed to support
increased population, with need
assessed as of the time the project is
undertaken;
(B) The project is designed to support
no more than a reasonable level of
projected increased need, whether due
to population growth or otherwise;
(C) The project is a cost-effective
means for achieving the desired level of
service; and
(D) The project is projected to
continue to provide an adequate level of
drinking water over its estimated useful
life.
(vi) Dams and reservoirs.
Rehabilitation of dams and reservoirs if
the following conditions are met:
(A) The project meets the
requirements of 40 CFR 35.3520 other
than the following requirements:
(1) The prohibition on the
rehabilitation of dams and reservoirs in
40 CFR 35.3520(e)(1) and (3); and
(2) The requirement in 40 CFR
35.3520(b)(1) that the project is needed
to address present or prevent future
violations of health -based drinking
water standards, provided that if the
dam or reservoir project does not meet
this requirement, the project must be
needed to support increased population,
with need assessed as of the time the
project is undertaken, and the project
must be projected to continue to provide
an adequate level of drinking water over
its estimated useful life;
(B) The primary purpose of the dam
or reservoir is for drinking water supply;
(C) The project is needed for the
provision of drinking water supply,
with need assessed as of the time the
project is initiated;
(D) The project is designed to support
no more than a reasonable level of
projected increased need, whether due
to population growth or otherwise; and
(E) The project is a cost-effective
means for achieving the desired level of
service.
(vii) Private wells. Rehabilitation of
private wells, testing initiatives to
identify contaminants in private wells,
and treatment activities and remediation
projects that address contamination in
private wells, if the project meets the
requirements of 40 CFR 35.3520 other
than the limitation to certain eligible
systems under 40 CFR 35.3520(a).
(2) Broadband investments—(i)
General. Broadband infrastructure if the
following conditions are met:
(A) The broadband infrastructure is
designed to provide service to
households and businesses with an
identified need, as determined by the
recipient, for such infrastructure;
(B) The broadband infrastructure is
designed to, upon completion:
(1) Reliably meet or exceed
symmetrical 100 Mbps download speed
and upload speeds; or
(2) 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 reliably meeting or
exceeding symmetrical 100 Mbps
download speed and upload speeds:
(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; and
(C) The service provider for a
completed broadband infrastructure
investment project that provides service
to households is required, for as long as
the SLFRF-funded broadband
infrastructure is in use, by the recipient
to:
(1) Participate in the Federal
Communications Commission's
Affordable Connectivity Program (ACP)
through the lifetime of the ACP; or
(2) Otherwise provide access to a
broad -based affordability program to
low-income consumers in the proposed
service area of the broadband
infrastructure that provides benefits to
households commensurate with those
provided under the ACP through the
lifetime of the ACP.
(ii) Cybersecurityinfrastructure
investments. Cybersecurity
infrastructure investments that are
designed to improve the reliability and
resiliency of new and existing
broadband infrastructure. Such
investments may include the addition or
modernization of network security
hardware and software tools designed to
strengthen cybersecurity for the end -
users of these networks.
(f) Meeting the non-federal matching
requirements for Bureau of Reclamation
projects. A recipient may use funds to
meet the non-federal matching
requirements of any authorized Bureau
of Reclamation project.
§ 35.7 Pensions.
A recipient (other than a Tribal
government) may not use funds for
deposit into any pension fund.
§ 35.8 Tax.
(a) Restriction. A State or Territory
shall not use funds to either directly or
indirectly offset a reduction in the net
tax revenue of the State or Territory
resulting from a covered change during
the covered period.
(b) Violation. Treasury will consider a
State or Territory to have used funds to
offset a reduction in net tax revenue if,
during a reporting year:
(1) Covered change. The State or
Territory has made a covered change
that, either based on a reasonable
statistical methodology to isolate the
impact of the covered change in actual
revenue or based on projections that use
reasonable assumptions and do not
incorporate the effects of
macroeconomic growth to reduce or
increase the projected impact of the
covered change, the State or Territory
assesses has had or predicts to have the
effect of reducing tax revenue relative to
current law;
(2) Exceeds the de minimis threshold.
The aggregate amount of the measured
or predicted reductions in tax revenue
caused by covered changes identified
under paragraph (b)(1) of this section, in
the aggregate, exceeds 1 percent of the
State's or Territory's baseline;
(3) Reduction in net tax revenue. The
State or Territory reports a reduction in
net tax revenue, measured as the
difference between actual tax revenue
and the State's or Territory's baseline,
each measured as of the end of the
reporting year; and
(4) Consideration of other changes.
The aggregate amount of measured or
predicted reductions in tax revenue
caused by covered changes is greater
than the sum of the following, in each
case, as calculated for the reporting
year:
(i) The aggregate amount of the
expected increases in tax revenue
caused by one or more covered changes
that, either based on a reasonable
statistical methodology to isolate the
impact of the covered change in actual
revenue or based on projections that use
reasonable assumptions and do not
incorporate the effects of
macroeconomic growth to reduce or
increase the projected impact of the
covered change, the State or Territory
assesses has had or predicts to have the
effect of increasing tax revenue; and
(ii) Reductions in spending, up to the
amount of the State's or Territory's net
reduction in total spending, that are in:
(A) Departments, agencies, or
authorities in which the State or
Territory is not using funds; and
(B) Departments, agencies, or
authorities in which the State or
Territory is using funds, in an amount
equal to the value of the spending cuts
in those departments, agencies, or
authorities, minus funds used.
(c) Amount and revenue reduction
cap. If a State or Territory is considered
to be in violation pursuant to paragraph
(b) of this section, the amount used in
Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations 4453
violation of paragraph (a) of this section
is equal to the lesser of:
(1) The reduction in net tax revenue
of the State or Territory for the reporting
year, measured as the difference
between the State's or Territory's
baseline and its actual tax revenue, each
measured as of the end of the reporting
year; and,
(2) The aggregate amount of the
reductions in tax revenues caused by
covered changes identified in paragraph
(b)(1) of this section, minus the sum of
the amounts in identified in paragraphs
(b)(4)(i) and (ii) of this section.
§ 35.9 Compliance with applicable laws.
A recipient must comply with all
other applicable Federal statutes,
regulations, and executive orders, and a
recipient shall provide for compliance
with the American Rescue Plan Act, this
subpart, and any interpretive guidance
by other parties in any agreements it
enters into with other parties relating to
these funds.
§35.10 Recoupment.
(a) Identification of violations—(1) In
general. Any amount used in violation
of § 35.5, 35.6, or 35.7 may be identified
at any time prior to December 31, 2026.
(2) Annual reporting of amounts of
violations. On an annual basis, a
recipient that is a State or territory must
calculate and report any amounts used
in violation of § 35.8.
(b) Calculation of amounts subject to
recoupment—(1) In general. Except as
provided in paragraph (b)(2) of this
section, the Secretary will calculate any
amounts subject to recoupment
resulting from a violation of § 35.5, 35.6
or 35.7 as the amounts used in violation
of such restrictions.
(2) Violations of § 35.8. The Secretary
will calculate any amounts subject to
recoupment resulting from a violation of
§ 35.8, equal to the lesser of-
(i) The amount set forth in § 35.8(c);
and,
(ii) The amount of funds received by
such recipient.
(c) Initial notice. If the Secretary
calculates an amount subject to
recoupment under paragraph (b) of this
section, Treasury will provide the
recipient an initial written notice of the
amount subject to recoupment along
with an explanation of such amounts.
(d) Request for reconsideration.
Unless the Secretary extends or
accelerates the time period, within 60
calendar days of receipt of an initial
notice of recoupment provided under
paragraph (c) of this section, a recipient
may submit a written request to the
Secretary requesting reconsideration of
any amounts subject to recoupment
under paragraph (b) of this section. To
request reconsideration of any amounts
subject to recoupment, a recipient must
submit to the Secretary a written request
that includes:
(1) An explanation of why the
recipient believes all or some of the
amount should not be subject to
recoupment; and
(2) A discussion of supporting
reasons, along with any additional
information.
(e) Final amount subject to
recoupment. Unless the Secretary
extends or accelerates the time period,
within 60 calendar days of receipt of the
recipient's request for reconsideration
provided pursuant to paragraph (d) of
this section or the expiration of the
period for requesting reconsideration
provided under paragraph (d), the
recipient will be notified of the
Secretary's decision to affirm, withdraw,
or modify the notice of recoupment.
Such notification will include an
explanation of the decision, including
responses to the recipient's supporting
reasons and consideration of additional
information provided. A recipient must
invoke and exhaust the procedures
available under this subpart prior to
seeking judicial review of a decision
under § 35.10.
(f) Repayment of funds. Unless the
Secretary extends or accelerates the time
period, a recipient shall repay to the
Secretary any amounts subject to
recoupment in accordance with
instructions provided by the Secretary:
(1) Within 120 calendar days of
receipt of the notice of recoupment
provided under paragraph (c) of this
section, in the case of a recipient that
does not submit a request for
reconsideration in accordance with the
requirements of paragraph (d) of this
section; or
(2) Within 120 calendar days of
receipt of the Secretary's decision under
paragraph (e) of this section, in the case
of a recipient that submits a request for
reconsideration in accordance with the
requirements of paragraph (d) of this
section.
(g) Other remedial actions. Prior to
seeking recoupment or taking other
appropriate action pursuant to
paragraph (c), (d), (e), or (f) of this
section, the Secretary may notify the
recipient of potential violations and
provide the recipient an opportunity for
informal consultation and remediation.
§ 35.11 Payments to States.
(a) In general. With respect to any
State or Territory that has an
unemployment rate as of the date that
it submits an initial certification for
payment of funds pursuant to section
602(d)(1) of the Social Security Act that
is less than two percentage points above
its unemployment rate in February
2020, the Secretary will withhold 50
percent of the amount of funds allocated
under section 602(b) of the Social
Security Act to such State or territory
until at least May 10, 2022 and not more
than twelve months from the date such
initial certification is provided to the
Secretary.
(b) Payment of withheld amount. In
order to receive the amount withheld
under paragraph (a) of this section, the
State or Territory must submit to the
Secretary the following information:
(1) A certification, in the form
provided by the Secretary, that such
State or Territory requires the payment
to carry out the activities specified in
section 602(c) of the Social Security Act
and will use the payment in compliance
with section 602(c) of the Social
Security Act; and
(2) Any reports required to be filed by
that date pursuant to this part that have
not yet been filed.
§35.12 Distributions to nonentitlement
units of local government and units of
general local government.
(a) Nonentitlement units of local
government. Each State or Territory that
receives a payment from the Secretary
pursuant to section 603(b)(2)(B) of the
Social Security Act shall distribute the
amount of the payment to
nonentitlement units of local
government in such State or Territory in
accordance with the requirements set
forth in section 603(b)(2)(C) of the
Social Security Act and without
offsetting any debt owed by such
nonentitlement units of local
governments against such payments.
(b) Budget cap. A State or Territory
may not make a payment to a
nonentitlement unit of local government
pursuant to section 603(b)(2)(C) of the
Social Security Act and paragraph (a) of
this section in excess of the amount
equal to 75 percent of the most recent
budget for the nonentitlement unit of
local government as of January 27, 2020.
For purposes of this section 35.12, a
nonentitlement unit of local
government's most recent budget shall
mean the nonentitlement unit of local
government's total annual budget,
including both operating and capital
expenditure budgets, in effect as of
January 27, 2020. A State or Territory
shall permit a nonentitlement unit of
local government without a formal
budget as of January 27, 2020, to
provide a certification from an
authorized officer of the nonentitlement
unit of local government of its most
recent annual expenditures as of
4454 Federal Register / Vol. 87, No. 18 / Thursday, January 27, 2022 / Rules and Regulations
January 27, 2020, and a State or
Territory may rely on such certification
for purposes of complying with this
section 35.12.
(c) Units of general local government.
Each State or Territory that receives a
payment from the Secretary pursuant to
section 603(b)(3)(B)(ii) of the Social
Security Act, in the case of an amount
to be paid to a county that is not a unit
of general local government, shall
distribute the amount of the payment to
units of general local government within
such county in accordance with the
requirements set forth in section
603(b)(3)(B)(ii) of the Social Security
Act and without offsetting any debt
owed by such units of general local
government against such payments.
(d) Additional conditions. A State or
Territory may not place additional
conditions or requirements on
distributions to nonentitlement units of
local government or units of general
local government beyond those required
by section 603 of the Social Security Act
or this subpart.
Jacob Leibenluft,
Chief Recovery Officer.
[FR Doc. 2022-00292 Filed 1-26-22; 8:45 am]
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