Cities and towns can now use up to $10 million of ARP funds towards general government services under a new “standard allowance” for revenue replacement. The update was announced by U.S. Treasury in its State and Local Fiscal Relief Fund (SLFRF) final rule published Jan. 6, 2022.
Please note that recipients must still diligently track and report all ARP expenditures, despite the increased eligibility. Reporting and accounting requirements previously established by Treasury remain in place. Those guidelines can be found in the Reporting Compliance section.
The standard allowance serves as a significant development to one of the ARP’s four eligible spending categories: the replacement of lost revenue due to COVID-19 emergency. Previously, SLFRF recipients needed to calculate revenue loss through a provided formula that compared present economic data with pre-pandemic data. If a revenue shortfall could be proven using that calculation, that amount could then be used flexibly towards general government functions not otherwise eligible under the ARP, such as roads and public safety.
From the SLFRF Interim Rule:
… the Act provide(s) recipients with broad latitude to use the Fiscal Recovery Funds for the provision of government services. Government services can include, but are not limited to, maintenance or pay-go funded building of infrastructure, including roads; modernization of cybersecurity, including hardware, 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. (p60, Interim Rule)
That formula, however, proved restrictive for many municipalities, who found that they could use little or none of their ARP funds towards that spending category. Treasury acknowledged this feedback in the final rule (p240), noting that many comments on the interim rule highlighted the difficulty in applying the formula. The incorporation of the standard allowance removes those difficulties, and provides local governments with a set amount eligible to address revenue replacement, no calculation required.
That formula, however, proved restrictive for many municipalities, who found that they could use little or none of their ARP funds towards that spending category. Treasury acknowledged this feedback in the final rule (p240), noting that many comments on the interim rule highlighted the difficulty in applying the formula. The incorporation of the standard allowance removes those difficulties, and provides local governments with a set amount eligible to address revenue replacement, no calculation required.
From the SLFRF Final Rule:
Recipients may elect a “standard allowance” of $10 million to spend on government services through the period of performance.
Under this option, which is newly offered in the final rule Treasury presumes that up to $10 million in revenue has been lost due to the public health emergency and recipients are permitted to use that amount (not to exceed the award amount) to fund “government services.” … All recipients may elect to use this standard allowance instead of calculating lost revenue using the formula below, including those with total allocations of $10 million or less. Electing the standard allowance does not increase or decrease a recipient’s total allocation. (p9, Overview)
The standard allowance is an alternative to the originally provided formula. Recipients may still choose to apply the formula, should the calculated amount be greater than $10 million.
This update provides significant opportunities for North Carolina local governments. For the more than 500 municipalities receiving $10 million or less, the entirety of their American Rescue Plan funds can now be considered replacement revenue, open to any of the eligibilities allowed under that category.
If you have any questions, please contact us at arp@nclm.org.
