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CORONAVIRUS LOCAL FISCAL RECOVERY FUND: 

GUIDANCE ON DISTRIBUTION OF FUNDS TO NON-ENTITLEMENT UNITS OF LOCAL GOVERNMENT 

 

U.S. DEPARTMENT OF THE TREASURY 

The American Rescue Plan Act of 2021 (ARPA) appropriates $19.53 billion to States for distribution to tens 

of thousands of “non-entitlement units of local government” (NEUs). ARPA directs the Department of the 

Treasury (Treasury) to make payments to each State for distribution to NEUs within the State. Treasury is 

providing the following guidance to assist States with their distribution of these funds to NEUs.

Statutory Overview

Sections 602 and 603 of the Social Security Act (the Act), as added by section 9901 of ARPA, establish the 

Coronavirus State Fiscal Recovery Fund (State Fiscal Recovery Fund) and Coronavirus Local Fiscal 

Recovery Fund (Local Fiscal Recovery Fund), respectively, which provide significant funding to help states 

and localities address the economic and health consequences of the pandemic. Sections 602 and 603 of 

the Act provide for Treasury to make payments directly to States, territories, Tribal governments, and 

various local governments, including counties and cities designated as metropolitan cities. In recognition 

of the significant differences across States in the ways that local governments are organized and the 

extent of the services they provide to their populations, Congress also provided for Treasury to make 

payments to the States to allocate and make this funding available to smaller units of general local 

governments, NEUs. 

A State is required to allocate and distribute the Local Fiscal Recovery Fund payment received from 

Treasury to each NEU in the State an amount that bears the same proportion to the amount of such 

payment as the population of the NEU bears to the total population of all the NEUs in the State.1

 

However, the total amount to be distributed to an NEU may not exceed the amount equal to 75 percent 

of its most recent budget as of January 27, 2020.

2 Each State has 30 days to distribute these funds to 

NEUs, but Treasury may provide extensions of this deadline, as outlined below. 

Treasury will make payments to States from the Local Fiscal Recovery Fund for distribution to NEUs in two 

tranches, with the Second Tranche payment to be made no earlier than 12 months after the date on 

which the First Tranche payment is paid to the State.

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Prior to Distribution 

 

Before distributing funds to NEUs, States will need to request payment from Treasury, identify eligible 

NEUs within their State, calculate allocations, and collect certain documents from NEUs. 

• Request the State’s payment from Treasury. A State’s submission of a request for payment from 

the State Fiscal Recovery Fund under section 602 of the Act will suffice for Treasury to initiate 

payment to the State from the Local Fiscal Recovery Fund for distribution to the State’s NEUs.

Payment of this amount will be made to the bank account designated by the State with respect to 

the State Fiscal Recovery Fund.

1 See Section 603(b)(2)(C)(i) of the Act. 2 See Section 603(b)(2)(C)(iii) of the Act. 3 See Section 603(b)(7) of the Act.
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Aggregate NEU allocations to each State can be found on treasury.gov/SLFRP, along with the 

allocation methodology.

• Identify eligible NEUs. States should identify eligible NEUs by following these guidelines: 

o Treasury has provided on its website a list with names and population estimates for each 

local government (List), categorized by State, based on data from the Bureau of the

Census (Census Bureau) with some clarifications by Treasury.

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o The List includes both “incorporated places” and “minor civil divisions” (MCDs). 

o All incorporated places on the List are eligible for payment.

o MCDs serve as the primary subdivisions of a county in some States and are commonly 

known as towns (in New England, New York, and Wisconsin), townships, and districts.5 In 

12 States—referred to by the Census Bureau as “strong-MCD” States—these MCDs 

generally perform a wide set of general purpose local government functions. In eight 

other States—referred to by the Census Bureau as “weak-MCD” States—the MCDs 

generally play less of a governmental role but are still active governmental units. The 

other 30 States do not have governmentally functioning MCDs.

o States should approach the eligibility of their incorporated places and MCDs on the List as 

follows:

 For the 12 strong-MCD States6 and 30 States without governmentally functioning 

MCDs, a State should consider all the local governments on the List as eligible for 

payment.

 For the eight weak-MCD States,

7 a State should consider all incorporated places 

on the List as eligible for payment.

In order to determine the eligibility of its MCDs, the State should undertake a 

facts-and-circumstances test to determine whether the MCD has the legal and 

operational capacity to accept ARPA funds and provides a broad range of services 

that would constitute eligible uses under ARPA. States should consider specific 

authorities and the size and composition of the budgets of these MCDs in making 

4 Treasury’s compilation of the List, along with its broader definitional and data methodology, can be found on the 

Treasury website. For ease of use, Treasury is also providing a list of local governments excluding weak MCDs for the 

eight weak-MCD States. 5 The MCDs function as active governmentally functioning units in all or part of 20 States: Connecticut, Illinois, 

Indiana, Kansas, Maine, Massachusetts, Michigan, Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, 

New York, North Dakota, Ohio, Pennsylvania, Rhode Island, South Dakota, Vermont, and Wisconsin. 6 These States are Connecticut, Maine, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New 

York, Pennsylvania, Rhode Island, Vermont, and Wisconsin.

7 These States are Illinois, Indiana, Kansas, Missouri, Nebraska, North Dakota, Ohio, and South Dakota. 
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this determination. MCDs in these States that lack the capacity or do not provide 

the broad range of services that would constitute eligible uses under ARPA 

should not be eligible for a NEU distribution. States may categorically exclude all 

weak MCDs if none of them provide the relevant types of services. Treasury will

defer to the States’ determination in this regard given their superior 

understanding of the particularities of their local governments’ authorities and 

operations. 

Before making initial distributions to NEUs, each weak-MCD State should identify on the 

State’s website the names of MCDs that the State removed, accompanied by an 

explanation of the State’s determination. 

As stated above, strong-MCD States and States without governmentally functioning 

MCDs should not undergo this facts-and-circumstance test. In addition, weak-MCD States 

should not undergo a facts-and-circumstances test with respect to their incorporated 

places. 

• Calculate initial allocations.

o As stated above, ARPA requires States’ allocations to NEUs to be based on the proportion 

of the population in the NEU as a share of the total population of all NEUs in the State. 

This requirement can be represented by the following formula:

TTTTTTTTTT pp pppp pp pp oo hee NNNNNN

TTTTTTTTTT pp pppp pp pp oo ee ee ee ee NNNNNNNN

× AA AA NNNNNN pp pppp pp

o States must use the population counts in the List, since these reflect the most recent 

data available from the Census Bureau.8

o In some States, the boundaries of some NEUs overlap with or encompass other NEUs 

within the State, typically resulting in overlapping populations between the larger 

“parent” NEU and the subsidiary NEU.

9 An example is a township that encompasses a 

city. States have the discretion to divide the population of overlapping NEUs in a number 

of ways for the purpose of the allocation, but Treasury suggests consideration of the 

following:

 The default approach is for the subsidiary NEU’s population to be subtracted 

from the larger “parent” NEU for purposes of this allocation. For ease of use, the 

8 See Section 603(b)(6) of the Act. For the few entities with no population data provided by the Census Bureau, 

States should use data as a State determines appropriate. 

9 These overlapping jurisdictions generally occur in the 20 States with active governmentally functioning 

incorporated places and MCDs.
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List reflects this default approach by providing the net population of the “parent” 

NEU excluding the population of all its subsidiary components.10

 Alternatively, States may decide to allocate a different split of the overlapping 

population between NEUs (e.g., 50-50 split for two overlapping NEUs). This 

decision should be made based on a facts-and-circumstances test that considers 

the extent to which the NEU provides services that would constitute eligible uses 

under the Local Fiscal Recovery Fund, including considering the size and 

composition of the NEU’s budget. States should not allocate the entire 

overlapping population to the larger “parent” NEU.

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 Double counting when determining NEU allocations is inadvisable. 

• Establish a process for NEUs to submit requests for payment. States should establish a process 

that will allow NEUs to provide information and documentation necessary to disburse funds to 

NEUs. The information and documentation collected by the State prior to initiating payment must 

include the following:

o Local government name, Entity’s Taxpayer Identification Number, DUNS number, and 

address

o Authorized representative name, title, and email

o Contact person name, title, phone, and email

o Financial institution information (e.g., routing and account number, financial institution 

name and contact information)

o Total NEU budget (defined as the total annual budget, including both operating and 

capital expenditure budgets, in effect as of January 27, 2020) or top-line expenditure 

total (in exceptional cases in which the NEU does not adopt a formal budget)

o Award terms and conditions agreement (as provided by Treasury to be signed)

o Assurances of compliance with Title VI of the Civil Rights Act of 1964 (as provided by 

Treasury to be signed) 

• Receive requests for payment from NEUs. States should receive and process requests for 

distribution from NEUs that include the information and documentation indicated above. The 

State must confirm the NEU is not excluded or disqualified in compliance with 2 C.F.R. Part 180 

and Treasury’s implementing regulation at 31 C.F.R. Part 19. States should advise the NEU to 

retain a copy of its award agreements for upload with the NEU’s first report to Treasury due 

October 31, 2021. Pursuant to 2 C.F.R. Part 25, States should advise the NEU to register in 

SAM.gov as soon as possible after receiving the award if the NEU is not already registered.

10 For consolidated NEU governments, the full populations of the local government may be listed twice. However, 

States are advised not to double count the population but rather to allocate a split between the two governments

based on the facts-and-circumstances test outlined. For consolidated NEU-metropolitan city governments, States

similarly may exercise discretion with respect to the population to allocate to the NEU. As a reminder, metropolitan 

cities are paid directly by Treasury through a different allocation. 

11 See section 603(b)(4) of the Act.
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As part of this process, States should assign each NEU a unique “NEU Recipient Number” starting 

with the two letter State abbreviation followed by four numeric digits (e.g., AZ0231). States 

should advise the NEU to retain this NEU Recipient Number as an identifying number for the 

lifecycle of the program, including for reporting purposes.

• Determine whether the “75 percent cap” applies. Section 603(b)(2)(C)(iii) of the Act and the 

Interim Final Rule (IFR) provide that each NEU’s total award (i.e., the total of distributions under

both the First and Second Tranche) is capped at 75 percent of its total annual budget, including 

both operating and capital expenditure budgets, in effect as of January 27, 2020 (“reference 

budget”). This involves several steps:

o Receive a budget total. As part of the request for payment, NEUs should submit a top-line 

total of the NEU’s reference budget, certified by an authorized representative of the 

NEU. If a NEU does not adopt a formal budget, States should allow the NEU to certify its 

most recent annual total expenditures as of January 27, 2020 in lieu of the NEU’s budget 

total. States should advise the NEU that these numbers may be verified against a copy of 

the appropriate budget documents submitted in the NEU’s first report to Treasury. 

o Compare budget total with allocation. States should compare the total allocation to the 

NEU (across distributions under both the First and Second Tranches) against the NEU’s 

reference budget. 

o Return funds to Treasury, if applicable. If an NEU’s total allocation is found to be more 

than 75 percent of the NEU’s reference budget, the State must return the amount of the 

allocation in excess of the NEU’s reference budget to Treasury. For example, if Town A is 

allocated $100,000 and its reference budget totaled $100,000, Town A would be entitled 

to a total distribution of $75,000. ARPA requires the State to return $25,000 in total to 

Treasury. Because payments are made by Treasury in two tranches and distributed by 

States in at least two distributions, the State would pay $37,500 to Town A in the first 

distribution and the State would return $12,500 to Treasury from the First Tranche 

amount. States should wait to return these funds to Treasury until after submitting their

interim report due August 31, 2021 (detailed below).

• Process requests to transfer to the State. If a State receives notification from an NEU that it 

would like to decline its funding allocation and transfer funds to the State under Section 603(c)(4)

of the Act, Treasury will consider this action as a cancellation of the award on the part of the 

eligible NEU and a modification of the award to the State. A State will not be required to transfer 

the amount of the payment to the NEU just for the NEU to transfer it back to the State. As part of 

this process, the NEU must provide a signed notice to the State, which the State must transmit to 

Treasury as part of its interim report due August 31, 2021 (or as part of a subsequent report, if 

applicable). If the NEU does not provide such notice, it will remain legally obligated under the 

award with respect to accounting for the uses of the funds and the reporting on such uses. 

Treasury will provide a standard notice form that will be required for this use.

Initial Distribution from First Tranche Amount 
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ARPA provides that States must make an initial distribution of funds to NEUs no later than 30 days after 

receiving a payment from Treasury for purpose of distribution to NEUs, unless the State requests and 

receives an extension. There are several steps that States should take in this phase:

• Disburse the initial distribution of payments. States should disburse the initial distribution of 

payments to the NEUs based on the allocations calculated in accordance with the process 

outlined above.

Under the IFR, States may not impose additional conditions or requirements on distributions to 

NEUs, beyond those permitted by ARPA, the IFR, and Treasury’s guidance. For example, States

may not impose stricter limitations than permitted by statute or Treasury regulations or guidance 

on an NEU’s use of funds based on the NEU’s proposed spending plan or other policies. States are 

also not permitted to offset any debt owed by the NEU against the NEU’s distribution. Further, 

States may not provide funding to NEUs on a reimbursement basis.

• Record key information for reporting purposes. States should keep records of amounts allocated 

and, separately, amounts paid to each NEU. States will be required to submit information on their 

NEU disbursements with their interim report on the State Fiscal Recovery Fund program. 

• Provide guidance to NEUs on their requirements to Treasury. States should direct NEUs to 

section 603 of the Act, the IFR, and this guidance, along with documents on the Treasury website, 

which include fact sheets and regularly updated FAQs. 

• Apply for extensions, if necessary. If a State submits a certification in writing that it faces an 

excessive administrative burden in distributing funds to an NEU and requests an extension, in 

accordance with Section 603(b)(2)(C)(ii)(I) of the Act, Treasury will grant the State a 30-day 

extension of the deadline for distributing funds. Treasury may grant requests from States for 

further extensions. More information will be forthcoming on the extensions process.

Subsequent Distribution from First Tranche Amount 

 

If a State has made reasonable efforts to contact an NEU that remains unresponsive (i.e., the NEU has

neither requested funding nor declined its allocation and requested a transfer to the State), the State 

may issue a subsequent distribution of the funds that had been allocated to such non-responsive NEUs 

among residual NEUs (defined below). If a State provides for such a subsequent distribution, the State 

should follow the steps below:

• Gather required information. States should identify the amount of remaining funds, which is the 

amounts allocated to NEUs that have been non-responsive (“remaining funds”). States should 

also identify NEUs whose initial allocation was below the 75 percent budget cap and which either 

(1) requested funding for itself or (2) declined funding for itself and requested a transfer to the 

State under Section 603(c)(4) (“residual NEUs”).

• Allocate remaining funds. States should allocate remaining funds among residual NEUs according 

to the formula below.

TTTTTTTTTT pp oo hee rr NNNNNN

TTTTTTTTTT pp pppp pp pp oo rr NNNNNNNN

× RR NNNNNN aa
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• Apply the 75 percent budget cap. Residual NEUs may only receive payments (across both First 

and Second Tranches, inclusive of distributions from remaining funds) up to the 75 percent 

budget cap, as described above. Amounts allocated to residual NEUs in excess of their 75 percent 

budget cap must be returned to Treasury. The excess amounts from the First Tranche should be 

returned in the post-distribution phase (as detailed below). 

• Disburse the subsequent distribution. States should make the subsequent distribution to NEUs 

after allocating the remaining funds. As discussed above, States are prohibited from putting 

conditions or requirements on these distributions beyond those permitted by ARPA, the IFR, and 

Treasury’s guidance. 

• Record key information for reporting purposes. States should keep records of which residual 

NEUs received a subsequent allocation and distribution, and the amount of the subsequent 

allocation and distribution. States will be required to submit information on their subsequent 

distribution with their periodic reports to Treasury on the State Fiscal Recovery Fund program. 

Post-Distribution 

States will be asked to submit information on their allocations and distributions to NEUs with their 

periodic reports to Treasury under the State Fiscal Recovery Fund program, including the interim report 

on August 31, 2021. NEUs are also required to submit periodic reports to Treasury on their use of funds. 

• Submit an interim report (August 2021). As part of the interim report required to be submitted to 

Treasury by August 31, 2021, which is a requirement under ARPA and the IFR, each State will be 

asked to provide an update on distributions to individual NEUs, including whether the NEU has (1) 

received funding; (2) declined funding and requested a transfer to the State under Section 

603(c)(4) of the Act; and (3) not taken action on its funding. States should be prepared to report 

on their information, including the following:

o NEU name

o NEU DUNS number

o NEU address

o NEU email address

o NEU Recipient Number (a unique identification code for each NEU assigned by the State 

to the NEU as part of the request for funding)

o Initial allocation and, if applicable, subsequent allocation to the NEU (before application 

of the 75 percent cap)

o Total NEU budget (as submitted by the NEU to the State as part of the request for 

funding)

o Amount of the initial and, if applicable, subsequent allocation above 75 percent of the 

NEU’s reference budget which will be returned to Treasury

o Payment amount(s)

o Payment date(s)

For each eligible NEU that declined funding and requested a transfer to the State under Section 

603(c)(4) of the Act, the State must also attach a form signed by the NEU, as detailed above.
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Weak-MCD States should also list NEUs that the State deemed ineligible.

• Submit a first quarterly report (October 2021). As part of the first quarterly report required to be 

submitted to Treasury by October 31, 2021, which is a requirement under ARPA and the IFR, each 

State will be asked to provide information on subsequent distributions to NEUs, if applicable.

• Return excess amounts (August-October 2021). States should arrange with Treasury to return 

excess amounts that were not distributed to the NEUs. Treasury will provide instructions to 

States on the return of funds. 

• Provide guidance to NEUs on their reporting requirements to Treasury (October 2021). As prime 

recipients of a Federal award, NEUs are required to report to Treasury on the use of funds. States 

should ensure each NEU has the reporting guidance provided by Treasury, which is forthcoming.

NEUs’ first report is due to Treasury by October 31, 2021. In addition to other reporting 

requirements, NEUs will be asked to provide:

o NEU Recipient Number (a unique identification code for each NEU assigned by the State 

to the NEU as part of the request for funding)

o Copy of signed award terms and conditions agreement

o Copy of signed assurances of compliance with Title VI of the Civil Rights Act of 1964 

o Copy of actual budget documents validating the top-line budget total provided to the 

State as part of the request for funding 

• Await Second Tranche amount (Spring-Summer 2022). Treasury will distribute the Second 

Tranche of payments to States for distribution to NEUs no earlier than 12 months after the date 

on which the First Tranche of payments is paid to the State. More information will be 

forthcoming closer to the date.

Additionally, States may be asked to facilitate Treasury’s communications with NEUs, particularly 

distributing information on NEUs’ use of funds and reporting requirements. 

Update (6/30/2021): Treasury updated its guidance on the 75 percent budget cap calculation, consistent 

with additional Treasury guidance issued on June 30, 2021, and provided a clarification on recipients of 

the subsequent distribution.