CORONAVIRUS LOCAL FISCAL RECOVERY FUND: 

UPDATE ON INTERPRETATION FOR THE 75 PERCENT BUDGET CAP CALCULATION 

(NONENTITLEMENT UNITS OF LOCAL GOVERNMENT) 

 

U.S. DEPARTMENT OF THE TREASURY 

 

Section 603 of the Social Security Act, as added by the American Rescue Plan Act of 2021 (ARPA), provides 

a cap on payments to NEUs at “75 percent of the most recent budget for the nonentitlement unit of local 

government as of January 27, 2020.” On May 10, 2021, Treasury adopted an Interim Final Rule (IFR) that 

implemented this provision. In the preamble to the IFR and the Guidance on Distribution of Funds to Nonentitlement Units of Local Government (NEU Guidance), Treasury further defined the NEU’s “most recent 

budget” for the purposes of calculating the “75 percent budget cap” under section 603(b)(2)(C)(iii) as the 

NEU’s “annual total operating budget, including general fund and other funds, in effect as of January 27, 

2020,” and encouraged stakeholders to provide input on alternative ways to enforce the 75 percent cap 

while reducing the administrative burden on states and territories. 

Since the release of the IFR and the NEU Guidance, Treasury has received a diverse set of input from state 

and local governments, including those that detailed challenges in implementing the definition given the 

variance in local financial accounting practices. Based on this feedback and to facilitate states’ distribution 

to NEUs, Treasury is updating its guidance to define an NEU’s “most recent budget” as an NEU’s total 

annual budget, including both operating and capital expenditure budgets, in effect as of January 27, 2020. 

For multi-year budgets without year-by-year breakouts, NEUs should report a straight annualized average 

of the multi-year budget. Treasury believes that the updated, more inclusive definition will capture a 

more complete picture of an NEU’s ability to spend ARPA funds and will be more administrable, given the 

wide range of financial accounting practices across local governments. 

Treasury understands that there are additional complexities to operationalizing the budget cap, including 

whether certain types of funds (e.g., enterprise funds) or certain budget line items should be included as 

part of the NEU’s budget. Given the wide range of financial accounting practices across local 

governments, Treasury is providing states with flexibility to provide further guidance to their NEUs 

consistent with Treasury’s updated framework and the state’s applicable established practices. In doing 

so, states should adopt a uniform standard across all NEUs in the state. Treasury will ask states to provide 

a description of their standards in their reports to Treasury.

Each state should communicate to NEUs how this update will be implemented within the state, including 

providing technical assistance to small local governments, if appropriate. As outlined in the NEU 

guidance, NEUs are ultimately responsible for the submission of accurate budget data to the state, 

including any data submitted as a result of this updated guidance. As part of their first report to Treasury, 

NEUs will be required to submit copies of the actual budget documents validating the top-line budget 

total provided to the state.

Treasury understands that some states may have issued NEU payments, begun to collect budget 

information from NEUs, or taken other significant steps to implement the budget cap by the time of this 

revision. These states must provide an option for NEUs that have already submitted budget information 

under the former definition to submit new budget information reflecting the revised definition within a 
reasonable amount of time, and, if applicable, receive an additional payment.1 However, these states may 

choose to complete the initial distribution of payments under the previous cap definition and correct for 

the change in definition (i.e., by collecting updated budget information and issuing top-up payments to 

reflect revised award amounts under the updated cap definition) at a later date, including as part of any 

subsequent distribution of remaining First Tranche funds (as outlined in the NEU guidance) or as part of 

the Second Tranche distributions.

Treasury will not consider a state’s deferral of a top-up payment until the time that the state’s Second 

Tranche distributions are made to constitute a violation of the requirement to make payments of the First 

Tranche within the distribution period outlined in section 603(b)(2)(C)(i). 

1 Since the updated definition is more inclusive than the former definition, states need only provide the option for 

NEUs to come forward with new budget information if they wish to receive an additional “top-up” payment. 

Treasury does not expect states to collect new budget information from NEUs whose allocations were not affected 

by the 75 percent cap, as the collection of updated information will not affect their payment amount. States should 

keep records of all budget submissions for their report to Treasury.