Guest Blog: Securing the Highest and Best Uses of State and Local Fiscal Recovery Fund Allocations

While some jurisdictions moved quickly to deploy their SLFRF funds, many others have opted for a “go slow” approach. The reasons for such cautious rollouts vary, but many jurisdictions cite uncertainty about SLFRF policy and requirements as a significant brake on implementation.  

About two months after ARPA’s enactment, the Treasury Department issued an interim final rule to guide SLFRF recipients—along with an extensive set of FAQs. Despite Treasury’s repeated urgings for recipients to move forward quickly to use SLFRF allocations, many held back in anticipation of more concrete guidance. SLFRF recipients have until December 31, 2024, to incur obligations with their awards and until December 31, 2026, to liquidate those obligations. 

Treasury’s SLFRF final rule, issued on January 6, 2022, provides recipients with the assurance necessary to more aggressively put these funds to work in communities. Importantly, the final rule provided recipients with additional flexibility by: 

• Establishing a standard $10 million allowance for lost public sector revenue 
• Explicitly permitting SLFRF funds’ use as the non-federal match for other federal programs (excluding Medicaid and CHIP) under the revenue loss provision 
• Expanding ability to respond to public health and negative economic impacts by broadening the types of households that can be assisted 
• Broadening capital expenditure opportunities that support eligible COVID-19 public health or economic responses

The final rule will take effect on April 1, 2022, but recipients can take significant steps now to position themselves for the next stage of SLFRF implementation. Treasury has prepared an Overview of the Final Rule which is useful in understanding the department’s goals for the SLFRF.  

Moving forward, a remaining challenge for SLFRF recipients will be how to leverage these funds in conjunction with the vast amount of other federal financial assistance that has flowed to the state and local level over the past two years. The funding streams emanating from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Consolidated Appropriations Act of 2021, ARPA, and the Infrastructure Investment and Jobs Act (IIJA) have created a federal funding puzzle for public officials. Local jurisdictions are faced with attempting to identify the best funding source for any need, determining how to access those funds, and ultimately addressing recovery needs that provide the greatest return for the public.  

In most jurisdictions, management of COVID-recovery funding is dispersed across various agencies with varying levels of coordination. Where this situation is present, there is a significant opportunity for state and local governments to effectively manage these resources through establishment of a program management office (PMO) that has the capability to understand the complete COVID-19 funding landscape and make strong recommendations to decision-makers on “highest and best” use of various funding streams in support of specific projects.  

The broadened uses of SLFRF funds, as presented by the final rule, creates a situation where a disciplined approach is likely to yield multiple dividends for both short- and long-term recovery. The establishment by recipients of a strong PMO and its use to coordinate funding not only improves outcomes but can also help effectively layer investments to achieve the maximum return on public dollars.  

The PMO approach can also assist recipients in addressing compliance and reporting responsibilities under the SLFRF. Last November, Treasury released full SLFRF compliance and reporting guidance with which recipients must comply. While the requirements are not overly complex, recipients must still adhere closely to the Treasury guidance.  

Regarding compliance, the most significant points are likely to be related to justifying activities as eligible for SLFRF assistance and ensuring implementation consistent with the uniform federal assistance requirements of 2 CFR 200. Further, it is Treasury’s clear expectation that recipients will undertake broad data collection efforts as outlined in the Treasury guidance. Centralized administrative and data collection processes under the direction of a PMO can provide the assurance that Treasury’s requirements are being met, that sub-recipients are collecting data in a uniform manner, and that the recipient is positioned to meet reporting deadlines.  

A related COVID-19 recovery consideration is the ability of state and local governments to recover costs from FEMA under its Public Assistance (PA) program. Many jurisdictions have not maximized their cost recovery under Category B (Emergency Measures) of the PA program for qualifying pandemic-related expenses incurred since the onset of the pandemic in 2020. On March 1, 2022, President Biden extended the window for FEMA’s 100% reimbursement of COVID-related Category B costs through July 1, 2022. After that date, the federal cost share will be reduced to 90% so state and local governments must act quickly to maximize the cost recovery opportunity if they have not been actively pursuing reimbursement. Again, a PMO can help to organize and maximize this cost recovery effort before the opportunity goes away.

The use of COVID-19 recovery funds by states and local governments will continue for several years to come. Given the unprecedented level of federal funding directed to this purpose, and additional federal funding coming under IIJA, officials responsible for overseeing the use of these funds owe it to the public (and themselves) to make effective use of these resources, as they are unlikely to be available again anytime in the foreseeable future. Planning and organization will be at the heart of the most successful recoveries and a few simple moves can help ensure that the public realizes a hard-earned benefit.   

 

Stan Gimont is a Senior Advisor for Community Recovery with Hagerty Consulting. Stan joined Hagerty after 32 years of service with HUD and is a member of BPC’s disaster response reform task force.