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Home / Articles / State and Local Fiscal Recovery Funds – Interim Final Rule

State and Local Fiscal Recovery Funds – Interim Final Rule

May 18, 2021


As of May 10, 2021, eligible direct recipients of State and Local Fiscal Recovery Funds (SLFRF) provided through the American Rescue Plan Act (ARPA) of 2021, can log into the Treasury Submission Portal to request funding. Payments to local governments under SLFRF are expected in two tranches: 50% in May 2021 and 50% in May 2022. Funding instructions for non-entitlement local governments (those not included as a direct recipient) are expected to be provided by the U.S. Treasury within the next week.

Use of SLFRF funding provided to local governments is directed toward public health expenditures, addressing negative economic impacts caused by the pandemic, replacing lost revenues by governments, providing premium pay for essential workers, as well as investing in certain infrastructure projects. As a general rule, eligible uses of Coronavirus Relief Fund (CRF) funding is extended to SLFRF with two exceptions: 1) the general eligibility of all public health and safety payroll expenditures has been modified and 2) expenses related to issuance of short-term note (TAN) are deemed ineligible for SLFRF funding. In addition, SLFRF are to be used to cover expenditures incurred March 3, 2021, and after.

While there are some differences between eligible uses of funding under SLFRF compared to the CRF funding, the primary focus remained the same in that eligible disbursements must specifically address services and programs to contain, mitigate or address public health issues caused by the Covid-19 pandemic (see discussions of eligible expenses here). There are two specific differences in eligible uses of SLFRF funding: revenue replacement and infrastructure improvements.

Revenue Replacement

SLFRF funding may be used to address loss of general revenue as a result of the pandemic, to avoid reduction in government services offered to citizens. General revenue, as defined in the Interim Final Rule guidance issued by the Treasury, is determined as follows:

General Revenue Definition

  • Taxes
    • Property, income, sales, etc.
  • Current Charges (1)
      • Facilities operation charges (pools, golf, etc.)
      • Recreational charges (camping, gift shops, etc.)
      • Leases or user fees (stadium, convention centers, etc.)
      • Concession fees associated with facilities
  • Miscellaneous General Revenue

  • Agency and Private Trust Transactions
  • Proceeds from Sale of Debt and/or Investments
  • Refunds or Other Correcting Transactions
  • Federal Funding (direct or passed through)

(1) Government Finance and Employee Classification Manual issued by U.S. Census Bureau

Based on the Interim Final Rule, revenue lost will be calculated in the aggregate (total general revenue for the government) rather than on a source-by-source basis (property tax, sales tax, income tax, etc.). Lost revenue will be calculated at four points in time using the higher of: a) the average annual growth rate over the three full years prior to the pandemic or b) the national average of 4.1 percent, for each period.

ARPA Government

Example of Eligible Lost Revenue Calculation:

Year Ended Projected Revenue (1) Actual Revenue Eligible Lost Revenue
December 31, 2019 N/A $5,000,000 N/A
December 31, 2020 $5,205,000 $4,500,000 $705,000
December 31, 2021 $5,418,405 $4,750,000 $668,405
December 31, 2022 $5,640,560 $5,000,000 $640,560
December 31, 2023 $5,871,823 $5,250,000 $621,823
TOTAL $2,635,788

(1) Base year revenue calculation multiplied by 4.1 percent growth rate, compounded annually.

Generally, lost revenue funding may be expended for general operating and capital costs of a government; however, there are certain exceptions. SLFRF funding may not be utilized for principal and interest on outstanding debt, to replenish rainy day/reserve funds, or payments associated with settlements or judgments. Eligible expenses must be incurred (obligated) by December 31, 2024.

Infrastructure Improvements

SLFRF funding may be used to address certain water, sewer, and broadband infrastructure projects as noted below:

  • Water and sewer projects are aligned with the eligibility requirements of the Clean Water State Revolving Fund (CWSRF) or Drinking Water State Revolving Fund (DWSRF) in that eligible projects support efforts to address climate change, address cybersecurity needs of water and sewer infrastructure, as well as addressing lead levels in existing service lines. The Interim Final Rule provides governments with the flexibility to identify water and sewer infrastructure projects that are of the highest priority for their respective communities.
  • Broadband projects must provide reliable service with minimum speeds of 100 Mbps download and 100 Mbps upload capabilities. If these speeds are not practical, projects must provide reliable service of at least 100 Mbps download speed, at least 20 Mbps upload speed, and be scalable to a minimum of 100 Mbps download speed and 100 Mbps upload speed. In addition to infrastructure, projects to provide household assistance to access internet or digital literacy, as well as modernization of cybersecurity methods and services, are considered eligible uses of funding.

Overarching Ineligible Uses of Funding

The Interim Final Rule provides two instances in which SLFRF funding would be considered an ineligible use of funding:

  1. Funding under this Act may not be used to offset direct or indirect reductions in net tax revenue due to a change in law from March 3, 2021, through the last day of the fiscal year in which SLFRF funding is spent.
  2. Direct deposits to a pension fund for the purpose of reducing an accrued, unfunded liability are not permitted; however, payments associated current, routine payroll-related pension contributions are considered eligible uses of funding.

Finally, it should be noted the funding received from SLFRF may not be used as the local contributions in connection with another federally funded program(s). Contact us with questions.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a Clark Schaefer Hackett professional. Clark Schaefer Hackett will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.


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