The Latest Round of Coronavirus Recovery Funds: Updated Guidance for Eligible Uses

By Brenda Davitt and Julie Flaten

Last month, we published an article on how the American Rescue Plan Act of 2021 would impact local governments. The details we had at press time were lacking; initial guidance surrounding the $1.9 trillion economic stimulus bill, signed into law by President Biden on March 11, was vague at best. That said, one thing was clear: help was on the way for cities across the U.S.—in the form of $130 billion for local governments.

First Recovery Funds to the rescue

The relief package’s initial guidance outlined the monies (i.e., First Recovery Funds) cities could expect to receive as well as a timeline for distribution. Generally, the guidance stated cities should use monies to stabilize their operating budgets in the following situations:

• 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.
• To respond to workers performing essential work during the COVID-19 public health emergency by providing premium pay to eligible workers.
• 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.
• To make necessary investments in water, sewer, or broadband infrastructure.

Guidance for specific eligible uses, however, was unclear. To clarify, the U.S. Treasury recently released additional guidance. Given that it weighs in at no fewer than 150 pages, it can be difficult to decipher!

To help you understand eligible uses for your city’s First Recovery Funds, here’s an overview of what the updated guidance entails.

Eligible uses for First Recovery Funds

“To respond to the public health emergency or its negative economic impacts…”

• COVID-19 mitigation and prevention
  • Vaccination programs, medical care, testing enforcement of public health order, public communication efforts, purchase of PPE.
  • Support for prevention, mitigation, or other services in congregate living facilities, and schools.
  • Ventilation improvements in congregate settings and any other capital investments in public facilities to meet pandemic operation needs.
• Medical expenses
• Behavioral health care
  • Mental health treatment, substance misuse treatment, hotlines, crisis intervention, overdose prevention, infectious disease prevention.
  • Services or outreach to promote access to physical or behavioral health primary care and preventative medicine.
• Payroll for public safety employees
  • Presumption that all time is eligible if employee or department is primarily devoted to responding to the COVID-19 emergency.
  • Time tracking is not necessary.
  • Periodically reassess to demonstrate work on COVID-19 response.
• Expenses to improve public health programs to address the pandemic
  • Targeted customer outreach, improvements to data or technology infrastructure, impact evaluations, data analysis.
  • Services to connect residents with health care resources and public assistance programs and to build healthier environments.
• Responding to negative economic impacts
  • Assistance to households to include the following:
    • Food, rent, mortgage, utility assistance, or legal counseling to prevent eviction or homelessness.
    • Cash assistance to households that have experienced unemployment, increased food or housing insecurity, or low or moderate income. Amount per person equal to per capita amounts provided by federal government assistance.
    • Survivor benefits to family members of COVID-19 victims.
  • Governments can use funds to cover payroll/benefit costs to rehire staff up to pre-pandemic level, including all benefits (PERA).
  • Assistance for small businesses and nonprofits to include the following:
    • Loans or grants for declines in revenues, payroll/benefit support, mortgage, rent, and operating costs.
  • Assistance for hard-hit industries (tourism, travel, hospitality):
    • Planned expansion that was delayed.
    • Funds to facilitate safe re-opening.
    • Funds provided in this category must be publicly reported.
• Housing and neighborhoods
  • Services to address homelessness.
  • Affordable housing development.
  • Housing vouchers and counseling for low-income residents.
  • Facilitating access to resources that improve health outcomes, such as:
    • Housing services the support healthy living environments.
    • Remediation of lead paint.
    • Evidence-based community violence intervention programs to prevent violence.
• Addressing educational disparities
  • Expanded or enhanced early learning services.
  • Providing assistance to high-poverty school districts.
  • Educational services to address academic needs of students.

“To respond to workers performing essential work…”

• Premium pay for essential workers (critical to protecting the health and well-being of others)
  • Up to $13 an hour with an annual cap of $25,000 per worker or grants to third-party employers with eligible workers performing essential work.
  • Focus on low-income professions.
  • Worker’s total pay cannot be increased to above 150 percent of MN’s average annual wage for all occupations (MN = $58,720 x 150% = $88,080) or by county.
  • May be retroactive back to start of COVID-19 emergency.
  • Must be added to regular rate of pay.

“For the provision of government services to the extent of the reduction in revenue…”

• General revenue replacement
  • If reduction was due to the COVID-19 public health emergency relative to revenues collected in the most recent full fiscal year prior to the emergency, then use 4.1% inflator or average annual fiscal growth over three full fiscal years prior to COVID-19 emergency, whichever is greater.
  • Revenue declines may not have been caused by the COVID-19 pandemic, but to assist with the administrative burden, all declines will be presumed to have been due to the COVID-19 emergency.
  • Reference year-ends (December 31) 2020 through 2023.
  • Does not include refunds, correcting transactions, proceeds from issuance of debt or sale of investments, or agency or private trust transactions.
  • Does not include revenue generated by utilities and insurance trusts.
  • Does not include federal intergovernmental transfers, but state and local transfers are included.
  • Revenue included must be used to support government services.
  • Loss revenue cannot be used for the following:
    • Directly or indirectly offsetting tax reductions or delaying a tax or tax increase resulting from a change in law, regulation, or administrative interpretation.
      • Annual reporting required to prove funds were not used to offset a reduction in next tax revenue.
    • Deposit into pension fund.
    • Contingency/rainy day funds/replenishing reserves.
    • Payment of outstanding debt or for settlements.

“To make necessary investments in water, sewer, or broadband infrastructure.”

• Investments in water, sewer, or broadband infrastructure
  • Eligible funding is aligned with services that qualify to receive financial services through the Environmental Protection Agency’s (EPA’s) Clean Water State Revolving Fund (CWSRF) or Drinking Water State Revolving Fund (DWSRF).
  • These would be to construct, improve, or repair to ensure compliance with wastewater and drinking water standards, manage and treat stormwater, cybersecurity for infrastructure, or green initiatives (e.g., rain gardens).
  • Broadband projects should have service reliably that meets or exceeds identified speeds.

First Recovery Funds may not be used for the following:

• Depositing into pension funds.
• Offsetting a reduction in net tax revenue.
• As a non-federal match for other federal programs.
• Contingency or rainy-day funds, or to replenish reserves.
• Payment of outstanding debt.

Transfers of First Recovery Funds

• Transfers to nonprofit organizations, public benefit corporations, or special purpose units of government, state and tribal organizations are permitted.
• If transfer to a qualifying organization (subrecipient), the city is responsible for monitoring and reporting on the subrecipients use of funds.

Allocations of First Recovery Funds to Nonentitlement Units of Government (NEU)

• NEUs are local governments with populations below 50,000 that have not received direct fiscal relief from the federal government.
• Distributions should be based on population.
• Not considered a reimbursable grant, meaning costs must first be incurred by NEU before funds are received.
• Distributions may not exceed 75% of the NEU’s most recent operating budget.

Reporting of First Recovery Funds

• Nonentitlement cities (populations under 50,000) will be required to submit annual project and expenditure reports until the end of the award period on December 31, 2026.
  • The initial report will be from the date of award to September 31, 2021. The initial report is due on October 31, 2021, and on October 31 each year thereafter.
• Cities with populations of more than 50,000 will be required to submit one interim report and thereafter quarterly project and expenditure reports through December 31, 2026. The interim report covers the date of award to July 31, 2021, and is due on August 31, 2021. Quarterly reports will be due in 2021 beginning on October 31.
• All reports are due to the U.S. Treasury.

How can your city use its First Recovery Funds?

As you can see, the updated guidance on First Recovery Funds is quite extensive. The list of eligible uses I’ve included in this overview is not exhaustive; the official guidance, which can be found here, is much more detailed. At AEM, we’ve been following these updates closely and are familiar with the details. If you have questions about how to use your city’s First Recovery Funds, we can help. Contact us today!